7 Ways to Get the Best Vehicle Loan Financing Rates in Canada

By John Hayden

When buying a new or used car, getting the best vehicle loan  is obviously a major factor for most drivers.  This is usually followed closely by make, model, and year. If the monthly repayment on an auto loan is affordable, few people break down the math to see exactly where their hard-earned cash is going.

But all those figures hide a sneaky little secret: the interest rate on an auto loan can pump up the initial purchase price by eye-watering two thirds, for higher-risk borrowers.

Inside Info on Getting the Best Vehicle Loan 

Here’s a rough outline of how this can happen: with a 10% down payment of $3,600, a buyer with a poor credit score (less than 600) would be lucky to find an auto loan at an interest rate of less than 15%. As a result, consumers rated as Poor credit risks must pay over $700 a month, for the 84 months of the vehicle financing term. That tops out at $58,800, with a whopping $22,800 paid out just as interest.

The financing company charges this scorching rate to offset higher risks of default. In contrast, buyers with Excellent credit scores might well find a car loan at an interest rate of only 3.5%. The result: monthly payments of under $500, and less than $5,000 paid out as interest over the entire vehicle financing term.

Average Vehicle Financing Rates

For most Canadians, car loan interest rates hover between 4.5% and 10%. Although credit scores and credit histories are obviously major factors, other aspects are also involved. They include:

  • your income and time on the job;
  • your debts and debt to income ratio;
  • the amount of the down payment or trade-in as a percentage of the vehicle value; and
  • the amount and term of the loan.

Lenders may also consider whether the vehicle is new or used, its history, and past financing record. On the upside, almost all vehicle financing in Canada is at fixed interest rates, not varying during the loan term. Some specialist banks and lenders may offer variable interest rate alternatives. However, they can be riskier than fixed term financing, particularly with longer repayment terms.

How to Get Top-Value Auto Loans 

Like anything else you buy, getting the best car loan means checking out the market by shopping around, and getting your finances lined up before signing anything. Here are six practical steps you should take before applying for vehicle financing:

  1. Boost your credit score by paying down debt and paying your credit cards promptly, as this is what basically determines your auto loan interest rate;
  2. Look for the best car loan conditions, rather than the most affordable monthly payment, as some lenders shrink monthly repayments by stretching out vehicle financing terms (up to 96 months!);
  3. Look for loans within a two-week period, to avoid hard inquiries undermining your credit score by rate shopping over a longer period;
  4. Use prequalification tools on websites, viewing potential interest rates and payments, as prequalification ups the chance of approval favourable car loan terms;
  5. Compare auto loan quotes, especially their annual percentage rates (APRs), which express total borrowing costs;
  6. Do your research to decide on the best auto financing for you, checking out car loan lender reviews and confirming the trustworthiness of your shortlist with the Better Business Bureau;
  7. Read the fine print carefully before signing anything, as vehicle loans are binding agreements that will tie you (and your budget) down for years to come, particularly binding arbitration and prepayment penalties.


For the most cost-effective auto financing, calculate how much you’ll actually be paying for those new wheels in total. Tinkering with your car price range, the amount of the down payment, and the length of the loan term could save you thousands of dollars over the next few years!

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