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1. Auto Loans: The Basics
2. Auto Loan Providers in the GTA
3. Auto Loan Terms in the GTA
4. Types of Auto Loans Available in the GTA
5. Frequently Asked Questions About Auto Loans in GTA

Auto Loans: The Basics

What Is an Auto Loan?

Simply put, an auto loan is a loan intended to help you purchase a vehicle. The vehicle in question can be a standard passenger car, a truck, minivan, sports car, luxury car, SUV or any other type of road car. It can also be for either a new or used car – though it’s important to note that loan terms are usually different for new versus used vehicles.

How Do Auto Loans Work?

The process behind auto loans is simple:

1. Borrower finds the vehicle they want to purchase.
2. Borrower applies to an auto loan company for a loan, providing the vehicle’s full details.
3. Loan company either approves or denies the loan application.
4. If approved, the loan company provides the loan funds either to the borrower, or sends the funds directly to the vehicle seller.
5. Once purchase is complete, the borrower officially owns the vehicle, and must begin paying back the loan in regular, pre-agreed installments over a set period of time.
6. Once the loan has been fully paid back, there are no longer any financial obligations on the vehicle.

Loans vs. Leases

The major difference between an auto loan and an auto lease is that with an auto loan you actually own the car, whereas with a lease you are effectively agreeing to a long term rental of a car – you never own it. There are pros and cons of both owning and leasing, but over 80% of Canadians choose to own.

Auto Loan Providers in the GTA

There are hundreds of auto loan companies operating in and around the GTA, and they fall into distinct categories:

• Car dealerships offering their own loans (often via the car brand’s financing arm)
• Banks
• Credit unions

• Other financial services companies
• Online-only lenders
• Specialist auto loan companies

The right type of provider for you will depend on your priorities. Each type of lender has their own advantages and disadvantages; the table below highlights just a few of these.

Auto Loan Terms in the GTA

All auto loans come with a set of terms that it’s important for you to understand, so you can be sure you understand your financial obligations properly. Let’s take a look at the most important of these terms in the context of the Toronto market:

Interest Rate

The interest rate is perhaps the most important factor in any loan’s affordability – it’s essentially how much the loan costs you. In the GTA it’s not uncommon for new car loans from dealerships to be advertised as having 0% APR, though it’s important to know that this low rate is usually reserved for the most qualified borrowers – those with high credit scores and good income.

For standard borrowers in the GTA and those seeking financing from a third party lender, you can expect an interest rate of around 3-4%. This is for new cars; for used cars the interest rate is always a little higher, averaging about 5% in the GTA.

Loan Term

The loan term is the length of the loan – how long it’ll take you to pay it off. Auto loans in Canada have been getting longer and longer, with the average now sitting at 69 months, or just under 6 years. Terms as short as 2 years or as long as 8 years are commonly available.

Down Payment

The down payment is the amount of cash you can pay towards the cost of your new vehicle upon purchase. Depending on the loan company you use, there may or may not be down payment requirements associated with your loan. The average down payment for most car purchases is between 10% and 20%, though some loan companies do advertise $0 down deals to entice customers.

Fees and Penalties

All loans come with fees and penalties, and as these can be substantial, it’s important for all borrowers to understand them. Every lender has their own rules, so ask about:

• Application fees
• Loan origination fees
• Loan termination fees

• Late payment penalties
• Early prepayment penalties

As the Toronto loan market is so competitive, it’s not unusual for lenders to waive application and loan origination fees in order to obtain your business. Be wary of any lender charging you a lot right out of the gate.

Payment Schedule

Lastly, payment schedule is how frequently you make loan payments. Most people choose bi-monthly or monthly, though it’s also possible to go weekly or bi-weekly.

Types of Auto Loans Available in the GTA

The benefit of the GTA’s loan market is that you have literally every possible option to choose from, so no matter your circumstances or priorities, you’ll be able to find a loan that suits. Local options include:

• New car loans
• Used car loans
• Bad credit auto loans
• No credit auto loans

• New car loans
• Used car loans
• Bad credit auto loans
• No credit auto loans

Frequently Asked Questions About Auto Loans in the GTA

Can I get a car loan with bad credit?

Yes, Canadians with bad credit can still get a car loan – just bear in mind that a poor credit score usually means that you’ll have to pay more in interest. While the average interest rate for a new car is around 3-4%, those with low credit can expect to pay between 5% and 15%.

How much of a down payment do I need to buy a new car?

Most people choose to put down 10-20% of the car’s purchase price as a down payment, but this isn’t necessarily required. Your lender will tell you if they have specific requirements about down payment size. Generally though, it’s smart to put down what you can, to save money on your loan.

Can I use a trade-in to lower my car loan?

Yes, most people can use their old car as a trade-in, as long as it is still road-worthy. The value of the traded-in vehicle then effectively becomes part of the down payment for your new car.

What’s the average interest rate on a used car?

You’re probably used to seeing ads for 0% interest loans for new cars, but such deals do not exist for used cars. Even the most qualified borrowers can expect to pay at least 4-5% on a used car loan; the average sits at around 6%.

What’s the average amount borrowed with an auto loan?

In Canada, the average amount borrowed for new car purchases is just over $32,000, and for used car purchases around $20,000. Most auto loan companies will be able to provide loans of as little as $5,000, or as much as $50,000.

What’s the average monthly cost for a car loan?

The average monthly outlay for a new car loan is $554, and for used cars is $391.

Can I get a car loan if I have no credit history?

Yes. Your best bet is to apply to bad credit/no credit loan companies that can cater specifically to people who are new to the country and have no credit history. You’ll probably have to pay more in interest, but by taking out a loan and paying it back properly, you’ll establish a credit history.

How can I lower my car loan costs?

There are a few ways to make a car loan more affordable:

• Borrow less or buy a cheaper car
• Find a lower interest rate
• Increase your down payment
• Add a trade-in to your car purchase
• Increase the loan term
• Refinance your loan
• Improve your credit score before borrowing

Written By Smarter Loans Staff

The Smarter Loans Staff is made up of writers, researchers, journalists, business leaders and industry experts who carefully research, analyze and produce Canada’s highest quality content when it comes to money matters, on behalf of Smarter Loans. While we cannot possibly name every person involved in the process, we collectively credit them as Smarter Loans Writing Staff. Our work has been featured in the Toronto Star, National Post and many other publications. Today, Smarter Loans is recognized in Canada as the go-to destination for financial education, and was named the “GPS of Fintech Lending” by the Toronto Star.