Cheap car loans in Canada

If you need a car fast but want to cut down on your monthly expenses, there are plenty of options for cheap car financing in Canada. Learn where to get a cheap car loan, and find out how to compare lenders to get the best bang for your buck, even if you have bad credit.

How much is the cheapest car financing in Canada?

Cheap car financing in Canada comes in all shapes and sizes, but your overall cost usually boils down to the interest rates and fees you have to pay. Your overall loan cost – made up of rates and fees – will depend on factors such as your credit score, income and budget.

The cheapest car loans (usually for people with good credit or high incomes) will offer a 0% interest rate, but you’ll need to sign up with a dealer. You’ll usually pay more if you sign up with an online lender, credit union or bank.

According to StatsCan data, the most recent average interest rate Canadians paid for car financing was 8.24%. If you’re looking for a cheap car loan, look for a rate lower than the average.

5 tips to lock in a cheap car loan

Regardless of the rates and terms you see advertised, it’s often possible to get a better deal if you negotiate. Here are some tips to help you lock in the best cheap car financing:

1. Shop around

If you take the time to compare offers, you’ll get a good idea of what interest rates you may qualify for from a range of lenders. You should aim to pre-qualify with 3–4 lenders to get the best cheap car finance deals. From there, you can pick the car loan that suits you best or use the offers you get to negotiate a lower rate directly with a dealer.

2. Check the annual percentage rate

When comparing loan offers, look at the annual percentage rate instead of the interest rate alone. This will show you the true cost of your loan. If your APR is different from your interest rate, it means your loan comes with fees. Make sure you read your loan contract carefully to find out what extra fees make up your loan and how much you’ll have to pay.

3. Negotiate with your lender

Whether you apply with a bank, credit union, online lender or dealership – chances are you can negotiate your way down to a cheaper car loan. Do your research and come equipped with other loan offers to show you’re a smart consumer who knows how to shop around. The best-case scenario is your lender will try to beat the price to keep your business.

4. Search for discounts

Some banks and credit unions offer a discount off their advertised rates if you have other banking products with them. You may also be able to find deeply discounted rates for cheap car financing directly from a dealership if they really want you to leave with a car, especially if you have good to excellent credit.

5. Get a cosigner

If you want cheap car finance with bad credit, you may be able to enlist a guarantor with good to excellent credit to cosign a loan with you. This assures your lender that someone else will pay back your loan if you default. This brings down your interest rates and makes it easier to qualify for cheap car financing.

What affects the cost of a cheap car loan?

The following factors will affect your ability to get cheap car financing in Canada:

• Interest rates. Your loan’s interest rate plays the biggest role in the total amount you pay. Aim to pay under 7% interest for cheap car financing with good to excellent credit or below 14% with bad credit. Also keep in mind that if you sign up for variable rates, your interest rate can fluctuate in line with the prime rate of Canada.
• Loan term. Car loans can last anywhere from 1 to 8 years. A shorter loan term can reduce the total amount of interest you pay, but your monthly payments will be higher. Use our car loan calculator to find the shortest term that still offers monthly repayments you can afford.
• Fees. You may have to pay fees with some lenders on top of your interest rates. These can include fees to pay your loan off early (prepayment fees), fees to set up your loan (origination fees) or fees for missing payments (late or NSF fees). Look for a lender that doesn’t charge extra fees to lock in the best cheap car finance deals.
• Insurance requirements. Since your lender is using your car as collateral for your loan, it may insist that you have a comprehensive insurance policy in case you get in an accident. Check with your lender to see if they require you to have full coverage. If so, look for another lender or compare insurance agencies to get the best price.

• 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.

Example: The cheapest rate doesn’t mean the cheapest loan*

John shops around and finds a car loan for $25,000, which fits his budget. He compares several lenders and narrows his choice down to the two best deals. The first lender offers him an interest rate of 5.5%, while the second lender charges a higher rate of 5.75%. He goes with the first lender, without looking at additional fees.

Counter to what you might think, you’ll pay more in interest and fees with the first loan, even though it has a lower interest rate. The best way to figure out the cheapest loan is to pick the one with the lowest APR.

* This is a fictional, but realistic, example.

How to apply for cheap car loans?

Follow these steps to find the best cheap car finance deals in Canada:

1. Compare lenders. Search for online lenders that offer cheap car financing in Canada. Compare 3–4 lenders manually or use an online broker to find the best deal.
2. Compare loan features. Compare features such as the APR (interest rates plus fees) and your monthly payments to find out how much you’ll have to pay.
3. Get pre-approved. Apply for pre-approval with a few lenders to get a true sense of how much you’ll pay. Choose the offer that gives you the lowest APR and monthly payments to cut down on costs.
4. Complete your application. Fill out a full application for your chosen offer. Submit required documents such as ID, bank statements and employment information.
5. Review your final loan offer. Read your loan contract carefully. Check that the interest rate, fees, loan amount, term and payment schedule align with what you agreed to pay before you sign.

Eligibility requirements

While requirements will vary from lender to lender, you will usually need to meet the following:

• Be a Canadian citizen or resident who is at least 18 years old.
• Have a valid Canadian address and bank account.
• Meet minimum credit score, income and employment requirements.

Can you get cheap car finance with bad credit?

You may have a harder time getting cheap car finance for bad credit if you have a low income. This is because having a high income shows lenders you can afford your repayments. If your current monthly debt payments already take up too much of your monthly income (typically over 50%), lenders offering cheap car finance with bad credit may not approve you.

How can I reduce my monthly payments?

Learn how you can lock in the lowest monthly payments for cheap car financing:

• Find the lowest interest rate. By reducing your interest rate even a little, you should end up paying less on your monthly payments as well as less overall.
• Borrow less money. Aim to provide a down payment on your car to cut down on the costs. The less you borrow upfront, the lower your monthly payments will be.
• Choose a longer loan term. By extending your loan term, you can spread the amount you borrow out over an extra year or two. This will bring your loan payments down, but you’ll also pay more interest than with a shorter term.

Bottom line

Finding a cheap car loan can make the difference between having a little extra cash to spend each month and cutting things a bit too close for comfort. When you’re on the hunt, comparing interest rates and loan conditions from multiple lenders is key to finding the best cheap car finance deals.

Compare cheap car loan options

Frequently asked questions about cheap car financing

• How much can I borrow with cheap car loans?

  The amount you can borrow varies by lender. Many cheap car loans range from $5,000 to $50,000 for a regular car, all the way up to $100,000 for a luxury vehicle. The amount you qualify for will depend on factors such as your credit score, income, current debt obligations and ability to repay.

• Can I get pre-approved for a cheap car loan?

  Yes, many lenders offer pre-approval to give you an idea of the interest rates and general loan conditions you might qualify for. That said, you won't know exactly what your loan offer will be until you fill out a full application.

• Can I get cheap car finance deals with no deposit?

  You can get cheap car finance deals with no deposit. Just keep in mind that the less you put down on payments, the more you'll pay overall. The higher the amount you borrow, the more interest you pay, and the more your loan will cost you in the long run.

• Is it possible to get cheap car finance with bad credit?

  You can get cheap car finance with bad credit in some cases, but some lenders will decline bad credit borrowers. You'll need to do your research to find out which lenders are willing to approve you and be prepared to pay high rates and fees for borrowing.

• Can I buy a car from a private seller with a loan or will I have to go through a dealer?

  It depends on the lender. Some will give you a cheap car loan to buy from a private seller, but you'll still need to provide details about the car. You may also get a less optimal rate if your lender is unable to inspect the car before you buy it.

• Does applying for a car loan affect my credit report?

  It can if your lender runs a hard credit check. That said, most lenders will only run a soft credit check, which won't have an impact on your score. The biggest impact on your score will come if you take out a loan and then default on your payments.