Car loans in Canada have become a cornerstone of the automotive market, offering flexibility and convenience for buyers looking to finance new or used vehicles. This comprehensive guide explores every aspect of car loans in Canada—how they work, where to get the best rates, the approval process, types of lenders, and essential tips for buyers in 2025.
Understanding Car Loans in Canada
A car loan is a type of instalment loan that allows individuals to purchase a vehicle by borrowing funds and repaying them with interest over a set period, usually ranging from 12 to 96 months. The loan can be secured (with the car as collateral) or unsecured, but most Canadian car loans are secured.
Where to Get a Car Loan in Canada
There are several main sources for car loans:
- Dealerships: Dealerships work directly with banks or in-house financiers to offer loans to customers. While convenient, dealership loans can sometimes come with higher interest rates or added dealer mark-up.
- Banks and Credit Unions: Major banks such as BMO, RBC, CIBC, Scotiabank, and TD offer direct auto loans. Rates are typically more transparent, and strong credit can get you lower rates.
- Online Lenders and Specialized Car Loan Companies: These companies, including Canada Drives, Auto Credit Express, and others, can help borrowers with limited or poor credit histories. However, interest rates may be higher.
How Car Loans Work: Key Terms and Concepts
Car loans in Canada usually span from 12 to 96 months, with 36 to 84 months being the most common. Here are some vital factors:
- Loan Amount: The principal borrowed, minus any down payment or trade-in value.
- Interest Rate: The cost of borrowing, expressed as an annual percentage rate (APR). Lower rates mean more affordable payments.
- Term: The repayment length. Longer terms reduce monthly payments but increase overall interest paid.
- Down Payment: Most lenders require a down payment (often 10–20%) to reduce risk and loan amount, but some banks may waive this for strong candidates.
- Amortization: Car loans are amortized—each payment covers both interest and principal, with earlier payments mainly covering interest.
Car Loan Interest Rates in Canada: 2025 Overview
Interest rates for car loans in Canada vary by lender, borrower creditworthiness, and even the province. As of September 2025, here’s what buyers can expect:
- New Car Loan Rates: As low as 1.99% through promotional dealership offers (e.g., GMC Hummer EV), though most standard rates range from 4.99% to 6.5%.
- Used Car Loan Rates: Generally higher, with rates around 5.64% to 8.74%, depending on vehicle age and lender.
- Best Promotional Rates: 0% financing is occasionally available on select models like the Ford F250 for up to 72 months, but these are rare and come with eligibility requirements.
- Provincial Variation: Interest rates may differ based on regional economic factors and lender policies.
| Lender/Dealership | New Car Rate (APR) | Used Car Rate (APR) | Term Length (months) |
| GMC (Dealership) | 1.99% | — | up to 60 |
| Ford (Promotion) | 0% | — | up to 72 |
| Banks/Credit Unions | 5.64%–6.59% | 5.89%–8.74% | 12–96 |
| Mitsubishi | 3.94% | — | up to 84 |
The Approval Process: Steps and Requirements
Basic Documentation and Eligibility
To qualify for a car loan in Canada, applicants generally must:
- Be a resident of Canada
- Hold a valid Canadian driver’s license
- Be of legal age in their province/territory
- Provide proof of income (recent pay stubs, tax assessments)
- Demonstrate creditworthiness (credit score is a major factor)
Some lenders impose minimum income requirements, and temporary or new residents may face higher down payment demands.
Getting Pre-Approved
Pre-approval is highly recommended. A pre-approved car loan gives buyers a firm budget, bargaining power at dealerships, and confidence during the shopping process. Pre-approvals can be obtained online or at banks and are typically valid for 30–60 days.
Credit Checks
All lenders conduct credit checks to assess risk. A FICO score above 650 is considered good, and helps secure lower rates; those with weaker credit may be restricted to higher rates or shorter terms. Online lenders may accept lower scores, but costs will be higher.
Types of Car Loans in Canada
- New Car Loans: Offered by all major financial institutions and often eligible for the lowest rates through promotions.
- Used Car Loans: Available at most banks and dealerships, but rates increase with the age of the vehicle.
- Lease Buyout Loans: For those wishing to purchase their leased vehicle at lease end.
- Private Seller Loans: Some lenders finance vehicles purchased from individuals, not just dealers.
- Bad Credit Car Loans: Specialist lenders cater to those with poor credit. Expect higher rates but a path toward credit rehabilitation.
Closing the Deal: What to Watch For
Before signing, review the loan agreement carefully:
- APR vs. Flat Rate: Ensure the true cost of borrowing.
- Fees and Penalties: Watch for application, administration, or early repayment penalties.
- Insurance: Some lenders require loan protection or GAP insurance.
- Total Repayment Amount: Calculate total out-of-pocket payments over the loan term.
Compare offers from at least three lenders. Accept the lowest APR possible, but balance monthly payments with long-term affordability.
Special Considerations in 2025
- Interest Rate Environment: With inflation fluctuations, interest rates have risen over the past two years. Promotional dealer offers are limited and subject to credit approval.
- Electric and Hybrid Car Financing: Many banks and provinces offer lower rates or green loan incentives for environmentally friendly vehicles.
- Online Car Buying: The rise of e-commerce platforms has enabled end-to-end online car loan approval, making the process faster and more transparent than ever.
Tips to Secure the Best Car Loan
- Check and improve credit score before applying: This could mean thousands in savings.
- Save for a larger down payment: Reduces loan amount and interest.
- Shop around: Compare banks, credit unions, online lenders, and dealer offers.
- Beware of add-ons: Dealers may pitch extras (insurance, warranty, fees) that increase your loan amount and costs.
- Consider loan term carefully: A longer term lowers payments but increases total interest paid.
Common Questions About Car Loans in Canada
Q: Can I get a car loan with bad credit?
A: Yes, but expect higher rates. Some online lenders and specialists offer bad credit car loans, but these come with stricter terms.
Q: Is pre-approval necessary?
A: Pre-approval helps determine your budget, strengthens your negotiation power, and speeds up the buying process.
Q: What if I want to repay my loan early?
A: Some lenders charge prepayment penalties. Always check for this clause before agreeing.
Q: Can new immigrants apply for car loans?
A: Yes, but newcomers may need a larger down payment (often 25%) or face extra verification requirements.
Q: Does the car serve as collateral?
A: In most car loans, the vehicle is collateral. Failing to make payments can result in repossession.
The Future of Car Loans in Canada
Digital transformation, broader access to credit information, and increasing competition among lenders are making the Canadian car loan market more transparent, accessible, and user-friendly. With evolving trends towards electric vehicles, new ownership models like subscriptions, and improved online approval systems, Canadian consumers have more ways than ever to finance their vehicles.