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Getting a car loan in Canada is easy when you deal with the top auto loan providers in the country. Every company listed on Smarter Loans has been reviewed and qualified by a panel of industry experts. This means that when you deal with these auto financing companies, you can be sure you work with trusted lenders. If you are looking for a car loan in Canada with easy approval even if you have less than perfect credit, we can help.
Cars, SUVs, Trucks, Motorcycles, ATVs, RVs, Marine, Motorsport, Heavy Duty and other vehicles are available.
Choose one of the vehicle loan lenders below to be taken to their application or Pre-apply online here and we will connect you with a suitable lender for your auto loan.
Pre-apply for a car loan here at Smarter Loans and we will find a suitable lender for you.
An auto loan is a type of debt instrument that consumers use to purchase motor vehicles. Typically, these loans are structured to be paid back in periodic installments and are secured by the value of the underlying vehicle that they are used to purchase. In other words, the vehicle being bought serves as collateral for the loan that can be seized if the borrower fails to pay the scheduled principal/interest.
In terms of the actual structure of the car loan, it is similar to most other consumer loans offered by lending institutions and consists of the principal and the interest. The principal is correlated with the value of the vehicle being bought and/or the amount of down-payment (upfront payment) required. Depending on the vehicle or the lending institution, a down-payment may not be required at all; however, in the case that it is, the larger the down-payment, the lower the principal amount, which translates to reduced costs for the borrower and lower risk for the lender. One example of this is a car worth $5,000 for which the lender stipulates down-payment to be 10% i.e. $500. Once the borrower pays this $750 up front, the lender provides the remaining $4,500 to finance the purchase of the vehicle.
The interest can be thought of as the cost of borrowing i.e. the compensation that the lender receives for taking the risk of providing debt to consumers. While there is no fixed interest rate on auto loans, the rate is contingent upon the lending institution that underwrites the loan and the creditworthiness of the borrower wherein higher-rated customers receive lower rates of interest, and vice-versa.
Lastly, there is also an installment component to car loans where the loan is gradually repaid in a series of consecutive payments, usually made on a monthly basis. Most auto loans are repaid within the 36 months (3 years) to 60 months (5 years) range. The installment nature also makes these loans amortizing, meaning that each scheduled payment is used to repay both the principal and the interest. This results in the loans getting cheaper over the course of their lifecycle due to the interest rate being applied to a lower principal outstanding at each subsequent payment.
In an auto lease, the lessee gains the privileges of the car for a fixed time period or a pre-defined number of miles driven before the car is returned to the lessor. At no point during the leasing period does the ownership transfer over to the lessee. Some dealerships do, however, have an ownership option at the end of the leasing period for lessees to take advantage of if they so wish. Due to the lack of ownership benefits, all things equal, the payments on auto leases are normally less than payments on auto loans.
Before participating in an auto loan as a borrower, there are some important variables to pay attention to that will ensure a mutually healthy relationship between lender and borrower:
When shopping for a loan, the Annual Percentage Rate is often the most critical consideration, which illustrates the amount of interest that the borrower has to pay on loans. A difference of even 0.2%-0.3% could possibly mean hundreds of dollars in savings over the life of the loan.
The total monthly payment comprising your principal and interest amount is a function of APR, principal amount and loan term (duration that the borrower has taken the loan out for). To optimize this, it is best to use or devise your own loan calculator.
The length of the loan is another consideration. Longer loan terms mean smaller monthly payments, but the offsetting factor is that the amount of interest paid is greater over the total period of the loan.
The total amount borrowed depends on the market value of the vehicle being bought, as well as applicable fees and taxes. The higher this cumulative amount, the higher the monthly payment will be – although a down-payment can help to reduce that if the borrower has the financial capacity to be able to do so.
While some institutions have more relaxed policies on early payoff, others charge a prepayment penalty. There are also processing or administrative charges that borrowers often have to pay to compensate the bank for the work undertaken in setting up the loan. While these are mostly fixed fees, they can sometimes be charged as a percentage of the loan. It is therefore extremely important to read the “fine print” of the loan documentation to gain an understanding of the total cash outflows the borrower is liable for.
Qualifying for a car loan in Canada requires you, as the borrower, to meet certain eligibility criteria. These criteria vary slightly from lender to lender, but typically include meeting a minimum credit score; for most lenders this threshold is set at 550, but there are options for those with lower credit scores seeking car financing. You will also need to show a valid driver’s license, proof of Canadian residency, and proof of income. Some lenders will also require information regarding your other debts and monthly costs when you apply for an auto loan, while others are less stringent.
Auto loan interest rates in Canada vary from lender to lender, and according to each borrower’s circumstances. The range is quite large from 0% to 30% – and used vehicles are often charged a higher auto loan rate than new vehicles. Online lenders may have more competitive rates than banks and other traditional financial institutions. The exact car loan interest rate you will be charged depends on your credit score (with higher credit scores qualifying you for lower rates), your monthly income, any down payment on the vehicle, the vehicle specifics, and the term of the loan.
Finding a bad credit car loan is easier than you may think. While many auto loan lenders require a minimum credit score of 550, there are still plenty of options for those with a score lower than this. You can take a look at our list of bad credit car loan lenders who cater to people in these circumstances, to compare your options. Most bad credit auto loan lenders will balance the increased risk of these loans by charging higher interest rates. Or, alternatively, you may be able to access a car loan with bad credit and avoid high rates if you save up a sizable down payment for the car.
New Canadian residents have no credit history in the country, and so do not qualify for credit in the same way that settled residents do. Buying a car with financing is still possible though, as car loans for new Canadians can rely on factors other than credit. Proof of employment is a great way to indicate to a lender that you are not a risky borrower and that you have the income necessary to pay off the loan. Saving a down payment is also very helpful. And finding a cosigner for the loan, who does have a credit history in Canada, can also help ensure approval.
Applying for a car loan starts with finding a lender that’s right for you. Each car loan provider will have different eligibility requirements, as well as different loan options. Start by understanding your financial position and what you need in a loan, as this will narrow your list of potential lenders. Then, compare your different options, considering the loan terms and rates, to find the most appropriate choice for your needs. Once you know which lender to apply to, you need to gather your paperwork. Each lender has their own documentation requirements, but they usually start with: proof of insurance, proof of income, proof of residency, and driver’s license.
Used car financing is as easy to access as new car financing, with most car dealerships, financial institutions, and online lenders able to provide auto financing for pre-owned vehicles. One advantage of used car financing is that the borrowed amount is typically less than with a new car purchase, as the value of the car is less. So the payments will be lower overall. However the interest rate you qualify for may be higher than with a new car. This is because the loan term on used cars is usually shorter.
Canada is home to a busy auto market, and a busy auto loan market. Let’s look at the numbers: