Looking to buy a new car? The best car loan rates in Canada can save you a ton of interest fees and make your life much easier.
Purchasing a vehicle involves a lot of work and often ends up becoming a more expensive venture than you initially planned for.
One of the tasks you need to complete is to find the cheapest car loan possible if you are unable to pay 100% cash outright.
To do this, you can hop from bank to bank to compare their car loan rates (e.g. TD, Scotiabank, BMO, RBC, and TD). Alternatively, you can easily compare multiple auto financing rates from online lenders without leaving the comfort of your home.
Best Car Loan Rates in Canada for 2023
Loans Canada is a loan comparison platform for all kinds of personal loans, car loans, debt consolidation loans, and bad credit loans. This company holds an A+ accreditation with the Better Business Bureau and features multiple lenders on its website.
Interest rate: 1.99% to 46.96%
Loan term: 3-60 months.
Maximum loan amount: Up to $50,000.
Eligibility: Resident of Canada and employed for at least 3 months with proof of income.
On Loans Canada’s website
Cars Fast is a popular destination for getting a car loan regardless of your credit score. The platform has partnerships with top loan providers, including TD, Scotiabank, RBC, HSBC, and others.
Interest rate: Varies.
Loan term: 12-96 months.
Maximum loan amount: $75,000.
Eligibility: Earn at least $20,000/yr, reside in ON, BC, or AB; and be employed for 3 months+.
LoanConnect is a search engine for finding personal loans online from various lenders. You can use it to find a loan that works for your situation regardless of your credit score.
Interest rate: 6.99% to 46.9%.
Loan term: 3-120 months.
Maximum loan amount: Up to $50,000.
Eligibility: Resident of Canada and the age of the majority in your province or territory.
On LoanConnect’s website
Below are lenders offering some of the lowest car loan interest rates in Canada – starting close to 0%.
The maximum interest rates advertised by auto lenders are high and typically only apply if you have a poor or bad credit rating. For the average Canadian with a good credit score, your best rate is much lower.
- Interest rate: 1.99% to 46.96%
- Loan term: 4-60 months
- Maximum loan amount: $50,000
Loans Canada offers access to more than just auto financing loans.
Using Loans Canada’s loan comparison platform, you can also borrow money from its partner lenders for car repairs, auto financing, and more.
Loans Canada is linked to the largest dealer network in Canada, and you can get a loan for various types of vehicles, including sedans, SUVs, vans, trucks, and luxury cars.
Loan terms range from 4 to 60 months, and you can borrow up to $50,000.
CarsFast (Lending Arch)
- Interest rate: Varies
- Loan term: 12-96 months
- Maximum loan amount: $75,000
CarsFast is a top destination for getting a car loan regardless of your credit score.
The platform has partnerships with several Canadian loan providers (TD, RBC, Scotiabank, HSBC, WS Leasing Ltd., Valley First, etc.) and has over 350,000 approved customers.
You can borrow up to $75,000 for a car with terms ranging from 12 to 96 months. Interest rates vary depending on your credit profile.
The minimum eligibility requirements for a CarsFast car loan are that you must be:
- Over the age of 20
- At least $20,000 per year in income (whether employed or self-employed)
- Have a valid driver’s license
- Residing in Alberta, British Columbia, or Ontario.
- Employed for over 3 months
- Interest rate: 6.99% to 46.96%
- Loan term: 3-120 months
- Maximum loan amount: $50,000
Loan Connect offers a search engine to find personal loans online from various lenders, with rates as low as 6.99% for auto loans.
Whether it is a personal loan (e.g. car loan), debt consolidation loan, bad credit loan, or emergency loan, Car Loans Canada can help you find the best rate regardless of your credit score.
The application form is short, and you are matched with a suitable lender within minutes.
Loan Connect is accredited by the Better Business Bureau, which gives it an A+ rating. For more details about Loan Connect, read my detailed review.
Clutch is a good option for low-interest-rate loans. In addition, you can buy cars here directly from Clutch instead of third-party dealers.
There is a simple online application process, and it accepts trade-ins. All vehicles come with free CARFAX reports, and 210-point inspections are carried out for all vehicles. Then, clutch delivers the car to your address and provides a money-back guarantee for 10 days.
Car Loans Canada
Car Loans Canada is the oldest online auto service in Canada. With operations in nine provinces, they have served more than 1.6 million Canadians to date and approve over 11,900 applications every month.
Their online application form takes less than 3 minutes, and approval for auto-financing is quick.
The loan interest rate varies up to 29.95%, and you can borrow money for up to 8 years. Loan amounts vary depending on the car’s value based on the Canadian Black Book.
This Car Loans Canada review covers a few more details about what they offer.
Canada Auto Finance is a good option for people with bad credit or no credit. You can borrow between $5,000 and $45,000, and interest rates start at about 5%, but they can go up to 29.95% for people with bad credit.
It connects you with dealers in your area, and it offers same-day approvals. No down payments or co-signers are required, and you can use your loan to buy new and used cars as well as other types of vehicles.
Scotiabank may be a good place to look for a loan for leisure and recreational vehicles. You can borrow up to $200,000 and repay the loan over 96 months.
Large loans are available at fixed and variable rates, and you can pay off your loan early without any penalties. But it’s only suitable if you have a good credit score.
TD Auto Finance
TD car loans provides loans for new and used cars as well as other vehicles like RVs and trucks. Loans can have fixed or variable rates, and the maximum term is 96 months. Interest rates for car loans are not displayed on the website.
TD offers payment extensions if needed, making it a flexible option. You can also pay off some or all of your loan with no penalty.
Ideally, you will need a good credit score to qualify.
You can find competitive rates and flexible terms at RBC car loans if you have good credit. To understand your options, consider pre-qualifying for a loan before visiting a dealer.
This lender offers fixed and variable rates and loans for various vehicles, including cars and RVs.
Canada Drives has been connecting Canadians with competitive car loan rates since 2010. With several affiliated dealerships across the country and 1 million completed applications, you can have your car within a few days.
To start the process, you will need to complete an online application form which takes 10 minutes or less.
After providing your basic details and submitting your application, Canada Drives finds a suitable deal, and you know what’s available before setting out.
Read this Canada Drives review for more details.
Compare Top Car Loans in Canada
|Lender||Interest Rate||Loan Term||Max. Loan Amount|
|Loan Connect||6.99% – 46.96%||3-120 months||$50,000|
|Loans Canada||1.99% – 46.96%||4-60 months||$50,000|
What Is a Car Loan?
Car loans are loans that you borrow specifically to purchase a car. You can use them to buy new and used cars, and you can get loans from several different types of lenders. While they all have the same purpose, several factors differentiate them.
The principal is the amount you borrow, depending on how much you need to buy a new or used car, along with any extra costs involved.
Additional costs include fees, taxes, add-ons and upgrades, so make sure you know these and avoid any unpleasant surprises. For example, you may be charged appraisal or discharge fees after your final payment.
The principal is also affected by the down payment you make. The larger the down payment, the lower the principal.
The interest rate is the next important factor. The percentage the lender charges to lend you the money will determine how much you need to pay back overall.
A higher interest rate leads to a more expensive loan. The interest rate is determined by several factors, including how much risk you present to the lender, and we will look at these in more detail later.
The loan term is simply the length of the loan until you pay it all back. A longer loan term means smaller monthly payments, but you will end up paying back more interest.
If you have a shorter loan term, you will pay back less in total, but the overall cost of the loan is lower. Car loans can have terms from one year up to as many as seven years or more.
Types of Car Loans in Canada
All car loans have the same purpose. They are all personal loans that you use to buy a car. But there are several types of loans, all of them slightly different. So you should compare these loans to help you decide which is best.
Unsecured Car Loans
These are the standard car loans. You do not use security to get the loan, and they are riskier for lenders, which can make them more expensive for you.
Secured Car Loans
These are car loans where you use security. They are less risky for the lender, so you may get a better deal. Learn about bad credit car loans.
Fixed-Rate and Variable-Rate Car Loans
Fixed-rate car loans have a fixed interest rate, while the interest rate changes with variable-rate loans.
Bad Credit Car Loans
These are designed specifically for people with poor credit ratings. You could still get a car loan even if you have a bad credit score. However, they are likely to be more expensive.
How Do Car Loans Work?
When you take a car loan, the car becomes collateral for the loan, and if you cannot make payments on time, the lender can seize the vehicle.
You can get a car loan from a bank, dealership, online lender, or credit union.
An online lender is convenient, and you can easily compare rates from the comfort of your home. They may also accommodate poor and bad credit.
The various terms you should understand when applying for a car loan include the following:
Principal: This is the amount you borrow to purchase a vehicle.
Interest rate: This refers to the effective interest rate (APR) you pay on your loan. The car loan rate you qualify for varies with your credit score, vehicle age, down payment, and the lender’s prime rate. The interest rate can be fixed or variable. For most car loans, your monthly payments stay the same (i.e. fixed rate). When you make a payment, a portion goes to offset the principal amount owed, and the remainder goes to interest.
Loan Term: This is the time you have to pay back the car loan. It can range from 1-8 years (12-96 months).
The combination of a lower interest rate and a shorter loan term can help you save money on your car loan. Use the car loan calculator below to test various scenarios.
Where to Get a Car Loan in Canada
When you have a better idea about the types of car loans available, you will need to find a lender. But, again, here you have several options for the best auto loans in Canada.
Online lenders are the most convenient option because you don’t have to leave your home, and you can compare lenders online.
Simply find a suitable lender and fill in your details, and they will make a quick decision about whether to lend you money for your car.
One of the benefits is that they often have pre-approvals, so you can find out whether you have a good chance of getting a loan before you make a full application.
You may also find it easier to find online lenders who can provide car loans for bad credit.
The main disadvantage is that you cannot visit them in person and go to a local branch. Communication is mostly online or over the phone.
Dealerships often provide car financing, making it very convenient for you. You can find your car and get a loan all at the same time.
If they see the chance of a sale, they may be more lenient and offer you a loan even if you have a bad credit score. Car dealership interest rates vary, but they might be more flexible rather than see a sale slip away.
Some people also like meeting the dealer in person and discussing their options face-to-face. So if you don’t like comparing products online, it can be a good option.
Banks and Credit Unions
Many banks and credit unions offer car loans. You could start by going to your local bank branch or checking the website, and you may find a good deal if you have been a customer for a long time.
The problem with banks and credit unions is that they are not known for providing car loans to people with bad credit.
They also don’t have the most competitive deals. But on the plus side, they are reputable and trusted lenders, which can be reassuring.
How Is Car Loan Interest Calculated?
Lenders will evaluate you based on several factors and determine the interest rate to charge.
One of the first is your credit score. A lower score usually translates to a higher interest rate and vice versa. That’s because a low score presents a larger risk to the lender. Anything over 660 is good, but higher is better.
Your income is another factor, as well as how stable your employment is. The lender wants to know how much of your income will go towards paying back the debt, known as the debt service ratio.
A lower ratio is better because it means less of your income goes towards paying the loan, and this can lead to a lower interest rate.
A longer-term loan implies more risk for the lender. As such, you can expect to pay a higher rate of interest.
The vehicle is also a factor. If you default on your payments, the lender can sell your car. Buying a car that holds its value and is in more demand could lead to a lower interest rate.
How much you can pay towards the car in the down payment can also have an impact. If you pay a larger down payment, you may get a lower interest rate in return.
Car Loan Payment Example:
If you want to borrow $30,000 to buy a car, which includes a provincial sales tax of 13%, and a loan term of five years, here is what you could expect to pay in interest:
|Credit Rating||Interest Rate||Monthly Payment||Total Interest|
Car Loan Calculator
What Is a Good Credit Score for a Car Loan in Canada?
The better your credit score, the lower the interest rate you will likely pay when you take out a car loan.
But how much will this be?
Interest is not just affected by your credit score, as explained above. It is also impacted by the amount you borrow, the loan term, your debt-to-income ratio and more. But it is a big factor.
If you have an excellent credit score, you may be able to get a car loan with an interest rate of 3%-5%. If you have a good credit score, 7% or less would be considered good.
If you have a fair credit score or a poor score, you can still find a loan. However, interest rates could be as high as 10% or 15%.
|Credit Score||Rating||Interest Rate|
How to Get the Best Car Loan Rate in Canada
If you are looking for a car loan in Canada, it’s only natural that you will want to get the best rate possible to reduce the cost of your loan.
Improve Your Credit Score
If you have a poor or average credit score, you may want to consider improving this if you are not in a rush to buy your car.
You could do this by applying for a secured credit card. You can then borrow a small amount each month and pay it back on time. The card will report your activity to the credit bureaus, improving your score gradually.
Use a Co-Signer
If you have a bad credit score and you still want to get a car loan soon, you may want to use a co-signer like your partner or a friend or family member.
A co-signer with a good credit score reduces the risk for the lender, which could mean you can get a better interest rate.
Save Up a Larger Down Payment
If you have time and the resources to save up a down payment, do so. Again, this makes you less risky for the lender and can save you money overall when you get a lower interest rate in return.
Always Compare Loans
Never apply for the first loan you come across, and always compare them. You may find a very similar loan for a lower cost. Get pre-approved rather than applying to get a good idea of what type of loan you can get.
Negotiate with Lenders
If you go to a dealership, consider negotiating with them. They want to make a sale, and they often have room to negotiate.
If you have good credit, you have more bargaining power. Know about interest rates and what you can expect, then go in prepared and know whether you are being offered a good deal.
This is another good reason to get pre-approved for a car loan. You can use this in your negotiation if you go to a dealership because they may want to offer you a better deal.
Car Loan Application Checklist
You can expedite your car loan application by getting your finances in order and by being ready to provide any required documentation.
Proof of Employment: Most lenders want to see that you are employed and earning enough income to cover your car payments. Copies of your bank statements, pay stubs, or notice of assessment should be adequate. Some lenders also accept government assistance or benefits.
Credit Score and Report: Your 3-digit credit score measures your creditworthiness. If you are unsure what your credit score is, you can check it for free here.
Your credit report also details how you have managed your finances over time. Typically, lenders want to see your debt-to-income ratio, payment history, and account balance. You can improve your credit score by paying bills on time.
Bank Details: You will need to show that you have a bank account in Canada. A void cheque to set up your monthly payment is typical.
Driver’s License and Proof of Residence: A government-issued ID such as your driver’s license is used to confirm your province of residence and address. Other documents that may be requested include your utility bills.
Vehicle Information: Duh! Of course, you need to know the type, make, and purchase price of the vehicle you want.
Proof of Car Insurance: Before driving off the lot, you may have to show you have purchased car insurance.
Should You Lease or Finance a Car?
When you can’t afford to pay cash upfront for a car, you can either finance it through a loan or lease it.
Lease a Car
Leasing is like renting a car…you don’t own it. You drive the car for a specified length of time and only make payments during that time. When your lease ends, you can simply return the car and move on.
Leasing a car makes sense if you:
- Don’t want to deal with repairs and maintenance. A lease is typically still covered by a manufacturer’s warranty
- Always want to drive a new car every 2-3 years
- Want lower monthly payments
- Don’t want to take on a car loan
- Don’t drive a lot – there are mileage limits
- Want an option to buy a car later if your needs change
Cons of Leasing a Car
When you lease a car, your lease payments do not build up to become equity in the car, and you do not own it.
Generally, there will be limits to how much driving you can do (mileage-wise), penalties are incurred if you terminate your lease early, and insurance costs more.
Finance a Vehicle
When you finance a car, you take out a car loan and make payments until your entire loan balance is paid off. After paying off your car loan, the car is yours, and you can do whatever you want with it.
The benefits of financing a car purchase include the following:
- You own the car after paying off the car loan and can sell it later or trade it in for another vehicle
- You build equity in the vehicle with each monthly payment
- There is no limit to the mileage you can drive
- Car insurance costs are lower over the life of the car
- There is the flexibility to customize the car to your taste
Cons of Financing (buying) a Car
Your monthly payments will be higher while you are paying off the loan compared to a lease. You are responsible for selling the car if you decide to do so later.
Lastly, maintenance and repair costs are your responsibility.
When you have found the best car loan rate, make sure to keep to your payment schedule (bi-weekly or monthly), as this will improve your credit score and help you avoid expensive late payment penalties.
Most car loans do not have prepayment penalties. So, if your income increases or you come by a cash windfall, you can increase your payments and lower your interest costs.
A car loan is a personal loan used to purchase a vehicle – preowned or new. Over time, you will pay back the amount you borrowed from the lender, plus interest.
Most banks provide car loans, but the products and rates can change. Your best option is to investigate the loans and find out which has the best rates at the time of searching.
The average car loan interest rate in Canada is about 5% to 6%.
You may be able to find 0% financing car loans in Canada, but they are only available at dealerships.
A 7% interest rate on a car loan is not considered too bad, especially for a used car.
Major car manufacturers like Ford and Toyota may have 0% financing in 2023. But it’s important to research dealerships to find out which specific models are available.