Compare car loans for November 2024

Compare loans from some of Canada’s top lenders

What is a good interest rate on a car loan in Canada?

A good car loan interest rate is the lowest rate you can negotiate for a car loan. That said, it can be hard to determine whether an offered car loan rate is good, or not. One good method of making this assessment is to compare the car loan rate to the average interest rate for car financing in Canada. Using the average car loan interest rate lets you benchmark loan rates offered by various lenders — and determine if a lender is offering a good rate or not.

At this point in time, the average interest rate for car financing in Canada is 7.50% — which means most Canadians pay between $400 and $900 per month on a car payment — more if they finance a SUV or truck.

Keep in mind, the car loan interest rate you are offered depends on a number of factors, like your credit score, the cost of your vehicle, how much you want to borrow and for how long, among other details.

If you have a good or excellent credit score, you may be able to score an interest rate lower than the national average – anywhere between 0% - 7.5% depending on the make and model, while used car loan rates could range around 8% - 10%. If you have a poor credit score, your car loan rates will probably be higher.

To keep your costs low, you want to find car financing with the lowest car loan interest rate and terms that meet your needs. Generally, the lower the interest rate and the shorter the loan term, the more money you’ll save.

Is 0% financing available in Canada?

While you may come across offers from car dealerships or some online lenders promising 0% financing, remember that most zero-financing deals are difficult to qualify for unless you are considered an exceptional borrower.

In order to qualify for low-financing offers, customers typically need to have exceptional credit scores, purchase specific vehicles or provide a large down payment.

Important car financing terms

To accurately compare loans, you first need to understand the terms and conditions included in car loan contracts. In general, there are three numbers you need to pay attention to when reviewing a car loan:

Principal

This is the total car loan you need to borrow in order to finance a new car. While the easiest way to determine the principal is to look at the cost of the vehicle, keep in mind that the total car financing you will require needs to include the cost of the vehicle, as well as taxes, fees and any additional costs. You can reduce your total auto loan amount through rebates and a larger down payment.

Loan term

The amount of time you agree to repay your auto loan. The loan term can be expressed in years or months. Typical car loan terms range from one to seven years. When deciding on the best loan term, remember that the longer the loan term, the lower your monthly payments but, the more interest you pay. Your best option is to choose a repayment plan that you can stick to with the goal of getting out of debt as quickly as possible.

Fees

Additional fees can add up and, if you’re not careful, significantly inflate the overall cost of your vehicle purchase. For example, you may be required to pay a surtax if you bought an import through a dealership. The dealership may add another cost to the overall purchase price because you upgraded from cloth to leather seats. Then you may be required to pay legal or appraisal fees when opening a car loan, or a discharge fee when you make your final payment.

Interest Rate

The interest rate is what a car loan lender will charge you to borrow money. Expressed as a percentage, the interest rate is the cost of borrowing and is added to the amount you owe. For reference, the current average car loan interest rate in Canada, according to Statistics Canada, is 7.50%.

Let’s say you took out a $10,000 car loan at an interest rate of 8.5%, with a 60-month loan term. Your monthly payment would then be just over $205, and at the end of the 60 months, you will have repaid the $10,000 car loan and paid the lender an additional $2,310 in interest payments.

Interest rate vs. APR

For a more accurate comparison of your car financing options, it’s best to determine each lender’s annual percentage rate (APR). That’s because it offers a more accurate overall cost on how much an auto loan will cost you and helps you make a more informed car financing decision.

The APR is the interest rate on the car loan plus any additional costs and fees associated with the auto loan. You can find the APR in the loan agreement — keep in mind, that it’s usually higher than the advertised interest rate.

What credit score is required for a car loan in Canada?

While it depends on the lender, it’s possible to get a car loan in Canada with any credit score.

Credit scores can range between 300 and 900. Anyone with a credit score of 650 and higher is categorized as having good to excellent credit, which indicates to lenders that you pay your bills on time and manage your debts responsibly. People in this category are often eligible for a loan from a bank or standalone lender, at a much more competitive interest rate.

People with credit scores between 600 to 649 have a “fair” credit score, while anyone with a credit score of 599 and below is considered to have a “poor” credit score. People with poor or fair credit scores usually end up with interest rates that are higher with lower loan amounts.

To appreciate how your credit score can affect your car loan interest rate, and the overall cost of your new vehicle, consider the following. Suppose you want to purchase a $15,000 car with a $2,000 down payment.

Credit score	Example interest rate range
300 to 659	10% to 29.99%
660 to 900	0% to 10%

Note: The interest rates listed above are examples and do not consider all factors lenders consider when evaluating a loan application.

Where to get a car loan with bad credit in Canada?

While having a bad credit score (scores between 300 and 600) will limit your options, there are plenty of lenders who will still work with you and help you get a car loan. Just don’t be a surprised if the loan amount you qualify for is smaller than you wanted and with higher interest rates.

Car dealerships and online car loan lenders offer bad credit car loans for consumers who are dealing with bankruptcy, bad credit, or no credit at all. With bankruptcy, the process of getting a car loan may take a bit more time because your lender may need more information from your trustee.

What do you need to apply for a car loan in Canada?

Most lenders will ask to see at least three documents when you apply for a car loan:

• Your driver’s licence. Your lender might ask to see your licence or require your licence number. Either way, have it on hand.
• Your insurance card. Some lenders require you to have specific car insurance before applying for car financing.
• Employment verification. You might be asked to submit tax returns, bank statements or recent pay stubs to prove you make enough to afford your car financing.
• Government-issued ID. You’ll need to show ID, like your driver’s licence or passport, to verify your identity.
• Bank account information. Supply direct deposit information to pay for your car or arrange to make your monthly repayments.

Basic eligibility criteria to qualify for car loans in Canada:

• Be at least the the age of majority in your province or territory (18 or 19 years old)
• Be a Canadian citizen or a permanent resident with a valid Canadian address
• Be employed and have a steady income
• Meet credit score and income requirements set out by your lender

FAQs

What’s a good APR for buying a used car?

The APR you qualify for will depend on your personal credit score, the cost of the vehicle, your debt levels and your down payment. If you have excellent credit, expect a good used car loan APR could be as low as 8%. If you have poor credit, then the cost of your used car loan will increase. Borrowers with fair or poor credit shouldn’t be surprised to see APRs as high as 29.99%.

Should I lease my car instead of buying it?

Leasing a car can be an option to consider if you’re looking for a newer model car every two or so years – just remember you will never have ownership of this vehicle. Repayments will generally be lower on lease agreements but they are harder to get out of than just selling a car under finance, so you need to be sure you’ll want the car for the next two years. Learn more with our buying vs leasing a car guide here.

What credit score do I need to get 0% financing?

Typically, 0% financing is only available to borrowers with excellent credit scores – between 800 and 900. Dealers typically also consider aspects of your personal finances like your income and debt-to-income ratio when deciding your interest rate.

Will shopping for a car loan affect my credit score?

Credit scoring systems usually count multiple auto loan inquiries within a certain time frame – typically two weeks – as one. One inquiry may cause a small, temporary drop in your credit score. But it’s better than multiple inquiries.