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Variable-rate car loans

Considering getting a variable-rate car loan? Fluctuating rates mean you're gambling on the market.

Though fixed-rate car loans are still the most popular, lenders are slowly beginning to offer variable-rate car loans as well. A variable-rate loan can offer lower rates if the economy takes a downturn. But they can also rise suddenly, making it a somewhat risky option.

What is a variable-rate car loan?

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A variable-rate car loan has an interest rate that changes based on the prime rate which is based on the Bank of Canada’s overnight rate. These types of interest rates are often advertised as prime + some percent. So, for example, if you see a variable car loan interest rate advertised as prime+3% (with the Bank of Canada prime rate at 2.95%), then you would pay 2.95%+3% = 5.95% interest on the loan.

You can also see how when the Bank of Canada prime rate changes, the amount you pay will change too. Because of this, the variable interest rate you first receive when you take out your car loan isn’t guaranteed to stay the same throughout your loan term — it could go up or down depending on market trends.

Is there any risk to getting a variable-rate car loan?

While the benefit of getting a variable-rate car loan means you could see lower rates when the economy is stable or on the decline, there’s also the risk of the prime rate skyrocketing during periods of prosperity. And if your lender doesn’t have a variable rate cap, there’s no limit to how high your interest rate could go. Learn all about car loan interest rates here.

Compare fixed-rate car loans

Most car loans on the market will be fixed-rate loans. So to help you compare your options, we’ve compiled a list of fixed-rate car loan providers in the table below. Click the green button to get a quote. You can learn more about fixed-rate car loans in our full guide here.

Name Product Loan Amount Interest Rate Loan Term Min. Credit Score Requirements Table description
Loans Canada Car Loans
$500 - $35,000
0% - 29.99%
3 - 96 months
300
Min. income of $1,800 /month, 3+ months employed
Compare rates from multiple lenders.
Complete a single application to get quotes from different lenders. Bad credit, CERB and EI borrowers considered.
goPeer Car Loan
$1,000 - $25,000
8.00% - 31.00%
36 - 60 months
600
Min. income of $40,000 /year
P2P platform with competitive rates.
Canada's first regulated consumer peer-to-peer lending platform that connects creditworthy Canadians looking for a loan with Canadians looking to invest.
AutoLoanProviders
$7,500 - $85,000
3.99% - 29.99%
12 - 96 months
300
Min. income of $1,800 /month, 1+ months employed
Available in Ontario only.
Apply online and get your new vehicle delivered to your door anywhere in Ontario free of charge. All credit scores considered.
CarsFast Car Loans
$500 - $75,000
4.90% - 29.90%
12 - 96 months
300
Min. income of $1,800 /month, 3+ months employed
Get a new or used vehicle delivered to your door.
Browse thousands of vehicles from dealers across Canada and get matched with financing that meets your needs.
Coast Capital Car Loan
$10,000 - No Max.
Varies
18 - 84 months
650
Able to service debt payment of $300/month
Competitive rates and flexible terms.
Finance new and used vehicles from one of Canada's largest credit unions. No credit union membership required. Available across Canada except SK, QC, NT, NU, YT.
Splash Auto Finance
$10,000 - $50,000
9.90% - 29.90%
24 - 84 months
300
Min. income of $2,200 /month, 3+ months employed
Apply with any credit score.
Get financing for a new or used car. Auto loans for borrowers with fair credit, bad credit, no credit or bankruptcy.
LoanConnect Car Loans
$500 - $50,000
9.90% - 46.96%
3 - 120 months
550
No min. income requirement
Pre-approval in as little as 60 seconds.
Get access to 25+ lenders through this brokerage. Get your funds in as little as 24 hours.
Canada Auto Finance
$500 - $45,000
4.90% - 29.95%
3 - 96 months
300
Min. income of $1,500 /month, 3+ months employed
Get financing from partnered local lenders.
Financing for a new or used car is available for borrowers with bad credit, no credit, CERB, EI or bankruptcy.
Carloans411 Car Loans
$500 - $50,000
1.90% - 19.99%
Up to 72 months
300
Min. income of $1,600 /month, 3+ months employed
High application approval rate.
Get connected with suitable lenders to finance your next car, van or truck. Check eligibility for this loan through LoanConnect.
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Compare up to 4 providers

3 factors to consider with variable-rate car loans

To avoid ending up in a bad financial situation, pay extra attention to these factors before taking out a variable-rate car loan:

  • Loan term. A variable-rate car loan with a longer term means there’s more time for your rate to fluctuate, which ups the risk of ending up with high monthly repayments that are difficult to afford.
  • Rate cap. Look into whether your lender offers a maximum variable rate — if not, there’s no limit to how high your rate could soar. This could lead to unaffordable repayments, increasing your risk of default.
  • State of the economy. If the prime rate is expected to rise in the coming months, you might want to opt for a fixed rate. On the other hand, if the economy’s hit a slump and the prime rate is expected to decrease, you might save with a variable rate.

What are the different types of car loans with a variable rate?

When it comes to car loans with variable rates, there are two main loan types:

  • New car loans. Lenders tend to offer lower rates across the board for new vehicles, since these cars offer something more valuable to the lender should you default.
  • Used car loans. Whether you’re looking to buy a used car from a dealership or private seller, used car loans tend to have higher starting fixed and variable rates. This is because there’s more of a risk to the lender should you default, since your car isn’t as valuable as a new car would be.

4 questions to ask when comparing variable-rate car loans

Consider the following factors to compare your variable-rate car loan options and find the right one for you:

  • What interest rate will I be charged? Even though the rate is variable, looking at the rate that applies to the loan when you’re comparing will give you an idea of the competitiveness of the product.
  • What fees come with the loan? Look for upfront fees such as origination fees as well as ongoing fees such as monthly and annual fees.
  • Can I make additional payments? Variable-rate loans tend to be more flexible in terms of allowing additional payments to quickly pay off the loan. But in some cases you can be charged a fee, so check with your lender.
  • Can I repay the loan early without penalty? Check if an early prepayment or early termination fee applies.

Bottom line

Variable-rate car loans have the potential to save you money on interest should the market take a hit. But you also risk ending up with unaffordable monthly repayments if the prime rate increases — especially if your lender has no variable rate cap.

If you’re not willing to take the gamble, compare fixed-rate car loans to find one that’s the right fit for your financial situation.

Frequently asked questions about variable-rate car loans

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