Subprime auto loans in Canada

Is your credit score holding you back from getting a new car? Subprime auto loan providers in Canada can help you secure the financing you need to hit the road.

In this guide, we give you tips on how to find the best subprime car loans and what interest rates to expect with your credit score.

What are subprime auto loans?

A subprime auto loan is car financing for borrowers with low credit scores below 660. Since subprime auto loans are offered to risky borrowers, the interest rates can be high. Like other auto financing, subprime auto loans are secured by the used or new car you buy.

Subprime car loans can be helpful for borrowers looking to get behind the wheel of a car while simultaneously improving their credit score. It looks good to lenders if you make repayments on time and in full, which positively impacts your credit report.

What are subprime auto loan interest rates in Canada?

Interest rates for subprime auto loans in Canada generally range from 12.9%–29.99%. Here’s how much financing a $25,000 subprime auto loan could cost with a 16% and 26% APR. This is just an example. Your actual rate and total interest cost could vary.

Can I afford subprime auto loan payments?

• How to use this car loan monthly payment calculator

  1. Enter the amount you want to borrow under Loan amount minus your down payment, if applicable.
  2. Write the number of years you have to pay off your car loan under Loan terms. If your loan term is in months, divide it by 12 first.
  3. Enter your car loan interest rate under Interest rate. If your car loan comes with fees, enter the annual percentage rate (APR) instead.
  4. Select Calculate.

How to get the best deal on a subprime auto loan

Subprime auto loans are expensive, but there are a few steps you can take to reduce the overall cost and ensure you’re borrowing from a legit lender.

Compare multiple lenders

The easiest way to get a good deal—or avoid a bad one—is to compare different lenders. You’ll see what rates you can expect and get a clear view of potential fees before setting foot on the car lot, helping you make a better decision. Be sure to check customer reviews and complaints for insight into how lenders treat their customers.

Shop used instead of new

While used car loans tend to have higher rates than new car loans, buying used means you won’t need to borrow as much and will have more manageable monthly payments.

Keep an eye on fees

Ask potential lenders about fees. Many will charge origination (loan set up), prepayment and late fees that quickly add to the total cost of your loan. Use our car loan monthly payment calculator to compare the loan costs to get an idea of which offers a better deal.

Visit the dealership with a loan in hand

Visiting a dealership with car loan pre-approval from another lender can put you in a position to negotiate. You might score a better deal if the salesperson can match or beat your pre-approval offer.

Apply with a cosigner

You might be able to score a lower interest rate by applying with a cosigner. However, since they’re taking on considerable risk if you default, discuss your budget with them and make it clear how you plan to afford the monthly repayments.

Save up for a down payment

A large down payment means you can borrow less and save on interest charges. A good rule of thumb is to save up 20% of your car’s value, but even a 10% down payment can help.

What do I need to apply for a subprime auto loan?

Exact eligibility criteria will vary between subprime auto lenders in Canada, but you generally need to meet the following requirements:

• Be the age of majority in your province or territory (18 or 19)
• Have a Canadian residential address
• Have a steady source of income ($1,500 – $1,800 is recommended)

Information you’ll need to provide at some point in the application process includes:

• Your name, contact information and address
• Your housing situation (do you rent or own your home, and how long have you lived there?)
• Your employment and income details
• Valid government-issued ID such as a driver’s licence or passport
• Information about your current debts

How to get a subprime auto loan online

1. Visit the lender’s website. Fill out your lender’s online application with basic personal and financial information.
2. Find out if you qualify. A customer service representative will reach out to discuss your application, including possible interest rates and terms.
3. Gather supporting documentation. If you want to move forward, provide documents to verify your application details.
4. Wait for a decision. Usually, it takes a day to two to find out if you’ve been approved for a subprime auto loan.
5. Review and sign the contract. If approved, your lender will send you a loan contract for review. This contract contains vital information including your loan term, repayment schedule and interest rate, so take your time reviewing it. If you’re comfortable, sign and return the contract.

Benefits and drawbacks of subprime auto loans

Are there alternatives to subprime auto loans?

yes, there are two alternatives to getting a subprime auto loan, although both can be risky:

• Unsecured personal loan. Unlike an auto loan, you won’t lose your car if you default on an unsecured personal loan. However, it can be more difficult to qualify for a personal loan, and rates are likely higher than a subprime auto loan since it poses more risk to the lender.
• Home equity loan. If you have equity in your home, you could use it to purchase a car. A home equity loan generally has better rates than a subprime auto loan. But it comes with the risk of losing your house if you default.

Is it safe to borrow a subprime auto loan?

It depends on the subprime lender and your financial situation. The high rates that typically come with subprime auto loans can be tough to pay. Missing payments could lead to hefty late fees or even repossession of your car.

Subprime loans are especially risky if you borrow from a buy-here, pay-here dealership, which are less regulated than other lenders. Not every dealership offering subprime auto loans is shady, but you should still research customer complaints on sites like the Better Business Bureau and Trustpilot. If you go with dealership financing, look for hidden fees or clauses in your contract.

Lookout for subprime lenders pushing large loan amounts and absurdly high rates. It could be a sign the lender is banking on you defaulting and plans to sell your debt for a profit. Protect yourself from predatory lending by comparing all your options, borrowing only what you need and avoiding anyone who pressures you to sign or has unclear terms. Also learn about car loan scams you could encounter.

Bottom line

Subprime auto loans can be beneficial if you have no other options. Comparing lenders and paying close attention to the terms of your contract can ensure you’re not taken for a ride. To learn more about how it all works, check out our guide to car loans.

Frequently asked questions

• What do I do if I can't repay my subprime auto loan?

  If you're unable to repay your subprime car loan, contact your lender immediately to discuss your options. They may be willing to extend your loan term to help make your monthly payments more affordable. Just keep in mind this will increase the total cost of your loan.

• What credit score is too low for a car loan?

  There's no credit score that is too low for a car loan. If your credit score is under 500 and you can't qualify for some subprime auto loans, you might qualify for financing with a bad credit car loan provider.

  These lenders consider your income more than your credit score. Bear in mind that, like subprime auto loans, bad credit car loans come with high interest rates. Learn more in our guide to getting a car loan with bad credit and no cosigner.

• Will having bad credit affect my car insurance rates?

  Unfortunately, it might. Depending on your province, having a poor credit score could raise your car insurance rate.

To make sure you get accurate and helpful information, this guide has been edited by Stacie Hurst as part of our fact-checking process.

Written by

Leanne Escobal

Publisher

Leanne Escobal is a publisher for Finder. She has spent over 11 years working with financial products and services, specializing in content and marketing. Leanne has completed the Canadian securities course (CSC®) as well as the personal lending and mortgages course by the Canadian Securities Institute. She has a Bachelor of Arts (Honours) in English literature and creative writing from Western University. See full bio

Co-written by

Kellye Guinan

Writer

Kellye Guinan is a freelance editor and writer, specializing in consumer lending. Her writing and analysis has been featured on Bankrate, MSN and MediaFeed. She holds degrees in anthropology and German language and literature from Middle Tennessee State University. See full bio

Kellye's expertise

Kellye has written 25 Finder guides across topics including:

• Personal, business, student and car loans
• Credit scores
• Car financing
• Debt consolidation