How to finance a luxury car

Luxury car financing in Canada is very similar to getting a regular car loan — but the numbers are bigger. To qualify for a loan of this size, you would need to prove that you can afford the monthly repayments. Banks, credit unions, alternative lenders and car dealerships offer loans to potential buyers, so keep reading to find out how to finance a luxury car.

How to finance a luxury car

A luxury car loan works the same as a regular car loan but you’ll be committing to a larger amount of money — most luxury cars start upwards of $40,000. A loan of this size is a serious undertaking, and you should make sure your budget can handle the monthly payments before you start browsing lenders.

Fortunately, there are plenty of loan options out there. Whether you’re seeking a secured or unsecured loan or a loan with a fixed or variable interest rate, you can find luxury car loans that suit your needs.

Where can I get luxury car financing?

Banks

Many of the big banks in Canada have loan options available for luxury purchases. Scotiabank car loans have loan amounts up to $200,000. Having a history with the bank and proof that you’re able to pay back the loan is integral to being approved though.

Banks typically charge around 5% interest rates for car loans.

Credit unions

Credit unions offer car loans to customers in most of Canada. Coast Capital has no maximum loan amount, which helps when you’re looking for a larger amount for your new wheels.

Credit unions usually charge between 3% and 8% for interest rates.

Dealers

Some dealers offer financing themselves, and oftentimes partner with other lenders such as major banks. RBC offers financing at more than 4,500 dealerships across Canada, with options for monthly, semi-monthly, bi-weekly or weekly payments and terms between 1 and 8 years.

Dealers usually charge between 2% and 10% interest, depending on the specifics of your loan. You can also get 0% car financing, but this offer has its share of drawbacks.

Alternative lenders

Alternative lenders, that is lenders that aren’t banks or dealerships, are also an option when looking for a luxury car loan. Companies such as Canada Drives help Canadians find the best car loan possible, even if they’ve already been rejected by the dealership or bank.

Interest rates can vary for alternative lenders, usually anywhere between 2% and 40%.

How to compare luxury car loans

Beyond loan term, fees and repayment options, you’ll want to keep an eye out for loans that have these features:

• Fixed or variable rate. Would you prefer a stable monthly payment, or are you willing to take a gamble on a fluctuating interest rate that could be lower down the road?
• Secured or unsecured. Do you want to use your new luxury car as collateral to get a lower rate, as would be the case with a secured loan? Or are you okay with paying a little extra to avoid losing your exotic wheels, as would be the case with an unsecured loan?
• Flexibility. Look for a lender that allows you to pay off your loan early without any penalties and that has a really good reputation for providing top-notch customer service.

Secured vs unsecured luxury car loans

The biggest difference between a secured loan and an unsecured loan is that a secured loan requires you to provide collateral to the lender. Secured loans for exotic car financing usually have better rates since lenders have something to recoup their losses on if you can’t pay them back.

Unsecured loans don’t require collateral but can come with higher interest rates and fees. The upside to that is you, as the borrower, don’t risk losing any collateral if you miss payments.

Most car loans in Canada are secured, but it is possible to find a lender willing to provide an unsecured car loan.

How much is a down payment on a luxury car?

A down payment on a standard car usually starts around 10% and goes up from there. If you plan on reselling the car in a few years, you should consider a higher down payment, say 20%, to get the vehicle paid off faster.

Luxury cars tend to depreciate faster than a “normal” car, so getting it paid off faster could benefit you in the long run.

4 mistakes to avoid

• Small down payments. A hefty down payment helps reduce the cost of the loan and lower your monthly payments. Paying more upfront will save you a lot of interest fees down the road.
• Adding one-time costs into the loan. Some lenders might let you include the taxes and cost of vehicle registration in your loan, but remember — anything added to your loan balance will increase the interest you have to pay.
• Not comparing your options. A luxury car should not be a spur-of-the-moment purchase. Take your time to review your loan options and your financial situation to be sure you can handle the payment schedule.
• Long terms. Unless you’re buying your car as an investment, going for an extra-long term means you’ll pay a lot more in interest.

How to apply for luxury car financing in Canada

All lenders will require different information when you apply for a loan, but here is some of the information you’ll most likely need to provide.

• Personal information, including your name, Social Insurance Number and proof of identity
• Employment information, including your income, your employer, the length of your employment and Notices of Assessment from the current and previous tax years
• Financial information, including your assets, credits, and debts and liabilities
• Vehicle information, including make, model, condition and price (this can be obtained from your dealership)
• Business information if the car is being purchased by a business

Since you’re borrowing a large amount, your credit score needs to be high with a near-perfect payment history. Lenders are unlikely to extend a loan to someone whose score and history don’t reflect upstanding financial decisions.

Can I qualify?

It depends on your lender but generally you must:

• Have good or excellent credit. If you want an unsecured loan, you’ll likely need to have near-perfect credit to be eligible for a large enough loan to buy a luxury vehicle.
• Have a low debt-to-income ratio (DTI). You generally can’t qualify for a loan with a DTI over 43%, though it’ll likely need to be much lower for a luxury car loan.
• Make enough to afford repayments. Lenders for loans of this size often require you to have an income near, or exceeding, six figures.

Bottom line

Unless you’re prepared to pay cash, it’s important to know how to finance a luxury car. Most cars are bound to depreciate, so understand how much you’re paying, how much debt you’re taking on, and the financial position you’ll be in by the end of your loan term. Compare your options for luxury car financing in Canada until you’re sure you’ve found the best deal available.

Frequently asked questions

• Is there a minimum credit score to finance a luxury car?

  Not necessarily, but lenders will want to see that you pay your debts and are able to handle your monthly payments. The best rates are typically given to people with excellent scores (780+), but good scores at, or above, 660 will yield decent rates as well. The lower your credit score, the less chance you have of getting approved for a car loan, especially if you fall below 600. And even if you are approved, your interest rate will be higher to make up for the (perceived) increased risk that you will default on your loan.

• What is the average loan term for a luxury car loan?

  You’ll find car loans with terms as short as 24 months and some as long as 96 months. However, the average new luxury car is financed for around 60 to 72 months. Shorter terms are usually preferable to save money, but longer terms will lower your payments. Consult your financial advisor to determine which loan term is appropriate for you.

• Is there a luxury car tax in Canada?

  Yes. The Government of Canada introduced a luxury tax on the sale or importation of luxury vehicles in September 2022. Find out how this tax works by checking out this overview from the Canada Revenue Agency.

• Will my insurance premium increase?

  Yes, having a luxury car usually means paying higher insurance rates. Ontario usually has the most expensive auto insurance due to the high volume of accidents that regularly occur there. In Ontario a 36-40 year-old male could pay $2,000-$4,000 per year for high-end car insurance – a female would likely pay less. However, in B.C. he might pay $1,300-$2,000 per year, while in Nova Scotia he might pay $900-$1,300 a year. A woman would likely be charged more in both provinces.* Rates for drivers under 25-years-old are always higher – in Nova Scotia, a male under 25 could end up paying 3 times what a 36-40 year-old man might be charged!*

  Luxury cars are worth more, which means they cost more to insure in the event that they are damaged or stolen. Insurance companies will also determine your rate based on the number of accidents or thefts on record for all drivers who have owned your type of car.

  Cars with the following characteristics are known to cause a jump in premiums:

  • 2-door models
  • Newer vehicles
  • Cars used for business purposes
  • Imported cars (due to the cost and difficulty of getting replacement parts)
  • Sports cars and luxury vehicles
  • Convertibles

  However, as with all insurance, your driving record and where you live impacts your annual premium, as does your credit score. Once all of these factors are taken into account, you may see your premium bump up. Try to take into account the list of “red flag” characteristics above when you purchase a car in order to keep your insurance rates from skyrocketing.

  *Data and rates are purely hypothetical and are based on information obtained from www.insureye.com/rates. Other factors not discussed here could impact the actual amount you end up paying. Check with your auto insurance provider to find out what rates you qualify for.