Getting car loans in Canada does not have to be hard. If you cannot self-finance your new car you have basically 3 options: bank or credit union loan, personal loan from a private lender, or a loan from family and friends. Sounds easy, right?
That is what this ultimate guide to your best car loan in Canada is for. It makes it easy to get the best car loans in Canada.
Auto or personal loans are not just for new cars. A quality used car is also worth the investment.
Looking for something that’s safe, fuel-efficient, and that will last you more than a few years? Chances are it’ll have a significant price tag. A car loan proves extremely useful, if not necessary.
The good news is that there are a ton of lenders and dealerships across Canada that can give you an affordable car loan. You just need to know where to look.
Car Loans in Canada: Auto Loan vs. Personal Loan
An auto loan is not the same as a personal loan. However, you can use both to finance your car purchase.
When you secure the loan with a car, you take out an auto loan. You can only use the money on the car. The car guarantees the money.
A personal loan is not tied to the asset you are buying. This is an unsecured loan. You can use the money for anything.
What Costs Can You Expect When Taking Out Car Loans in Canada?
Essentially, a car loan helps you finance a vehicle over several years using divided installments. This breaks the cost of the car plus any accumilated interest into smaller monthly payments. The car becomes more affordable because you won’t have to shell out tens of thousands of dollars at once.
Nonetheless, there are many different costs and fees to pay after you’ve been approved. These costs can include but aren’t restricted to your:
Down Payment for Car Loans in Canada
A down payment is usually optional, depending on where you apply. However, most experts recommend that you put down at least 10% – 20% of the vehicle’s final asking price.
A down payment is a good move when financing a newer or more expensive model.
A larger down payment reduces the amount and repayment time of your debt. Plus, it can also help you qualify for a lower interest rate. Moreover, it informs your auto dealer know you’re a serious buyer, so they may offer you a few extra perks.
What Type of Interest Rates are Available for Car Loans in Canada?
Interest is what lenders and dealerships charge in exchange for you borrowing from them. The rate you end up paying can fluctuate depending on the lender, what kind of vehicle you’re financing, and how strong your finances are. There are also two types of interest rate you may encounter:
- A fixed interest rate is be locked in once you’ve been approved and won’t change during your repayment term. While some fixed rates can be higher than variable ones, they make it easier to predict how much you owe every month.
- A variable interest rate fluctuates during your payment period due to several factors, mainly because of changes to Canada’s prime rate. Although this makes the cost of your car loan payments less predictable, you can save money when and if the prime rate drops.
Car Loans in Canada Terms & Payments
Your loan term and the size of your payments add up to the total cost of your car. After all, your vehicle’s advertised price won’t actually be its final cost, once you factor in fees and interest.
For instance, a longer term and small payments are more affordable at first, you pay more interest and fees overall. Larger payments are harder on your budget, but typically help you pay off the car faster. Either way, you should be careful not to take on a repayment plan that you cannot handle.
What to Know About Fees for Car Loans in Canada
There will also be several fees included with your car loan, which vary by where you apply and the conditions of your repayment plan. For example, traditional lenders, like banks, often charge for administrative services, such as loan origination.
If you apply for in-house financing through a dealership, you may also encounter fees for documentation, licensing, and pre-delivery costs. Do these add value to the car? No. You can try to get the dealer to waive them.
In some cases, these are one-time fees to be paid when your term ends, in others, they are applied on a per-payment basis. Ask your car loan provider for a price quote before you sign any contracts.
Best Car Loan Providers
|$500 - $50,000||Up to 46.96%||12 - 84||Learn more|
|Varies||8.49% +||24 - 96||Learn more|
|$500 - $35,000||29.99% - 46.96%||9 - 60||Learn more|
|$500 - $10,000||12.99% - 39.99%||9 - 36||Learn more|
|$5,000 - $40,000||Varies||12 - 72||Learn more|
|$7500 - $59,995||3.95% +||12 - 96||Learn more|
|$5,000 - $45,000||4.90 % - 29.95%||36 - 72||Learn more|
|Varies||11.9% +||12 - 84||Learn more|
|Up to $50,000||Varies||12 - 84||Learn more|
|Up to $50,000||8.99% +||12 - 72||Learn more|
Where Is the Best Place To Get Car Loans In Canada?
Luckily, there are many places in Canada where you can apply for car loans. Each of these lenders have different benefits, drawbacks, and approval requirements, so be sure to compare them properly prior to applying:
Online Subprime Auto Lenders
These days, there is an increasing number of car loan transactions conducted online.
In fact, almost every subprime auto lender now has a webpage where you can create an account, apply, and make payments. Alternative lenders can be a good option because they often have easy requirements. Borrowers with bad credit and low incomes won’t have as much trouble qualifying for a subprime auto loan in Canada.
Banks & Credit Unions Offer Car Loans in Canada
If you’d prefer a more traditional approach, many banks and credit unions can also offer you vehicle financing. Some borrowers prefer financial institutions because they are generally more secure and offer better rates than alternative lenders. However, drivers with weaker finances and credit may find it difficult to get approved.
Car Dealerships Also Give Car Loans
There are also thousands of dealerships that offer in-house financing, where you pay them directly and avoid having to apply for a loan. Like alternative lenders, car dealerships will usually have less restrictive approval requirements if it means making a sale but can charge slightly higher rates.
How Do I Apply For Car Loans in Canada?
As mentioned, every lender and dealership has its own loan requirements. However, there are a few personal and financial details that you’ll have to provide to qualify for the best car loan. These typically include:
- Name, address, and other personal information (proof of identity)
- Bank account details and other financial information (proof of income)
- Employment status and job title
- Vehicle make, model, and cost (if applying with a bank or other lender)
- Down payment amount
Although your credit score may be less significant for some lenders and dealerships, they can check your credit report. That is why you fill out a credit application. The stronger your credit is, the easier it will be to get approved for a car loan with a decent interest rate and repayment plan.
How Can I Prepare to Apply For A Car Loan in Canada?
Remember, getting approved for the best car loan is all about your financial health. The more chance you have of making payments on time, the better the result. As such, it’s important to prepare yourself by taking the following measures:
- Improve your credit if its bad (a credit score of 660-800 is ideal). While there are subprime auto loans in Canada, improving your credit will lead to better interests rates and terms.
- Have a full-time job for at least 6 months
- Earn as much income that allows you to afford your payments
- Pay off your outstanding debts
- Save up for an appropriate down payment
- Confirm which make and model of vehicle you want
- Make sure your driver’s license is up to date
Finding A Cosigner
What if your finances or credit aren’t good enough? You can strengthen your application by finding a stronger borrower to cosign it. A cosigner gives your lender a way to protect their investment. The cosigner becomes responsible for your payments if you cannot pay.
Just be careful: Your cosigner’s finances and credit could be negatively affected if they become responsible for your car loan but they also can’t make payments.
How Can I Find The Best Deal On A Car Loan in Canada?
Cars come in all shapes, sizes, and costs. If you want the best deal on your car loan, here some extra tips to help you find it:
- Compare lenders/dealerships – Though you may want your car right away, you shouldn’t necessarily choose the first lender or dealership you come across. Spend time researching different lenders in your area so you can find a vehicle, interest rate, and repayment plan that works for your finances.
- Search for a no-credit-check lender or dealership – If bad credit is holding you back, you might be able to find a car loan source that has no credit checks. Although rates can be somewhat higher, this helps you avoid too many hard inquiries appearing on your credit report and lowering your credit score.
- Don’t borrow more than you can afford – For obvious reasons, asking for too big a car loan isn’t a good idea. Instead, consider making a larger down payment so you don’t end up in debt for longer than you have to be. You may even qualify for a lower rate because the lender won’t be taking as much risk.
- Offer collateral – You may be able to apply for a secured car loan using one of your assets as loan security. Like a cosigner, this gives your lender assurance that you’ll pay on time. However, your lender will have the right to seize your asset if you miss too many payments.
- Look into newer vehicles – Despite being more expensive initially, vehicles that are less than two years old often come with better rates because the lender or dealership isn’t risking as much as they would with a second-hand vehicle. Plus, your vehicle will likely be more reliable and cost-effective.
Looking For The Best Car Loans In Canada?
Loans Canada can help make your search easier. Whether you’re looking to finance a new or used car, we can connect you with the right lenders and dealerships in your area.
Can I get a car loan for a used car?
Yes. Car loans can be applied to almost any vehicle. However, if you’re trying to finance a used car that’s relatively cheap or from a private seller, it may be better to save up and buy it outright. That way, you won’t have to deal with as many extra costs.
Are down payments mandatory for car loans in Canada?
Typically, making a down payment is optional when financing a car. That said, putting at least 10% – 20% down can significantly reduce the final cost of your vehicle, as well as the length of your debt. Additionally, a large down payment can help you qualify for more appealing loan conditions and interest rates.
Will a car loan affect my credit?
This really depends on where you apply, because many lenders and dealerships report their clients to at least one of Canada’s main credit bureaus (Equifax and/or TransUnion). While some lenders won’t check your credit when you apply, they may report your payment activity once the loan is in effect. In that case, making payments on time and in full will gradually improve your credit, and you’ll be more eligible for good loan conditions in the future. However, every payment that’s late, short, or missed will damage your credit and make you a riskier borrower.
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