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1. What is Car Financing?
2. How is New Car Financing Special?
3. Aspects of Financing to Consider
4. Financing for Key Car Brands
5. Frequently Asked Questions About Financing for New Cars

What is Car Financing?

Car or auto financing is, at its heart, very simple. It is a loan towards the purchase cost of a car. The loan provider (“lender”) analyzes the financial profile of the “borrower” (you) to determine how much you can borrow (the “loan amount”) and what interest rate you qualify for. The loan funds are then paid either to you or directly to the car seller.

You, as the borrower, repay the loan (principal plus interest) in set installments (usually monthly, bi-weekly or weekly), until the loan is completely repaid. The length of the loan is known as the “term”, and your “repayment amount” is calculated by dividing the total cost of the loan over the whole term by the number of payments you’ll make.

How is New Car Financing Special?

The reason you’ll see so many adverts for new car financing is that it is specifically set up to encourage the purchase of new cars, rather than the purchase of used cars. This is done by making the details of the loans incredibly attractive – very low interest rates, long loan terms, no required downpayment, and significant cash bonuses for purchasing higher-end models. But these terms are only available for the most qualified borrowers (those with excellent credit and high income, and no other debt) and only when purchasing new. It can however mean that when you’re comparing costs, a new car (at a better rate) might be cheaper than a used car (at a worse rate).

All of this is an effort to drive growth in the auto sales industry, and these kinds of financing deals are possible because auto brands often have their own financing division that provides preferential rates to their customers. So when buying a new car you can go to a dealership and have every aspect of your car purchase handled for you there, including applying for, obtaining and administering your car loan.

Aspects of Financing to Consider

No matter where you go for a car loan, what type of car you buy, or even whether you choose to go new or used, there are some key aspects of financing that you must be familiar with to understand your loan options:

Interest Rate

The interest rate is the amount you’ll pay for borrowing funds for your auto purchase; it’s crucial to understand how your interest rate is calculated and applied, as the maths can make a big difference to how much your loan will actually end up costing. Many lenders advertise one rate, but the one you want to focus on is the APR – the annual percentage rate. This is the effective rate per year, and is a baseline you can use to compare rates across lenders (as otherwise you can’t be sure you’re comparing like with like).

Loan Term

The loan term is the length of the loan’s life – how long it takes to pay back. This is another important factor to understand; a shorter loan will accrue less interest over the life of the loan, but because you’re repaying it more quickly, the monthly repayments will be higher. On the other hand, a longer life loan may have a lower monthly repayment number, but this will cost you more in interest overall as you’ll be paying back the loan for longer. Choosing a loan term must be a balance between what you can afford and avoiding paying unnecessary interest.

Loan Amount

The loan amount is the amount of money you borrow to purchase a new car; this may be the entire cost of the car, or the purchase price plus taxes and fees, or all of this minus a downpayment. Usually any associated fees and taxes related to the sale of the car and the origination of the loan are included in this loan amount.

Downpayment

A downpayment is a cash amount you contribute towards the cost of the car purchase; many new car sales do not require a downpayment, or have very low requirements. But if you’re able to put down an initial lump sum, this will lower your loan amount and save you money in the long run.

Fees and Penalties

There may be fees and penalties associated with a new car loan. These vary lender to lender, but include items such as an application fee, an origination fee, a closing fee, late repayment fees, early repayment penalties, and so on. Usually, to make a new car loan as attractive as possible, car brands will waive many of the upfront costs.

Payment Schedule

Lastly, you need to decide on what schedule you wish to repay your car loan. This has a big impact on how much each payment amount will be. Most people choose either bi-weekly or monthly, to match their paycheck frequency, but don’t get caught out: bi-weekly is not the same as semi-monthly! If you choose semi-monthly, you’ll make 24 payments in a year, and bi-weekly equals 26 payments per year.

Financing for Key Car Brands

We mentioned above that a lot of car manufacturers have their own financing, so let’s take a look at some of them. These are some of the most popular car brands in Canada:

BMW

• Luxury brand from Germany
• Known as high-end, performance-focused
• 43 models available new in Canada
• Priced from $42,000 to $175,000
• BMW financing offered by BMW Group Financial Services
• Two types of financing available: standard, and OwnersChoice – the latter requires a balloon payment at the end of the loan
• Loans available for 24 to 80 months
• Rates starting at 1.99%

Volkswagen

• German car brand
• Known for reliability and longevity
• 14 models available within Canada (all with additional options)
• Priced from $21,000 to $50,000
• Financing offered by Volkswagen Finance
• Loan terms range from 24 to 60 months
• Interest rates start at 1.99%

Kia

• South Korean manufacturer
• Popular for its versatile line of cars and SUVs, totalling 18 models
• Priced from $15,000 to $45,000
• Financing offered by Kia Motors Finance
• Loan terms of 24 to 84 months
• 0% interest rate available for the most qualified borrowers

GMC

• US brand, an arm of General Motors (G.M.)
• Known for its heavy duty trucks and SUVs
• 12 passenger vehicles in the Canadian lineup, plus 4 commercial vans
• Trucks start at $28,000
• Usually have purchase offers available, including vehicle upgrades
• Financing handled by GM Financial
• Loan terms up to 84 months
• 0% interest available for the most qualified borrowers on certain vehicles

Chevrolet

• US brand, a division of G.M.
• Known for trucks as well as sports cars
• 21 passenger cars in the Canadian lineup, plus 7 commercial vehicles
• Prices range from $10,000 to $70,000
• Financing handled by GM Financial
• Loan terms up to 84 months
• 0% interest available for the most qualified borrowers on certain vehicles

Buick

• US brand, a division of G.M.
• Known for affordable luxury
• 6 SUVs available in the Canadian market
• Prices range from $23,000 to $63,000
• Financing handled by GM Financial
• Loan terms up to 84 months
• 0% interest available for the most qualified borrowers on certain vehicles

Cadillac

• US brand, a division of G.M.
• Known for longevity and quality
• 11 vehicles available in Canada, including sedans and SUVs
• Prices range from $35,000 to $90,000
• Financing handled by GM Financial
• Loan terms up to 84 months
• 0% interest available for the most qualified borrowers on certain vehicles

Ford

• US brand
• Known for its long history and large range
• Currently 25 passenger vehicles in Canada, plus 9 commercial models
• Maker of the F-series, the best-selling pickup trucks in Canada
• Have everything from compact electric cars to large trucks and vans
• Prices range from $24,000 to $95,000
• Financing handled by Ford Credit Canada
• Loan terms up to 72 months
• Interest starting at 0% for certain customers

Honda

• Japanese manufacturer, owner of several brands (including Acura)
• Known for its safety record and large range of motorcycles
• Currently 21 passenger vehicle models available in Canada
• The Honda Civic has been the best-selling sedan in Canada for 23 years
• Prices range from $17,000 to $38,000
• Financing handled by Honda Financial Services
• Loan terms up to 60 months
• Interest rates start at 0.99%

Toyota

• Japanese brand
• Known for build quality and reliability
• 18 vehicles available in Canada
• Home of the RAV4, Canada’s best-selling crossover
• Prices range from $17,000 to $70,000
• Financing available through Toyota Financial
• Loan terms up to 64 months
• Interest rates start at 1.19%

Volvo

• Swedish luxury car brand
• Known for safety
• 7 vehicles available in Canada
• Priced from $42,000 to $67,000
• Financing provided by Volvo Car Financial Services
• Loan terms up to 75 months
• Interest rates range from 2.9% upwards

Hyundai

• South Korean manufacturer
• Known for affordability and reliability
• 20 vehicles in the Canadian lineup currently
• Prices range from $18,000 to $45,000
• Financing provided by Hyundai Motor Finance
• Loans available for up to 84 months
• Interest rates start at 0% on select vehicles

Frequently Asked Questions About Financing for New Cars

How do I get 0% interest on a new car loan?

Many companies advertise 0% interest on car loans, but this rate is only applicable to the most qualified borrowers. So to be eligible for this rate you need excellent credit, few other debts, and a high income. It also helps if you have a downpayment to put towards the cost of the car.

Where can I get auto financing for a new car?

Auto financing is available from many different lenders; most people opt for dealer financing when purchasing a new car, for simplicity, but there are other options. Online lenders have competitive rates, and you may also qualify for a car loan from your bank, credit union, or another financial service provider. Always research rates to find the best deal for you.

How long does it take to get auto financing?

That depends on where you go; dealers usually try to bundle the financing arranged through them with the car, so (in theory) it’ll all be in place by the time you’re ready to pick up your new vehicle. Online lenders can also be quick, sometimes even able to offer turnaround in just a few days. Banks and credit unions take a little longer, up to a week or more.

What fees do I have to pay when getting a new car loan?

Fees depend on the lender you go to and the deals you qualify for; many dealerships waive initial fees when setting up a new car loan, simply to get your business. However, always check the small print – on any loan – to fully understand what fees you may be liable for. This includes closing fees and late or early payment penalties.

Can I get new car financing somewhere other than the dealership?

Yes, new car financing is absolutely available outside of your chosen car dealership. Online lenders often have competitive products, so it’s wise to check there even if your dealership is offering to help you, in case you can save money. Banks and credit unions, and other financial providers, also offer auto loans and other types of loan (like personal loans) that can be used towards the cost of a new car.

Can I get a new car loan if I have bad credit?

Having bad credit does not preclude you from qualifying for a car loan for a new car, but you should be aware that it does mean you won’t qualify for the “banner” rates shown on advertising. These rates are reserved for those with high credit scores and high income. That doesn’t mean you can’t qualify though, just that you will end up paying a higher interest rate, or might have to go to a bad credit lender to get approval for a loan if your score is very low.

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.