Best Car Loans in Canada: A Comparison of Rates, Terms, and Financing (2023)

FAQs

Best Car Loans in Canada: A Comparison of Rates, Terms, and Financing? ›

Scotiabank is the #1 choice for vehicle financing in Canada.

Scotiabank is the #1 choice for vehicle financing in Canada.

The Loan Term

In 2022, the average term length for a car loan is 72 months (6 years). However, people are choosing to take longer car loans these days and you'll be able to have a loan term as long as 120 months (10 years). The length of the car loan you choose depends on how high you'd like your payments to be.

The market consensus on the mortgage rate forecast in Canada (as of April 5, 2023) is for the Central Bank to hold its rate at 4.50%, and as long as inflation continues on its downward trend for rate hikes to be finished. Significant signs of economic slowdown and lower mortgage rates.

Negotiating the details of your loan. If you're considering getting a loan to buy a car, try to negotiate the interest rate. Get quotes from multiple dealers and lenders. You may save money by getting a lower interest rate.

In Canada, car loan terms typically range from 36 to 72 months, with some terms as long as 84 months. Choosing a shorter term makes your monthly payments higher but saves you money in the long run.

Latest. The Bank of Canada decided to hold its interest rate steady at 4.5 per cent on Wednesday while the impact of its previous rate hikes filters down through the economy.

Prime Rates in Canada

The Prime rate in Canada is currently 6.70%. The Prime rate is the interest rate that banks and lenders use to determine the interest rates for many types of loans and lines of credit.

How to get cheap car loan in Canada? ›

When you make a really large down payment, say around 50%, you're going to see your auto loan really change for the better. Making a down payment as large as 50%t not only improves your chances for car loan approval, it also: Reduces interest charges. Gives you a much smaller monthly payment.

What is the minimum credit score for a car loan in Canada? You'll usually need a credit score of at least 650 to qualify for a car loan with decent interest rates. However, you may be eligible to qualify with a lower score if you're willing to pay higher rates.

Both short-term and long-term bond yields are likely to decline over 2023 as policy rate cuts become closer to being realized. TD economists assume the overnight rate is reduced back towards its neutral level starting at the beginning of 2024, with the rate reaching 2.25% by 2025.

Analyst: Don't expect a rate cut in 2024.

“We expect the Bank of Canada will hold the policy rate steady at 4.5% through 2023, before gradually easing rates to a neutral level beginning sometime in early 2024,” says Stillo.

Because lenders view longer loan terms as riskier, they usually have higher interest rates. Other possible factors include your income, existing debts and loan amount. The amount of interest you pay on your car loan depends on the type of car loan you have: simple interest or precomputed.

Is it better to get financing through a dealership or bank? ›

The primary benefit of going directly to your bank or credit union is that you will likely receive lower interest rates. Dealers tend to have higher interest rates, because dealers add a markup to the interest rate when they connect you with a lender.

In Canada, according to Equifax, a good credit score is usually between 660 to 724. If your credit score is between 725 to 759 it's likely to be considered very good. A credit score of 760 and above is generally considered to be an excellent credit score. The credit score range is anywhere between 300 to 900.

Although you'll have smaller monthly payments with an 84-month car loan, you'll ultimately pay more in interest. You also risk owing more on the loan than your car is worth and potentially large repair bills. Before choosing a longer auto loan term, consider a shorter term to save more overall.

A longer loan term means you are more likely to be upside down on the loan at some point in the future. Being upside on an auto loan means you owe more than the car is worth. This is because a larger portion of the monthly payments early in the loan will go toward paying interest rather than the principal owed.

This is why Edmunds recommends a 60-month auto loan if you can manage it. A longer loan may have a more palatable monthly payment, but it comes with a number of drawbacks, as we'll discuss later. The trend is actually worse for used car loans, where just over 80% of used car loan terms were over 60 months.

As interest rates for borrowing have risen recently, the Manulife Bank Tax-Free Savings Account leads the way when it comes to mirroring that rise in your savings . This account's 4.50% interest rate is the highest savings account rate in Canada, it even beats the average APY for one-year tax-free GICs.

The Criminal Code makes it an offence to: (1) enter into an agreement or arrangement to receive interest at a rate exceeding 60 per cent; and, (2) actually receive interest at a rate exceeding 60 per cent.

Mortgage rates may continue to rise in 2023. High inflation, a strong housing market, and policy changes by the Federal Reserve have all pushed rates higher in 2022.

The minimum credit score required for a mortgage is 600 for banks and insured mortgages, 550 for B lenders, and no minimum for private lenders. If you have bad credit, B lenders and private lenders are generally your only options, but they can require you to have a large down payment or existing home equity.

What is the highest prime rate in Canada? ›

Getting a car loan as a nonresident can be difficult, but it definitely is possible. Take the time to call banks, credit unions and online lenders before applying to make sure they have options to provide you with financing.

Generally speaking, you'll need a monthly income of at least $1,200 – $1,800 to qualify for most car loans. If your income is less than that, you'll likely have difficulty getting approved.

As a general rule, you should pay 20 percent of the price of the vehicle as a down payment. That's because vehicles lose value, or depreciate, rapidly. If you make a small down payment or no down payment, you can end up owing more on your auto loan than your car or SUV is worth.

According to experts, a car payment is too high if the car payment is more than 30% of your total income. Remember, the car payment isn't your only car expense! Make sure to consider fuel and maintenance expenses. Make sure your car payment does not exceed 15%-20% of your total income.

I want to make a down payment, but I'm not sure how much I should pay. Reviewed by Shannon Martin, Licensed Insurance Agent. “Nope, there's no limit on how much your down payment can be. You could put 99% toward the loan, finance the remaining 1%, and that would be just fine.

While credit scores in Canada range from 300 - 900, the average is around 650, according to TransUnion, though it varies from province to province. Once you've reached a credit score of 650 or higher, you'll be able to qualify for more financial products.

Car Loan Pre-Approval FAQs

Getting pre-approval will only affect your credit score if the lender conducts a “hard credit check” But this effect is only temporary. Otherwise, your score will not be affected if the lender doesn't check your credit.

Is a 7% interest rate bad for a car? ›

“Depending on the loan term, 7% APR on a used car loan isn't all that bad. Because a car that's over 10 years old is considered high-risk, you're unlikely to find a much lower rate.

Car Loan APRs by Credit Score

Excellent (750 - 850): 2.96 percent for new, 3.68 percent for used. Good (700 - 749): 4.03 percent for new, 5.53 percent for used. Fair (650 - 699): 6.75 percent for new, 10.33 percent for used. Poor (450 - 649): 12.84 percent for new, 20.43 percent for used.

An interest rate of 5% is pretty good for a car loan! Generally, to qualify for that rate, you must have good credit, meaning a score in the range of 700-749. So bravo! However, if you were to wait to buy a car and work on improving your credit score, you may be able to get an even better deal.

Whether or not a 6% interest rate on a car loan is good or bad depends on your credit score, your income, and your debt-to-income ratio. Overall, the average interest rate on a 60-month car loan as of September 2021 is 3.81%. So, a 6% interest rate is high by comparison—especially since your credit score is 700.

What interest rate can I get with a 700 credit score for a car? Having a 700 credit score puts you in the “prime” category for borrowing. According to Experian, the average rates for this category are 3.51% for new-car loans and 5.38% for used-car loans.

777 credit score car loan options

With a credit score of 777, you'll receive—on average—an interest rate of 3.65 percent for a new vehicle and 4.29 percent for a used vehicle. This is very different from the rates you might get if you had a much lower credit score.

The average interest rate on a new car loan with a credit score of 750 is 4.90%, while the average interest rate on a used car loan is 5.47%.

Cost to finance to remain high in the coming year

The concurrent increase of rates and decrease in vehicle prices will likely remain consistent through 2023. Rates are expected to continue to increase, explains McBride, “An active Fed will mean further increases in auto loan rates.”

Yes, just like the price of the vehicle, the interest rate is negotiable. The first rate for the loan the dealer offers you may not be the lowest rate you qualify for. With dealer-arranged financing, the dealer collects information from you and forwards that information to one or more prospective auto lenders.

In terms of the best time of the year, October, November and December are safe bets. Car dealerships have sales quotas, which typically break down into yearly, quarterly and monthly sales goals. All three goals begin to come together late in the year.

How much is the payment on a $40,000 car? ›

If you take a car loan of $40000 at an interest rate of 4.12% for a loan term of 72 months, then using an auto loan calculator, you can find that your monthly payment should be $628. When the loan term changes to 60 months, the monthly payment on a $40000 car loan will be $738.83.