September 29, 2021
6 mins

Auto, Car, and Truck Loans in Canada

Buying a car can be an exhilarating experience, especially if it's your very first car. But not everyone has the savings to buy a car in one go. So, finding the best auto loans Canada has to offer is essential to cover the expense of a vehicle while maintaining your financial stability.

Car loans can be tricky, and you might end up paying way more than the car's actual price. However, with the proper knowledge of how car loans work in Canada, you can smoothly navigate the minefield of car loans.

This post will provide you with the information you need to get a car loan for your dream car. You might ask, “Where do I even get car loans in Canada?” But first, let us discuss the requirements to qualify for car loans in Canada. Having the correct credentials can make the lending process extremely easy for you.

Qualifying for an Auto Loan in Canada

No matter who you approach for your car loans, there are some requirements that you must meet to qualify for a car loan:


Banks and dealerships are only interested in your money. It is a little harsh to hear, but it's the truth. The amount of money you make tells a lender whether or not you can afford to pay off the loan. Therefore, a steady income stream will significantly increase your chances of getting a car loan because you carry less risk in the lender's eyes. 

You will need to provide proof of income to the lender. They might also ask for a list of your current debts. Of course, lower deficits will make your case even more promising. 

Credit Score

Your credit score reflects your reliability as a borrower, meaning how good you are at returning borrowed money. Therefore, your credit score is the most important determining factor for qualifying for an auto loan in Canada.

A good credit score is between 680-900, and the people in this category get the best deals on car loans. On the other hand, a bad credit score is between 300-680; people in this category may face difficulty getting a car loan. But this ultimately depends on the lender.  

The interest rate on the car loan is also calculated based on your credit score and might look something like this. 

People with a credit score under 700 may expect some questions about the negative terms on their credit score. Therefore, you might need to provide documents to support your answers.  

Debt-to-Income Ratio

The ratio of your recurring debt payments (e.g., mortgage, other loans, student loans, etc.) to your regular monthly income is known as the debt-to-income ratio. This ratio is also an indicator of how likely you are to repay your loans. A higher debt-to-income ratio might decrease your chances of getting a loan.

Now that we have all that straightened out, let's discuss where to get the best auto loan in Canada.

Getting a Car Loan in Canada

The most important thing to consider when getting a car loan is your credit score, as it will directly impact your credibility when getting another loan. However, this is not the only criteria. Some lenders are stiffer in their loan terms than others. Some might look at your income and not any other factor; the bottom line is, it all depends on the lender you choose.


If you do not have a problem with in-house financing and do not have a good credit score, car dealerships can be the perfect choice for you. In-house financing can potentially cost you much more, but it is still better than getting no loan at all. However, you're probably not going to get the best auto loan interest rates in Canada through this type of financing.

Here, the general rule is not just to go with the first dealership you find. Instead, visit as many dealerships as you can and compare their prices; there might be considerable differences in interest rates. After this, choose an interest rate that works best for you. 


Banks can be tough to work with if you have a bad credit score. Banks have a very high standard for loans, making the qualification process extremely frustrating. But, banks provide one of the best interest rates on auto loans in Canada, provided you have an excellent credit score. Also, unlike dealerships that increase the interest rate if you have an unfavourable score, banks will deny the loan altogether.

Alternative Lenders 

So, if you do not have a good credit score and cannot afford to pay high-interest rates, you are not alone. Many people have the same problem, and it's just how the economy works. However, you might end up paying way more than the original price of the car, but the flexibility that each of these offers can fit most people's budgets.

Average Interest Rate in Canada

The interest rate varies depending on the global economy every day. A reasonable estimate of the average interest rate can be between 4.16% to 5.24%. If you want to know the accurate interest rate in a given period, you can search the interest rate here.

Negative Equity

Depreciation is the reduction in the value of a good over time. It can be due to many reasons. For example, the value of a car can depreciate by as much as 15% to 25% of its value each year. 

Negative equity is when the loan balance you still need to pay exceeds the car's value. 

Negative equity happens because the rate at which your car depreciates is much quicker than your loan payment. But what's the problem with negative equity?  

Imagine you want to sell your car after a few years but still have some pending loan payments. The value at which you sell your car (say at $18000) will be much less than the loan remaining (say $25000), so you will have to borrow the difference of the price at which you sold your car and the remaining loan (25000-18000=$7000) from someone else (yes, another loan!) 

What to do now? You don't want to pay that extra $7000 from your pocket. Here is what you can do: 

Using a Large Down Payment

If you put down a significant down payment (say $5000 for a $30,000 car), the bank will only sanction the loan at the remaining $25,000; thus, giving you a head start before the value of the vehicle begins depreciating. In addition, this approach will keep you out of the pit of negative equity. 

Keep Loan Duration Payback Short

Instead of paying back the loan in 7 years, try paying back the loan in 5 years. Fewer years mean the less your car depreciates, decreasing your risk of getting into negative equity. You can learn more about negative equity here.

We wish you the very best in your search for your dream vehicle.

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