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Compare used car loans
How to find used car financing that meets your needs and budget.
If you’re buying a used car, you don’t have to pay the full sticker price upfront. You can also take out a loan for a used car to break your purchase down into affordable monthly payments.
In this guide, we’ll show you how to finance a used car and how to compare used car financing options to find the best deal.
Compare used car financing options in Canada
|Used car loan lender||APR||Loan term||Basic requirements|
|CarsFast Car Loans||4.90% - 29.90%||12 - 96 months||Min. income of $2,000 /month, 3+ months employed||Go to site|
|Loans Canada||0% - 31.99%||24 - 120 months||Min. income of $1,800 /month, 3+ months employed||Go to site|
|Clutch Car Loans||From 8.49%||12 - 96 months||3+ months employed, Max.1 bankruptcy, Ontario & Nova Scotia only||Go to site|
|Canada Auto Finance||4.90% - 29.95%||3 - 96 months||Min. income of $1,500 /month, 3+ months employed||Go to site|
|Splash Auto Finance||9.90% - 31.00%||24 - 84 months||Min. income of $2,200 /month, 3+ months employed|
|Carloans411||1.90% - 19.99%||Up to 72 months||Min. income of $1,600 /month, 3+ months employed||Go to site|
|Go Auto||3% – 15.9%||N/A||Steady monthly income, valid government ID|
|CIBC||Varies, (may start at 3.99%)||12 - 96 months||Min. income of $17,000 (gross)/year|
How does used car financing work?
According to the December 2022 AutoTrader Price Index, the average cost of a used car in Canada is $36,240. That’s a big chunk of money for most people, and if you don’t have a big enough bank balance to buy your next car outright, you’ll need to borrow some additional funds.
And that’s where used car financing comes in. A car loan allows you to borrow money to buy a used car, then pay back what you owe over a period that could range from one to 10 years.
Instead of stumping up the full purchase price, you make regular monthly payments towards your car loan. You can make a down payment to minimize the amount you borrow, but $0 down car payment financing is also available.
However, you have a few options to choose from when you need to finance a used car — dealership used car financing, a used car loan from your bank, or used car financing from an online lender.
How to finance a used car
Let’s take a look at your three loan options to help you find the best way to finance a used car in Canada.
1. Dealership used car financing
You can get a used car loan directly through the dealership where you’re buying your car. Dealership financing is quick and convenient, allowing you to buy a used car on the spot, while online car dealers also offer financing.
Dealership car loan terms commonly range from three to seven years, and bad credit borrowers are often accepted. There may also be some wiggle room to negotiate a better rate.
But if you just accept a car loan offer from your dealer without comparing a range of other options, you won’t know if you’re getting a good deal. There may also be less flexibility when it comes to missed payments or early loan repayment, so check the fine print closely.
- A very convenient option
- The dealer can handle the paperwork for you
- Usually open to negotiation which gets you a better sales price, interest rate, loan term or vehicle upgrades
- Bad credit accepted
- May offer higher interest rates to account for salesperson’s commission
- Advertised low rates may only apply to certain makes and models
- Extra costs for documentation fees
- A down payment may be required
- Generally less flexible when it comes to making extra payments or early loan repayment
2. Used car financing from a bank or credit union
Many major banks offer used car financing, while you can also get used car financing through a credit union. Going through a bank can be straightforward if you already have an account, but you should still shop around for the best deal, as competing banks will offer different used car loan rates.
Terms of up to eight years are available, but be aware that you’ll need good to excellent credit to qualify for competitive used car financing.
- It can be convenient to have all your finances under one roof
- More flexible about missed payments, making extra repayments or paying off your loan early
- Choice of payment frequencies available
- Less open to negotiating used car loan rates
- Longer application and approval process
3. Used car financing from an online lender
There are many legit online car loan providers that finance used cars. It’s easy to compare loan rates and features online, and getting pre-approved for multiple offers makes it easy to shop around. Even if you decide to apply for dealership or bank financing, comparing online lenders first gives you leverage to negotiate and lock in the best rate.
You also get to choose from a range of competitive used car loan options, with loan terms ranging from one to eight years available in most cases. There are also many online lenders who offer bad credit car loans, but be prepared to accept higher rates.
- Competitive rates
- Easy to shop around and compare your options
- Fast applications and approvals
- Can potentially use when buying from a private seller
- Bad credit is OK
- High rates for bad credit
- Check whether pre-approval will impact your credit score before you apply
- Check the fine print to find out what loan fees apply
Types of loans for used car financing
You have a few options when it comes to the types of loans available to pay for used cars. These include:
- Secured car loan. Most used car loans are secured loans, using the car as collateral. This option can help you qualify for a competitive rate, though you risk losing your car if you default on the loan. To qualify for this loan, the used car you’re eyeing must not be past a certain age, usually 10 years.
- Unsecured personal loan. Unsecured personal loans don’t require you to offer your car as collateral for the loan, but can result in higher interest rates.
- Home equity finance. Home equity financing is another option that allows a homeowner to borrow against the equity value of their home. This option can be risky because you’re putting your house up as collateral.
Find out more about using a personal loan to finance a used car in our comprehensive guide.
What interest rate will I get with a loan for a used car?
The average car loan interest rate in Canada is 7.83%. However, the rate you get will vary depending on a range of factors:
- Buying used. Used car loan interest rates are usually higher than rates on new cars, so keep in mind that you may not be able to access a lender’s advertised low rate. The lender will take into account the make, model and age of the vehicle when setting your interest rate.
- Certified pre-owned vehicles. Some car manufacturers offer discounted financing rates for certified pre-owned vehicles. You also get the peace of mind of buying a used car that has passed thorough inspections, has low mileage and is backed by a warranty.
- Your credit score. Your credit score is a major factor in determining your interest rate. Borrowers with excellent credit can get the best rates, while borrowers with bad credit should expect steeper rates. Learn more about bad credit car loans in Canada.
- Your income and employment information. A steady source of income is important to be able to repay a loan. So if you’ve been in the same job for an extended period of time and you exceed monthly income requirements, you’ll access a better rate.
- Down payment. The bigger your deposit, the less money you need to borrow and the better the rate you will be able to get.
- Fixed or variable rate. The interest rate on variable-rate loans fluctuates in line with changes to the central bank’s benchmark rate, while fixed-rate loans have the same rate for the term of the loan.
What credit score is needed for a used car loan?
The credit score you’ll need to qualify for used car financing will vary depending on the lender you choose.
If you’re applying with a bank or credit union, a score of 660 or more gives you a good chance of securing a used car loan. You can qualify for used car loan rates between 8% - 10%. If your credit score is lower, some banks, such as TD and Scotiabank, can offer car loans to borrowers with less-than-perfect credit scores.
Online lenders and dealerships are also willing to offer used car financing to borrowers with fair or bad credit. Rather than focusing on your credit score, these loan providers will assess your income, employment and debt-to-income ratio to determine whether you can afford to take out a used car loan. No matter where you apply, bad credit car loans often come with interest rates from 10% to 30%.
How to get approved for a used car loan with bad credit
If your credit history is less than perfect, there are several things you can do to improve your chances of car loan approval.
- Check your credit score. Check your credit score to find out exactly where you stand. This will give you an idea of which lenders may be willing to help you finance a used car.
- If you can, improve your credit first. Before applying for a used car loan, pay down your credit card debt as much as you can and make sure you don’t have any late bill payments.
- Set your budget. Before applying for a used car loan, find out exactly how much you can afford to borrow. Make sure you’ll be able to afford all of your regular expenses on top of your car loan payments.
- Apply for pre-approval. Applying for car loan pre-approval with multiple lenders will help you compare rates and terms to decide which used car loan is best for you.
- Apply with a cosigner. A cosigner is someone with good finances who agrees to sign the loan with you. By signing, they agree to cover loan payments on your behalf should you default on them.
How to compare used car financing options
Securing the right financing is as important as finding the right car. Here are the main components of a loan you should consider:
- Interest rate. The interest rate directly affects your monthly car loan payment. Most lenders will offer a range of used car loan rates, so be sure to understand your credit score and confirm that the rate you’re given is actually a good deal.
- Fees. Lenders can charge a range of fees on used car loans — termination fees, origination fees, loan maintenance fees and more. Review all the extra costs that come with your used car loan since these will impact your APR and the amount you end up paying overall.
- Repayment flexibility. Can you make additional and lump-sum payments during your loan term? Are you able to repay your loan early without penalty? Is there a grace period for late payments? Make sure your loan is flexible so it suits your needs.
- Loan term. Opting for a longer loan term means your monthly payment will be smaller, but it also means it’ll cost you more overall to pay back what you borrow.
- Eligibility requirements. Check what credit score, income and employment criteria you need to satisfy to qualify for a loan. Don’t forget to find out that the car you buy will need to satisfy lender requirements too, such as being under a certain age.
- Pre-approval. Check whether the lender offers pre-approval. This makes it easy to compare loans and gives you more bargaining power when shopping around.
How depreciation impacts your used car loan
Car depreciation causes a new vehicle to lose up to 30% of its value in the first year. By purchasing a used car that is at least a year old, you’re basically letting the previous owner soak up that cost of depreciation. This strategy means you can get a smaller used car loan for a car that is nearly brand new.
In a recent Finder survey, where more than 1,011 Canadians were asked about their plans to buy a vehicle in 2023, 25% wanted to buy a used vehicle. While women were more likely to shop for a used vehicle (29%), compared to men (21%), virtually every demographic — from millennials to baby boomers — seriously considered a used car or truck purchase in 2023.
Turns out that where a person lives may influence the type of vehicle they want to buy in 2023. According to results from the Finder: Consumer Sentiment Survey Q2 2023, New Brunswick residents were the most committed to finding a used vehicle in 2023, while residents in Newfoundland and Labrador were not at all interested in a used vehicle purchase in 2023.
How much do used car loans cost?
To give you an idea of how much your car loan will cost, let’s look at the example of a $20,000 car loan. As you can see in the table below, the interest rate and loan term can have a big impact on your monthly payment amount and the total cost of your loan.
|Loan amount||Loan term||APR||Monthly payment||Total cost|
Find out how much you can expect to pay for your used car financing by entering your loan details in the calculator below.
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What are the steps to getting a loan for a used car from an online lender?
When you’re ready to apply for a used car loan, here’s what you need to do:
- Work out your budget. Before you start shopping, calculate how much you can afford to pay each month. List out your monthly expenses and create a buffer for emergency expenses, too. And don’t forget to include upfront costs that come with purchasing a car, like a down payment, taxes and licensing fees, when setting your budget.
- Compare your options. Your next step will be to compare your used car loan options. While dealership used car financing can be useful, you should still know what kind of rate you can expect and have a few backups in case the dealership doesn’t come through. And if you’re buying through a private seller, finding financing beforehand is likely your only option to secure the sale.
- Get pre-approved. Apply for pre-approval to compare the cost of used car loans. When you’ve found the loan that’s right for you, it’s time to start shopping.
- Choose a car. You can visit dealers in person or even buy a vehicle online. When you find one you like, use resources like Canadian Black Book, Auto Trader Canada, and Kijiji Autos to determine its market value based on the year, make, model, mileage and condition. This can help when it comes to negotiating the price. Make sure to take the car for a test drive and get it inspected by a licensed mechanic before you buy.
- Buy your car. Now it’s time to sign the loan contract with your lender or car dealership. Review the loan offer carefully before signing, then set up your repayments and drive away in your new (to you) car.
What do I need to apply for a car loan?
To qualify for a car loan you will need to:
- Be 18 years old or the age of majority in your province.
- Be a Canadian citizen or resident.
- Have a valid Canadian driver’s licence.
You’ll also need to satisfy any other minimum requirements a lender has, such as:
- Minimum credit score requirements (you’ll often need to submit to a credit check).
- Minimum income requirements (you’ll need to provide proof of income, such as pay stubs or bank account statements).
- Minimum employment history (for example, you may need to have held your current job for at least six months).
- Car insurance in order to secure an auto loan.
Should I put a deposit on a used car?
Some lenders might request a deposit. This usually happens in three situations:
- If you don’t have financing available after you negotiate the purchase price.
- If the dealer needs to order your vehicle from a factory.
- If the dealer you’re working with needs to exchange vehicles with another dealer before you get your car.
In any of these cases, it may be necessary to leave a deposit for your used car, but that doesn’t mean you have to settle for the dealer’s terms. Every step of a car purchase can be negotiated, and that includes your deposit.
Tips for making a deposit on a used car
- Make sure it’s refundable. Read the terms of your contract carefully and have a sales manager change it if you find that it’s nonrefundable. That way you can back out if you don’t have financing on hand right away or haven’t had the car inspected.
- Make sure it’s not listed as a partial payment. Deposits should never be listed on your contract as partial payments — it’s not a down payment on your car. This makes it easier for you to walk away from the deal, should you change your mind.
- Pay with a credit card. You can easily dispute the charge with your credit card company if you decide to not go through with the sale.
A used car can be a reliable option when you’re looking for your next set of wheels — as long as you make sure you get the right used car financing. Whenever you apply for a used car loan, take the time to read the terms and conditions. It’s important to be aware of all fees and charges, as well as any restrictions on the vehicle or loan.
Frequently asked questions about used car financing
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