Getting A Car Loan in Canada

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Explore your borrowing options for a car loan.

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Online loans for a new car can provide faster more options when you have bad credit.

Getting A Car Loan in Canada

Car shopping can be a fun time. Many already know what they can afford and have something in mind, but not everyone starts their car buying journey this way.  There was a time when the process started on the lot of the dealership, and many people dreaded this. But now you can shop online to find just about every detail you might want to know about for a vehicle.  Buying a car is a major financial decision for most Canadians. For many it is likely the second largest purchase they will make, next to their home. While paying for a car in cash is ideal, it isn’t an option for most. Many people will opt for financing their purchase with a car loan.  When it comes to getting approved for car loans in Canada, there are a few factors involved.  From your credit score and history to your income, debt and more, we look at what to know if you’re thinking about applying for a car loan. 

What Credit Score is Required for Car Loans in Canada?

Most lenders in Canada look for a credit score of 650 or higher to qualify for a car loan. However, some lenders may approve loans for borrowers with lower credit scores, although they may require a larger down payment to reduce the amount being borrowed or they might be charged a higher interest rate.  When you are buying a newer vehicle, which can include used vehicles of 1-3 years, the amount you may need to finance would be larger. For larger loan requests, lenders often require a higher credit score.  Since every bank or lender usually has their own credit ranges and definitions for what the cut off might be for a bad, fair or good credit score, it can be challenging to say what the magic number might be. One bank might say a good credit score is 770 or higher, another might say it’s 750, and some lenders might say that a good credit score starts at 700.  This can make it difficult to answer questions like how much credit score is required for a car loan when the ‘rules’ are different with each lender. But it would be safe to say that the following approximations would provide you an idea of what sort of interest rate you might qualify for.

599 or lessBad credit
600 to 699Fair credit
700 to 799Good credit
800 or moreExcellent credit

Can I Get a Car Loan with Bad Credit?

Even with bad credit a car loan is possible, you’ll just have to pay more for the loan if approved. As you explore bad credit car loans you should keep in mind that the more you can put down the less you will have to borrow. This will lower your monthly payments, and make it more likely to get approved when you have money to put down because the overall amount you would be requesting to borrow would be less.

Average Car Loan Interest Rates In Canada

According to a report from, the average interest rate for a five-year car loan in Canada is 5.99%. However, this can vary depending on the lender, borrower’s credit score, loan term, and other factors. When shopping and comparing cars, also consider the interest rates of a car loan. It might be less exciting than looking at different car models, features, colors, rims and other aspects of buying a car, but it’s important to include. 

How To Get A Better Rate For A Car Loan

To get a better rate for a car loan, you can improve your credit score, shop around and compare offers from multiple lenders, and negotiate with the lender. The interest rate that you might be offered is often related to your credit score, debt, along with your income. One way of getting a better rate (besides improving credit score) is to save up so that you are able to provide a bigger down payment. This would mean you would likely have less to borrow if you put more money down, which can help with the rate a lender might charge.  If you have a trade-in, this can also help you with lowering your monthly payments. The actual amount will depend on the make, model, age, mileage and value of your vehicle. 

What Credit Score is Required for a Car Loan?

Since a car loan is a secured loan, even with bad credit you can often find options available. With the vehicle acting as collateral, if you didn’t make your payments the lender can repossess the vehicle to ensure they have not lost the funds they allowed you to borrow.  When applying for a car loan, the higher your credit score is the better chance of getting a good interest rate on the loan will be. So with a good credit score your interest rate will be under 9% and with a fair to bad credit score the rate will be more. 

How to Lower the Interest Rate for a Car Loan

To lower the interest rate for a car loan, you can opt for a shorter loan term, make a larger down payment, or consider refinancing the loan after a few years. But the main way to get yourself a lower interest rate for a car loan would be when you improve your credit score. Lenders often base an interest rate for a car loan on options like the amount you borrow and the length of the term you might borrow, so anything you do to decrease either can work in your favour. 

How an Auto Loan Can Help Build Your Credit Score

When you have an auto loan it can help build your credit score by making payments on time to demonstrate your creditworthiness on a loan, and that you’re responsible with your finances.  Building your credit score is a slow process, and every positive payment can be a few points towards improving your score. But one missed payment on your credit report is more than just 10-20 point deduction, it’s a negative mark. This can impact your ability to possibly get a loan in the future, depending on the lender. 

Choosing Between New and Used Cars (or a Lease)

When you start looking online and have figured out the basics for car shopping such as what make or model interests you, and what you can afford, your next consideration is choosing between buying a new or used vehicle, or to lease.  New cars are more expensive but come with warranties and the latest technology. There’s nothing like that new car smell, but consider that the depreciation is high the moment you take the keys and drive it off the lot. Used cars are cheaper and will have some wear and tear, but depending how new of a model and what is within your budget, you can find vehicles that are ‘like new’ with low mileage. This can save you from the pains of depreciation along with that first chip or scratch.  Leasing a car can be a good option if you want to drive a new car every few years but don’t want to own it. The idea of being in a newer vehicle most of the time appeals to some, whether it’s for work or personal preference, leasing a vehicle tends to interest a select group.

How To Apply For A Car Loan in Canada

The following is an over-simplified look at what is involved in the process of buying a car to make it easy to follow at a high level. To apply for a car loan in Canada, you would start with providing personal and employment details. You would also need to provide information about the car you are interested in, such as its make, model, and year.  As you get into the financials, a lender will also require proof of income and may ask for additional documentation, such as bank statements. They will definitely require your approval to run a credit check when reviewing your application. One other consideration is whether you have a trade-in as this can lower the cost of the vehicle purchase price. You might not get top dollar at the dealer, but it’s a lot easier than selling your car privately and dealing with all that’s involved. Overall, a credit score is required to get started with car loans in Canada. There are ways to improve your chances of getting a better rate, such as improving your credit score, shopping around, and negotiating with the lender. When choosing between new, used, and lease cars, consider your budget and personal preferences. Once you’ve gone through the process and drive off in your new (to you) vehicle, remember that making timely payments on your car loan can help build your credit score.

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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Get a Car Loan in Canada

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.