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The Greater Toronto Area (GTA) is home to over 5.9 million people and over 7.5 million cars. That’s a lot of traffic, and a lot of car loans. 85.4% of all new cars on the road are purchased using financing – so it should come as no surprise that the auto loan market in the GTA is the largest and most competitive in the country.
Finding the right auto loan means more than simply going to your dealership though, and as these tend to be large, longer-term loans, understanding your options is key to getting the best deal for you. So read on to learn everything you need to know about the auto loan market in the GTA, and how you can find the right loan for your situation.
Pre-apply for a car loan here at Smarter Loans and we will find a suitable lender for you.
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.
The process behind auto loans is simple:
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.
There are hundreds of auto loan companies operating in and around the GTA, and they fall into distinct categories:
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.
| Provider | Pros | Cons |
|---|---|---|
| Bank/credit union | Face-to-face and online customer service options Easy to access in GTA Well-known | Slow processing times Strict eligibility criteria |
| Dealership | Convenient Competitive loan terms | Some people may be ineligible Sometimes high fees apply |
| Online lender | Convenient Competitive loan terms Broad eligibility criteria | Requires borrower to check lender’s reputability Lacks face-to-face service |
| Specialist provider | Allows access to specialist loans | Harder to access Typically worse loan terms |
| Other financial service company | Allows access to specific loans or provides solutions to niche issues | Harder to access Typically worse loan terms |
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:
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.
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.
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.
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:
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.
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.
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:
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%.
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.
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.
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%.
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.
The average monthly outlay for a new car loan is $554, and for used cars is $391.
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.
There are a few ways to make a car loan more affordable:
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