Car Loan Interest Rates in Canada (2025)
Average Canadian Car Loan Rate:6.68%
Source: Statistics Canada Latest Update: August 2025
- A car loan allows you to purchase a car through weekly, bi-weekly or monthly installments.
- Auto loan terms generally range from 12 to 96 months.
- Your car loan interest rate is influenced by your creditworthiness, the type of car, and the loan characteristics.
- Borrowers with credit scores above 700 and a low debt-to-income ratio typically receive the most competitive rates.
Cars in Canada usually cost several thousand dollars; therefore, many Canadians rely on car loans to finance their purchase and manage monthly payments. However, car loan interest rates can be a significant expense, which can greatly influence the total amount you end up paying over time. Understanding how auto loans work and what factors influence the interest rates can help you make a wise choice and save money in the long run.
Interest Rate on Auto Loans
Source: Statistics Canada
Current Car Loan Interest Rates in Canada
According to the latest data from Statistics Canada, the average car loan interest rate in Canada for new loans as of August 2025 was 6.68%. Car loan rates for new cars are typically lower than those for used cars, as new cars are in excellent condition and have predictable resale values, thereby reducing the lender’s financial risk. A typical starting rate of 5% - 7% can be expected for borrowers with good credit. For bad credit car loans, interest rates can be as high as 29.99% and sometimes even higher.
Average Car Loan Rates in Canada Based on Credit Score
Note: Car loan rates are determined based on various factors, including credit scores. Therefore, the rates listed above should be used with caution, as the actual rate you will receive will also depend on factors beyond your credit score.
Used Car Loan Rates in Canada
Interest rates for auto loans to purchase used cars are typically higher than those for new cars. In Canada, auto dealerships that sell used cars can help you secure financing through a partner bank or a third-party lender. In recent years, there has been a surge in online car dealerships and digital auto-financing platforms that offer an end-to-end digital experience from browsing available vehicles to securing financing for them. The following are popular digital platforms offering car financing in Canada.
Digital Car Loan Providers in Canada
| Lender / Platform | Loan Interest Rate (APR) | Loan Amount | Loan Terms |
|---|---|---|---|
Clutch | Varies (Typically From 7.49%) | $7,500 to $50,000 | Varies |
Car Deal Canada | Varies | $10,000 - $75,000 | 12 to 96 months |
Car Loans Canada | 2.95% - 29.95% | $7,500 - $55,000 | 12 to 96 months |
Safe Lend | 8.99% to 19.99% | $7,500 to $50,000 | 18 to 84 months |
Canada Drives | N/A | $5,000 to $75,000 | 12 to 96 months |
CarDoor | From 6.45% | From $7,500 | Typically 48 to 84 months |
TD Auto Finance (TD Wheels App) | From 2.99% (for new cars) | N/A | 12 to 96 months |
CarsFast | Varies | Varies | 12 to 96 months |
Updated: Nov 2025
New Car Loan Rates in Canada
Car manufacturers often have in-house financing divisions, providing car loans at competitive interest rates to facilitate the purchase of new cars. On average, the interest rate for purchasing a new car ranges from 4% to 7%. However, dealerships may occasionally offer promotional 0% financing or very low interest rates on select car models. The table below shows car loan rates for new cars offered by car dealerships for some of the companies' most popular models.
Manufacturer Car Loan Rates in Canada
| Car Brand (In-House Financing) | APR (60 months term) |
|---|---|
Nissan | 2.49% |
Jeep | 2.92% |
Mazda | 2.95% |
Subaru | 3.49% |
GMC | 4.05% |
Chevrolet | 4.05% |
Ram | 4.29% |
Kia | 4.49% |
Volkswagen | 4.49% |
Tesla | 4.69% |
Hyundai | 5.29% |
Ford | 5.99% |
Toyota | 6.19% |
Honda | 6.89% |
Mercedes Benz | 7.64% |
Factors That Affect Your Car Loan Interest Rate in Canada
When applying for a car loan in Canada, lenders evaluate several factors to determine your interest rate, similar to how mortgage rates are determined. These include your credit score, income, loan term, down payment and the type of vehicle. This section will dive into these factors to provide a deeper understanding of how they can impact your auto loan rate.
Overview of Key Factors Affecting Car Loan Rates
| Factor | How It Affects Your Rate |
|---|---|
| Credit Score | Higher credit scores qualify for lower interest rates. |
| Loan Term | Shorter loan terms typically result in lower interest rates and lower total interest paid. |
| Type of Vehicle | Lenders prefer vehicles that retain value, are reliable, and have strong resale demand. |
| Income & Debt Ratio | A lower debt-to-income ratio reduces your risk profile and helps lower your rate. |
| Down Payment | Larger down payments reduce lender risk and may result in a better interest rate. |
How to Get the Best Rate on Your Car Loan in Canada?
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 in Canada?
A car loan (or auto loan) allows you to finance the purchase of a vehicle instead of paying the full cost up front. You repay the loan in weekly, bi-weekly, or monthly installments that include both principal and interest.
In Canada, car loans are available from several sources, including:
- Banks
- Credit unions
- In-house or manufacturer financing at auto dealerships
- Independent auto-financing companies
Banks and auto-financing companies usually offer auto loans to borrowers through partner dealerships, meaning you’ll often apply for financing at the dealership when buying your car. If you are a banking customer of a bank and wish to get an auto loan from them, you can typically find partner dealerships that offer loans from that bank listed on the bank’s website.
Many lenders, including banks, car dealerships, credit unions, and online financing companies, offer car loan pre-approvals. Getting pre-approved helps you:
- Understand how much you can afford to borrow
- Estimate your monthly payment range
- Set a realistic budget before visiting a dealership
You can use auto loans to purchase new or used cars, as well as RVs or commercial vehicles. Most car loans are secured by the vehicle itself, meaning that if you default on payments, the lender can seize your car to pay off your debt.
Car dealerships often provide fast and easy-to-qualify loans through the manufacturer’s financing arm or through a partner lender. While a bank or credit union may have stricter lending criteria, they may offer lower interest rates than dealerships.
However, dealerships sometimes offer promotional rates, such as 0% APR. While this is a great deal, be sure to ask about the interest rate after the promotion ends. You may 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 be able to secure an even better interest rate.
Documents Required for a Car Loan in Canada
To start your car loan application, you can contact a car dealership or apply online through a reputable car loan company, such as Car Deal Canada or Car Loans Canada. To ensure a quick and smooth application, you may want to keep the following documents handy:
- Government-issued photo ID, such as a driver’s licence or passport
- Proof of income, such as recent pay stubs or a T4 slip.
- Proof of employment, such as an employment letter or bank statements, if you’re self-employed.
- Proof of residence, such as utility bills.
- Banking information, such as a void cheque, is required to arrange loan disbursements or set up a pre-authorized debit (PAD) for automatic bill payments.
- Vehicle information, such as the VIN number, is required when buying a used car.
- Proof of car insurance, such as a policy document.
Understanding Car Loan Terms and Features
Navigating auto loans can be overwhelming. Like mortgages, car loans come with their own terminology and fine print, and misunderstanding them could cost you thousands in extra interest. This section will demystify auto loans, helping you compare them effectively.
🔒 1. Fixed vs. Variable Loan Rates
Most car loans in Canada have fixed interest rates, meaning your rate and payment amount remain the same throughout the loan term. As the monthly payments of fixed-rate car loans are predictable, it is easier to budget for them.
Variable car loan rates, while available, are fairly uncommon due to the unpredictability of payments. If you have a variable-rate loan:
- The loan interest rate will change with changes in the prime lending rate.
- A variable rate is calculated by adding a premium to the prime lending rate.
- The premium you receive is dependent on your creditworthiness, debt service ratio, and the car’s reliability.
Fixed-rate car loans offer better predictability and stability, while variable-rate car loans can save you money when the rates are expected to fall.
💰 2. Interest Rate vs. Annual Percentage Rate (APR)
Most borrowers tend to focus on the car loan interest rate, but the annual percentage rate (APR) is often more important, as it indicates the actual cost of borrowing.
- Interest Rate: The percentage you pay for borrowing the money.
- APR: Includes both the interest rate and any fees (like administration or documentation costs).
⏱️ 3. Car Loan Term Length and Duration
The term length refers to the duration you have to repay your car loan. In Canada, most auto loans have terms ranging from 2 to 8 years.
- Longer terms mean lower monthly payments, but higher total interest costs.
- Shorter terms save on interest but require higher monthly payments.
Because cars depreciate fast, very long terms can leave you “underwater”, meaning your loan balance is more than the car’s value.
📉 4. Car Loan Amount Limits and Ranges
Most lenders set a minimum and maximum amount they are willing to lend. For example, a lender may only finance a car that costs between $10,000 and $50,000. Typically, the range is between $7,500 and $75,000.
💵 5. Car Loan Down Payment Requirements
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.
🔁 6. Using a Trade-In Vehicle as a Down Payment
Trading in your old car can serve as a down payment, reducing the amount of the loan you need to secure. However, dealership trade-in offers are often lower than market value. Before trading in:
- Ensure you research the actual value of your car using platforms like AutoTrader to determine if the dealer is offering a good deal.
- Compare it with private-sale estimates; sometimes you’ll save more by selling privately and using the proceeds toward your down payment.
📆 7. Car Loan Payment Frequency Options
You can tailor your car loan payments to better suit your monthly budget and payment cycle. Options typically include:
- Monthly (12 payments per year)
- Bi-weekly (26 payments per year)
- Weekly (52 payments per year)
Bi-weekly or weekly payments reduce total interest slightly because you make more frequent payments.
⚙️ 8. Prepayment Privileges and Early Payment Penalties
Most lenders in Canada offer prepayment privileges, allowing you to make additional payments or pay off your loan early without any penalties. This can help you pay off your loan more quickly and lower your interest costs.
However, some lenders charge a prepayment penalty, often up to 3% of your original loan amount, if you close the loan early.
🚘 9. Vehicle Eligibility and Age Restrictions
The car you want to finance typically needs to meet specific criteria set by the lender. Common restrictions include:
- The car must be less than 10 years old
- It must have under 160,000 kilometres, and
- It should be roadworthy and insurable
Lenders impose these restrictions to minimize their risk. They are more likely to approve a loan for a newer, in-demand car because it will have a lower chance of breaking down and will hold its value better over time.
Car Loan Alternatives in Canada
If you don’t want to take out a car loan or don’t qualify for one, there are several car financing alternatives you can consider.
- Car Lease: Leasing a car from a dealership lets you drive a new car for a fixed period, typically ranging from two to four years. At the end of the lease period, you have the option to return the car or purchase it. Typically, lease payments are lower than loan payments, and you usually don’t need a down payment. Leasing can be a great option for people who like to change their car every few years.
- Pay in Cash: Purchasing the car with cash helps you avoid interest costs and loan charges completely. You may consider withdrawing from your TFSA, but avoid using your emergency fund or long-term investments unless it makes financial sense. Some people also choose to finance their vehicle and keep their cash invested because their savings yield a higher return than the car loan rate.
- Personal Loan: A personal loan can be used for numerous purposes, including buying a car. Unlike car loans, personal loans are unsecured, meaning they aren’t secured by your vehicle. This means that if you default on a car loan, you may end up losing your car, whereas with a personal loan, this may not be the case. The trade-off is that personal loan interest rates are typically higher than car loan interest rates.
- Home Equity Line of Credit (HELOC): A HELOC can be a low-interest way to finance a vehicle for homeowners with sufficient equity. Your home equity secures the loan, and you can borrow as much as you need.
- Credit Card: You could purchase a car using your credit card; however, it is not ideal because credit cards have very high interest rates. A dealership may also charge you a fee for credit card payments. If you choose this option, pay off the credit card balance as soon as possible to avoid interest charges and protect your credit.
- Borrow from Family or Friends: Borrowing from friends or family can save on interest, but it comes with emotional risk. Only borrow what you can confidently repay, and consider drafting a simple written agreement to avoid misunderstandings.
FAQs
Can I get a car loan with bad credit in Canada?
Yes. Several lenders in Canada, including online car financing platforms and dealerships, offer car loans to individuals with bad credit. However, these loans come with higher interest rates (often 10%–29.99%) and will likely require a larger down payment or a co-signer. Improving your credit score before applying can help you qualify for better rates.
Why are used car loan rates higher than new car loan rates?
Used car loan rates are higher because used vehicles pose a greater risk for lenders. They depreciate faster, may have mechanical issues, and are harder to resell if the borrower defaults. New cars are lower-risk and often subsidized by manufacturer financing offers, which allows for lower interest rates.
Can I pay off my car loan early in Canada?
Yes, many lenders in Canada allow prepayment without penalties. However, some charge a prepayment fee (typically up to 3% of the loan balance). Always check your loan agreement before making extra or early payments.
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