Car Loan Rates in Canada
Average Canadian Car Loan Rate:7.5%
Source: Statistics Canada Latest Update: August 2024
What You Should Know
- A car loan allows you to purchase a car through weekly, bi-weekly or monthly installments.
- Your interest rate is influenced by your creditworthiness, type of car, and loan characteristics.
- Borrowers with a credit score above 700 and a low debt-service ratio tend to get the best interest rates.
- Additionally, new cars and popular car models with low depreciation and mechanical reliability often have lower auto loan rates.
Interest Rate on Auto Loans
Source: Statistics Canada
Car Loan Rates for New and Used Cars
According to the latest data from Statistics Canada, the average car loan interest rate in Canada for new loans as of August 2024 was 7.5%. Loan interest rates for financing used cars are typically higher than for new cars. Banks usually finance the purchase of used or pre-owned cars through the dealerships selling the cars. The interest rate is typically fixed and does not vary with the loan term. A typical starting rate of 5 -7% can be expected for borrowers with good credit. For bad credit car loans, the interest rates can be as high as 29.99%, and sometimes even more.
Used Car Loan Rates
| Credit Score | Loan Interest Rate |
|---|---|
| Excellent | 5.99% - 8.99% |
| Good | 8.99% - 10.99% |
| Poor | 10.99%+ |
On average, the interest rate for purchasing a new car is in the range of 4-7%. However, dealerships may offer promotional 0% financing offers or very low interest rates on select car models from time to time. The table below shows car loan rates for new cars offered by car dealerships for some of the companies' most popular models.
New Car Loan Rates
| Car Brand (In-House Financing) | APR (60 months term) |
|---|---|
Mazda | 2.95% |
GMC | 3.07% |
Jeep | 3.98% |
Chevrolet | 4.13% |
Tesla | 5.35% |
Honda | 5.49% |
Hyundai | 5.49% |
Ram | 5.49% |
Mercedes Benz | 5.49% |
Volkswagen | 5.49% |
Subaru | 5.49% |
Ford | 5.99% |
Nissan | 5.99% |
Kia | 5.99% |
Toyota | 6.39% |
Note - The APR displayed is for a loan term of 60 months, the interest rate may be more or less for a shorter or longer term.
Disclaimer - The interest rates displayed on this page are as per the Canadian websites of the above-listed car companies and financial institutions. The interest rates displayed are for individuals with good credit scores and can be higher if you have a bad credit score. The interest rate can vary depending on the location, model, and year of manufacture. As interest rates depend on many factors, the above-listed rates cannot be guaranteed.
Apart from the above-listed rates, the TD Wheels mobile app can be used to find financing options for new cars and get pre-qualified. The app allows the user to select their preferred car make, model, and year and shows the available interest rates for the financing of the selected vehicles. The users can also find dealerships that work with TD Auto Finance through the mobile app. Similarly, there are other auto finance companies and online resale companies that also offer to finance. Some of them are listed below.
| Lender / Company | Loan Interest Rate | Loan Amount |
|---|---|---|
Clutch | Varies | Up to $50,000 |
Car Deal Canada | Varies | $10,000 - $75,000 |
Car Loans Canada | 2.95% - 29.95% | $7,500 - $55,000 |
Safe Lend | 8.99% to 19.99% | $7,500 to $50,000 |
TD Auto Finance (TD Wheels App) | From 2.99% (for new cars) | - |
Canada Drives | N/A (for used cars) | - |
Updated: Nov 2024
Note: The above rates are from the websites and mobile applications of the lenders. The rates can vary depending on the car's make, model, and year.
How to get the best rate on your car loan
The best way to ensure you get the best interest rate on your car loan is by having a solid application. This includes:
- Credit score above 700
- Down payment above 20%
- Maximum loan term of 36 to 48 months
- Low debt service ratio
- A reliable car model that is in demand with low depreciation
How Do You Get a Car Loan?
A car loan or auto loan allows you to finance the cost of purchasing a car in Canada. Instead of paying the cost of the car upfront, you can pay weekly, bi-weekly or monthly instalments plus interest. Car loans are available from various sources, such as:
- Banks,
- Credit unions,
- In-house financing or manufacturer financing at auto dealerships, and
- Auto-financing companies
Banks and auto-financing companies usually offer auto loans to borrowers through dealerships, and you will typically have to go through a dealership to get a loan from them.
Many banks, car dealerships, auto finance companies, and even credit unions offer pre-approval services. By getting a pre-approval, you can find out how much loan you can be approved for. This can help you decide your budget and what car to buy. If you are a banking customer of a bank and wish to get an auto loan from them, you can typically find dealerships offering loans through that bank on the bank’s website.
You can get a car loan to buy new or even used cars. Additionally, you can also use car loans to purchase RVs, commercial vehicles, and more. In most cases, the loan will be secured by your vehicle. If you fail to make payments, the lender can seize your car to pay off your debt.
Factors That Affect Your Car Loan Rate
Similar to getting a mortgage in Canada, lenders will assess you on various factors to determine your interest rate. These include your credit score, income, loan characteristics, downpayment and the secured asset (the type of car). This section will dive into these factors to provide a deeper understanding of how your car loan rate is calculated.
| Factor | Description |
|---|---|
| Credit Score | A higher credit score will get you lower interest rates. |
| Loan Term | Shorter loan terms result in less interest paid. |
| Type of Car | Lenders prefer car models that are in demand, depreciate slowly, and without known mechanical issues. |
| Income | A lower debt service ratio will decrease your interest rate. |
| Down Payment | Larger down payments will decrease your interest rate. |
Credit Score
Your credit score is one of the most important factors that lenders consider when approving you for a car loan. It ranges from 300 to 900 and represents your creditworthiness. Generally, the higher your Canadian credit score, the lower your interest rate in Canada. This is because people with high credit scores have a track record of making on-time debt payments.
In Canada, a good credit score is considered anything over 660, and an excellent credit score of over 700 will likely get you the best interest rates. If you have a low credit score, you may still be able to get approved for a car loan for bad credit. However, you will likely have to pay a higher interest rate.
| Credit Ranking | Score Range | Interest Rate Range |
|---|---|---|
| Excellent/ Very Good | 725 to 900 | 5.99% - 8.99% |
| Good | 660 to 724 | 8.99% - 9.99% |
| Fair | 560 to 659 | 9.99% - 10.99% |
| Poor | 300 to 559 | 10.99%+ |
Loan Term
Your term length is the loan characteristic that affects your interest rate the most. A longer loan will result in a higher interest rate because the lender is taking on more risk. This is because you are more likely to default on a longer loan. For example, it's easier to miss a few monthly payments on an 84-month loan than on a 36-month loan.
| Loan Term | Interest Rate Range |
|---|---|
| Less than 78 Months (6.5 Years) | 4.5% to 8% |
| 79 to 83 Months (6.5 - 7 Years) | 5.5% to 9% |
| Over 84 Months (7 Years) | 6% to 9.5% |
Type of Car
Lenders want to ensure they can quickly sell your car to pay off your loan if you default. As a result, lenders are concerned with the following information about your vehicle:
- Is it in high demand (can they sell it quickly)
- How fast does it depreciate (will it retain market value)
- Are there known mechanical issues (will it be expensive to fix)
Luxury cars will typically have a higher interest rate because they are riskier to lenders. There are not many buyers, they depreciate quickly and are very costly to repair. For these reasons, many lenders have a limit of $75,000 for auto loans. Additionally, cars older than seven years tend to have a higher interest rate. You will receive the best interest rates for newer vehicles that are in high demand, retain value, and are reliable.
Income
Lenders calculate the percentage of your income that goes towards paying off debt obligations. For example, you may have student loans, a mortgage, and more. This ratio is known as your debt service ratio. A lower ratio is better because less of your income is stuck paying off debts. As a result, you are less likely to default on your auto loan.
A higher income will only increase your chances of getting approved for an auto loan if you don't have ballooning outstanding debts. Your debt service ratio will reduce if your income increases or debt reduces. If you have numerous outstanding debts, you can consider using a debt consolidation loan to reduce your debt payments.
What is GAP Insurance?
"GAP" stands for "guaranteed asset protection." GAP insurance is an optional product that can be added to your car loan. It covers the difference between the amount you owe on your loan and your car's worth if it's stolen or totalled in an accident.
Down Payment Size
While it is possible to get a car loan without a downpayment, putting a down payment means you are perceived as less risky by the lender. As a result, you could receive a lower interest rate.
For example, assume you buy a $10,000 car with a $7,000 loan and a downpayment of $3,000. If you immediately default on your loan, the lender can claim the vehicle and sell it for $10,000. This would recover their $7,000 loan, and you would receive the surplus, less legal and administrative fees. However, if your down payment was only $500, there would be more risk to the lender. They would scramble to sell your car at market prices and may not recover their loan.
As you can see, a higher down payment provides less risk to your lender, which should give you a better interest rate. If you have a trade-in vehicle, this can be used as part of your down payment. Make sure to research your vehicle model to ensure you are getting a fair price for your trade-in.
Auto Loan Characteristics
Navigating auto loans can be overwhelming. Similar to understanding mortgages in Canada, there are many complex words. Additionally, not understanding something could end up costing you thousands in interest charges . This section will demystify auto loans to help you best compare them.
Fixed vs. Variable Rate
While fixed-rate car loans are more common in Canada, you may also be able to get a variable-rate loan. Fixed-rate loan’s interest rate and periodic payment amount remain the same throughout the loan term.
On the other hand, if you have a variable-rate loan, the loan interest rate will change with the changes in the prime lending rate. This is because a variable rate is calculated by adding a premium to the prime lending rate. The premium you receive is dependent on your creditworthiness. For example, someone with a high credit score, low debt service ratio, and reliable car model would receive a lower premium, whereas someone who is seen as riskier must pay a higher premium.
Interest rate vs. APR
The annual percentage rate (APR) is always more important than your interest rate because it indicates the actual cost of borrowing. The APR reflects additional fees charged by a lender on top of the interest. Sometimes, lenders try to entice you with low interest rates, but the actual cost of borrowing may be higher due to high fees.
Term Length
The term length is the amount of time you have to repay your car loan. In Canada, most auto loans have terms between 4 and 7 years. The longer the period, the lower your monthly payments will be. However, you will pay more in interest charges over time.
It's generally advised to keep shorter term lengths because your car depreciates faster than you can pay off the loan. At the end of a long term, many people find their car less valuable than their loan balance. They are "underwater" on their loan. Shorter term lengths will prevent this and save you from higher interest charges.
Loan Range
Most lenders have a maximum and minimum amount they are willing to lend you. For example, a lender may only finance a car that costs between $10,000 and $75,000.
Down Payment
Your down payment is the lump sum you pay upfront to lower your loan amount. The larger your down payment, the lower your loan amount, monthly payments, and interest charges will be. In Canada, most lenders require at least 10% of the car's total value as a down payment.
Trading in your old car
Trading in your old car will act as a down payment and lower the amount you need to finance. Larger down payments lower your monthly payments and save you on interest charges. Ensure you research the actual value of your car to determine if the dealer is providing a good deal. Otherwise, you could save money by selling your old car on a classified site and using the proceeds as a down payment for your new vehicle.
Payment Customization
You can usually tailor your car loan payments to suit your budget better. Most lenders allow you to make weekly or bi-weekly payments instead of monthly payments. With bi-weekly payments, you make one payment every two weeks instead of one payment per month. Meanwhile, if you opt for weekly payments, you will make one payment every week.
You may also be allowed to make extra payments periodically, which can be a great way to stay on top of your car loan.
Pre-Payment Charges
Most lenders in Canada allow you to make additional payments or pay off your loan early without any penalties. This is called "pre-payment privileges." Pre-payment privileges are great because they allow you to save on interest charges by paying off your loan faster.
However, some lenders will charge a "pre-payment penalty" if you pay off your loan early. These penalties can be up to 3% of your original loan amount. Make sure you know whether or not your lender charges pre-payment penalties before signing your loan agreement.
Car Restrictions
The car you want to finance will usually need to meet specific criteria the lender sets. For example, most lenders will only finance cars less than ten years old and have less than 160,000 kilometres on them.
Lenders put these restrictions in place because they want to minimize their risk. They are more likely to approve a loan for a newer car because it will have a lower chance of breaking down and will hold its value better over time.
Dealer financing or car loan?
Car dealerships provide fast and easy-to-qualify loans. While a bank or credit union may have more lending criteria, they often have a lower interest rate than dealerships. However, in some cases, dealerships will have promotional rates such as 0% APR.
While this is a great deal, ask about the interest rate after the promotion ends. You may sometimes be stuck with a higher interest rate for the remainder of the term. Additionally, dealers may try to pressure you into more products, such as extended warranties. Be aware when negotiating with a dealer. Do your research and you may have an even better interest rate.
Car Loan Alternatives
If you don’t want to get a car loan or aren’t approved for it, you may consider the following alternatives:
- Car Lease: Car leasing is one of the most common alternatives to car financing. Car dealerships allow you to lease a new car for a fixed length of time, such as two or three years. At the end of this period, you are given the option to return the car or buy it. Lease payments are often lower than car loans, and you usually don’t need to pay a downpayment to lease a car. The major con here is that you don’t own the vehicle unless you purchase it, and thus, it is not an asset you can sell if you need to. Meanwhile, leasing can be a great option for people who like to change their car every few years.
- Cash: An obvious alternative to financing is purchasing the car outright and saving on the interest costs as well as the hassle of financing. However, you can do so only if you have enough cash. You may consider withdrawing from your TFSA, but ensure that you aren’t exhausting your emergency fund in doing so. Some people also choose to finance their vehicle despite having enough cash because their investments yield better interest than the interest rate of the car loan. Withdrawing from such investments to buy a car means they would save less in the long run.
- Personal Loan: A personal loan can be used for numerous purposes, including buying a car. The main difference between a personal loan and a car loan is that while most personal loans are unsecured, meaning they aren’t secured by your vehicle, car loans are almost always secured loans. This means that if you default on a car loan, you may end up losing your car, which may not be the case with a personal loan. The catch here is that personal loans typically have higher interest rates than car loans.
- HELOC: If you are a homeowner and have accumulated significant equity in your home, you can get a Home Equity Line of Credit (HELOC). Here, the loan you get is secured by your home and there’s usually no restriction to using the funds from the loan. HELOC interest rates are often lower than car loan rates.
- Credit Cards: While it is not the best choice in most cases, if you have a credit card with a significant credit limit, you could consider buying a car using your credit card. You should remember that credit cards usually have very high interest rates, and you could end up paying a lot of interest. A dealership may also charge you a fee for credit card payments. Another drawback is that higher credit utilization can negatively impact your credit score. If you use this option, be sure to pay off the credit card at the earliest.
- Borrowing from friends and family: If you have friends and family who could lend you money for the car purchase, you could consider the option. In such a scenario, you should ensure you are capable of paying the loan back and borrow only as much as you can repay to avoid an unpleasant situation.
Disclaimer:
- Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
- The calculators and content on this page are for general information only. WOWA does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
- Financial institutions and brokerages may compensate us for connecting customers to them through payments for advertisements, clicks, and leads.
- Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.