Compare used car loans

New cars are notorious for losing their value the moment you drive them off the lot — but you can take advantage of that depreciation by buying used. It can help you save money, and there are still plenty of loan options available. However, you’ll want to carefully consider the vehicle’s history before you buy.

• How to use this car loan monthly payment calculator

  1. Enter the amount you want to borrow to buy a new car under Loan amount. This might not be the same as the cost of your car, since many lenders require a down payment.
  2. Write the amount of time you have to pay off your car loan under Loan terms (in years). If your loan term is in months, divide it by 12 first.
  3. Enter the interest rate you expect to pay on a car loan under Interest rate. If your car loan comes with fees, enter the annual percentage rate (APR) instead.
  4. Click Calculate.

  In addition to your monthly payment, this calculator shows how much you’d pay on your loan’s principle amount and how much you’d pay overall in interest. The principle amount is the amount that you borrowed and should be equal to your loan amount. Total interest is the amount you would pay on top of the principle — the cost of having your loan.

3 ways to finance a used car

There are a few options available for financing a used car, all of which have pros and cons. The right option for you will depend on your financial situation and preferences. Here are your 3 used car finance options:

1. Financing through a dealership

You can get financing directly through the dealership where you’re buying your used car. Dealership financing can be quick and convenient, but it’s often more expensive than finding financing through a third-party lender. However, because dealerships have a relationship with their lending partners, there’s usually room for negotiation. You can typically get a 3-7 years term car loan from a dealership.

2. Financing through a bank

Many major banks offer used car financing, including CIBC, Scotiabank, TD Canada Trust, RBC and BMO. You can also get used car financing through a credit union. Going through a bank can be straight forward if you already have an account with it, but you should still shop around for the best deal, as competing banks will offer different used car loan rates.

3. Financing through an online lender

There are many legit online car loan providers willing to finance used cars. Even if you end up going with dealership or bank financing, getting pre-approved for multiple offers online saves time compared to visiting multiple dealerships or banks, and gives you leverage to negotiate and lock in the best rate. You also get to chose from a range of competitive car loan options, ranging from 1-7 years.

Compare online used car loan providers

The 3 types of used car loans

Generally, you’ll have a few options when it comes to the types of car loans available for used cars. These include:

• Secured car loan. Most car loans are secured car 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.
• Unsecured personal loan. Unsecured personal loans are generally offered to customers with good credit. These loans don’t require you to offer your car as collateral for the loan, but can result in higher interest rates and additional fees.
• 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.

Can I get a used car loan with bad credit?

It’s possible to get a used car loan with bad or poor credit. Although banks and credit unions would likely not accept applicants with bad credit, there are other lenders who can, such as online lenders. There are online lenders who can work with consumers with bad credit, no credit or bankruptcy as long as they have a steady source of employment income. Keep in mind, however, that bad credit loans often come with steeper interest rates because of the borrower’s higher risk of defaulting. Interest rates can vary depending on the borrower’s personal factors, but if you have bad credit, they can range from 10% to 20% or perhaps more.

How to get a used car loan with bad credit

1. 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. Learn more about how to improve your credit.
2. Check your credit score. Do you know what your credit score is? There are several free or paid tools available online that can keep track of your credit score. If you have poor credit, these tools can especially help you see if your credit is improving as you make your payments. Check your credit score now.
3. Set your budget. Before applying for a used car loan, find out exactly how much you can afford to borrow.
4. 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.
5. Apply for pre-approval with several lenders. Applying with multiple lenders will help you compare rates and terms to decide which used car loan is best for you.

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What are the limits on used car loans?

Lenders typically have minimum and maximum loan amounts, and often set limits to the age and mileage of vehicles that qualify for loan approval. Your credit score will also affect your chances of getting a car loan. A score of 630 or more gives you a good chance of securing a loan. But if your score is below 630, it will be difficult to gain approval. Find out how you can improve your credit score here.

Here’s what you can expect from some popular used car loan providers.

What are the pros and cons of financing a used car?

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.

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.
• 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 can mesh with whatever life throws your way.

How to use depreciation in your favor

Depreciation is often cited as the single largest expense when buying a new car. With over 40% of a new car’s value being lost to depreciation in the first 3 years, you can often find a better deal on a slightly used model.

You can use websites like Canadian Black Book, Auto Trader Canada, and Kijiji Autos to research the average price of the car you’re interested in. You’ll be able to see its original value and its estimated used value, which will then give you an idea of how much you should be paying.

By keeping depreciation in mind, you can use it in your favor to score a good deal. You’ll also be able to see the car’s estimated rate of depreciation, which can help guide you toward a car that won’t lose its value while you drive it — meaning you can sell it for a better price once you want to upgrade to a new model.

How to buy a financed used car in 6 steps

Follow these 6 steps to buy a used car with financing.

• 1. Determine your budget

  Before you start shopping, calculate how much you can afford to pay each month. List out your monthly expenses like rent, groceries, insurance premiums and other recurring costs, then subtract that from your monthly income after taxes. You won’t want to use everything you have left toward your car loan payment though. 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.

  How much it really costs to own a car

• 2. Find financing

  Your next step will be to compare your loan options. While dealership financing can be useful, you should still know what kind of rate you can expect and have a few backups just 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.

• 3. Decide on the car you want

  If you don’t already have a car in mind, it’s time to start searching. Dealerships, online car-buying programs and private parties often have a variety of cars available for you to choose from. If you’re looking for a car with newer technology and swanky features, you might want to opt for a newer used luxury car.

  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.

• 4. Contact the seller

  Get in touch with the seller. If it’s a private listing, a phone call or email should suffice. If you’re planning on going through a dealership, contact the sales manager to confirm the car is still available and to schedule a test-drive. There are a variety of questions you should ask when buying a used car, so go over those carefully before making a plan to inspect the car.

• 5. Inspect the car

  When you inspect a used car, you’ll want to review its vehicle history report and take it for a test-drive to see if it’s worth buying. Take note of any serious accidents that have occurred or any mechanical issues that might have been noted in its maintenance records. Buying a used car is riskier than opting for new, so take care to ensure the vehicle you select isn’t a lemon.

• 6. Negotiate and finalize the sale

  Once you’ve determined the car is worth buying, it’s time to start negotiating. Focus on the overall price of the car — rather than the monthly payments — to get the best deal possible. After, you’ll need to determine if you want additional products like gap insurance or an extended warranty. Then all that’s left is to pay for your car — including the down payment, taxes and fees — and finish signing all the paperwork.

Bottom line

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.

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.

Frequently asked questions about used car financing

• How is the interest rate of my used car loan determined?

  The amount of your down payment and your credit score will be major factors in calculating your interest rate. Whether the interest rate is fixed or variable is also very important. If the rate is fixed, it will stay the same throughout the entire period of repayment. If it’s variable, then the rate will fluctuate based on the prime lending rate, which is primarily set by the Bank of Canada and can go up or down at any given time.

• Will my credit score be affected when I apply for a used car loan?

  When applying for a loan, the lender will do a hard pull on your credit to find detailed information about your history of borrowing and repaying. Hard pulls stay on your credit record for years and will temporarily drop your score. But as long as you’re not applying for multiple loans within a short period of time, your credit history should remain largely intact.

• Can I get a pre-approved used car loan?

  Yes, some lenders allow pre-approved used car loans. Applying for a pre-approved used car loan is similar to applying for other car loans. Lenders will ask for your employment information such as your income, amount of time in employment and company details, plus other information such as your home address and email address. Keep in mind, however, that you’ll be limited to short terms and higher interest rates.

• What is the APR for used car loans?

  The annual percentage rate, or APR, is the interest rate and financing fees combined. The APR of a used car loan will depend on the borrower’s personal factors, but generally, the APR of a used car loan will be higher than the APR of a new car loan. As a reference, in November 2020, the average interest rate for car loans in Canada was 4.23%.