Car Loan Interest Rates in Canada

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Learn about borrowing options and car loan interest rates.

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Car Loan Interest Rates

When shopping for car loan interest rates it would be important to know your credit score to provide you with a better idea of what you might qualify for.

If you have bad credit, you will not qualify for the lowest rates and likely need to pay more when you have a fair to bad credit score. Even though a car loan is a secured loan, where the vehicle serves as collateral, it does have some risk for lenders. 

What is a Good Interest Rate for Car Loans?

The current car loan interest rates average about 8% based on info from the Bank of Canada.

Finding a good interest for car loans would be close to this rate. 

The interest rate for a car loan will vary per person for a number of reasons. It can be related to their credit score, the purchase price of the car, and whether the car loan is based on a fixed or variable interest rate.

When shopping for cars you may notice the term OAC, which stands for On Approved Credit. It is usually presented as a range and could be presented like the following.

Royal Bank of Canada7.49% – 9.99% (O.A.C)
National Bank of Canada7.59% – 9.99% (O.A.C)
Bank of Montreal8.99% – 10.99% (O.A.C)
Eden Park8.99% – 23.99% (O.A.C)


The above are not current car loan rates in Canada and serve as examples of OAC.

Many car manufacturers also offer their own financing programs in Canada, which dealerships often promote if there’s a special rate being offered.

When looking for bad credit car loans you will often find that online brokers might be your best choice, not only because they are more likely to approve you, but they are often providing better rates for those looking for car loans with bad credit than other lenders might provide. 

For many Canadians car shopping can be fun, but the financials and looking at interest rates on car loans would be less exciting. If you have a good credit score, it’s possible 

Average Interest Rate for Car Loans 

With an interest rate depending on things like the borrower’s credit score, amount borrowed and the length of the term, an actual average for car loan interest rates is not easily determined. 

Considering the average credit score in Canada is about 650, which would be considered fair by most lenders, it is likely that some banks might not fund a loan request to a borrower with fair credit and looking to alternative lenders might be necessary. There are many options for borrowing from online lenders now, from personal loans to most other options, they often provide competitive rates.

How are Car Loan Interest Rates Determined?

Many assume it to be as simple as being a few points above the prime rate, but interest rates for car loans are a little more complicated than that. 

First there would be the borrower risk assessment, where the lender reviews the credit score along with income, employment history, debt to analyze how likely they might be to make their payments and what sort of risk they present as a potential borrower. With a higher credit score, a potential borrower is seen as less risk, and might even be offered lower interest rates. 

Next there is the loan itself. Many lenders will provide different rates based on the length of the loan term, which helps with minimizing risk while maximizing earnings as a lender. There is also the actual loan amount to consider, where a larger sum means more risk, even if it’s a secured loan backed by the vehicle as collateral.

Another factor would be the market conditions and how inflation or other factors like policies can require banks and lenders to adjust for profitability. 

And there is the competitive landscape, which can take a few things into account such as what others offer for rates. Dealers and lenders must stay on top of this to remain relevant. 

While it might not have a direct effect on what interest rate a car loan might be, it is worth mentioning that any money down and/or trade-in vehicle can mean you would borrow less, which may indirectly reduce the interest rate at times. 

Overall, the less you borrow, and the shorter the repayment terms, the less you will probably pay for interest rates on a car loan. 

How to Save on Car Loan Interest Rates?

By reducing the actual amount you might borrow by putting money down at time of purchase or providing a trade-in vehicle, you can reduce the amount borrowed, and what you might pay for interest on that amount borrowed. 

The length of the term is another main factor, and going with as short of a repayment term that’s possible (and you can afford) will help with paying less towards interest. 

But one of the main ways of improving the conditions for being offered better interest rates from creditors is by improving your credit score. This is especially true when you current score might be close to entering a new credit band or range where you could receive better rate offers. An example of this could be if your credit score were 690, and some lenders provide those with a score of 700+ a different rate. Improving your credit score might be a slow process, but it would be one of the most influential ways of getting better interest rates for car loans. 


Looking for Car Loan?

Be sure to learn about the financing part of buying a car so that you can make informed decisions.

Choosing a car is only part of the process, and finding a good loan is equally as important.


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Frequently Asked Questions

You have questions, we have answers!

Even those with bad credit can get matched with a lender and are often approved for an installment loan.

The amount you can borrow will depend on things like your income, repayment terms you select, credit score and similar factors. 

If you are approved for a loan most lenders may provide your funds in about 1-2 business days, with some providing same day funding.

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When you need a car loan but bad credit makes it challenging to get approved, some of the lenders that work with GoodCheddar can help. Start by self-selecting above from the choices of bad credit loans, installment loans and personal loans. These options are related to your credit score.