Whether you’re new behind the wheel or a seasoned driver looking to upgrade, there’s a lot to consider when it comes to used car loans in Canada. No matter where you’re at, understanding how used car loans work is important.
Whether you’re considering financing from a dealer, your bank or an online loan provider, there’s no shortage of options out there. But knowing what makes a good used car loan will be crucial in helping you decide whether or not you need one, and if you do, how to find the right one for you and your car.
Can You Finance A Used Car?
Yes, you can finance a used car in Canada. Most banks, credit unions, dealerships and specialized lenders offer used car financing options. However, you may encounter some restrictions when shopping for a used car loan. Specifically when it comes to details like the age of the vehicle, mileage, loan-to-value ratios, etc.
These restrictions vary between lenders and will impact the type of loan you can secure, so it’s vital to review the specific terms and conditions when considering your options.
Used Car Loan Features
Loan Amount
When financing a used car, lenders typically set both minimum and maximum loan amounts. Minimums will vary by lender, but generally, they will come in around $6,000 – $8,000. Maximum amounts typically fall between $30,000 and $50,000 for used cars, and this is often determined by the loan-to-value ratio, where lenders will finance no more than 80% of a used car’s total value.
Loan Term
The term, or length, of your used car loan is extremely important. Loan terms generally range from 24 to 84 months, although some dealerships may offer up to 96 months financing (or 8 years). As well as the lender, loan terms also depend on the conditions and age of the car. Generally, cars that are more than 10 years old are harder to finance for more than a year or two.
Average Car Loan Rates
Typical rates for used car loans in Canada currently fall between 5% and 9%. Loans with shorter terms (i.e. higher monthly payments) will come with lower interest rates, while longer-term loans will have lower monthly payments but higher interest rates. Rates also trend higher for older vehicles.
Where Can You Get A Car Loan For A Used Car?
There are several places you can look to when it comes to finding the right used car loan. While dealerships are generally the most convenient auto loan providers, it’s worth exploring all your options.
Bank Car Loan
A bank car loan involves applying for a loan directly through your bank or credit union. Banks can sometimes offer competitive interest rates and flexible terms, especially if your credit score is good.
A used car loan from your bank is a good option for those with good credit who want a predictable repayment plan and prefer a traditional, stable lending option. Unlike other options, bank loans require more documentation and a longer approval process.
Dealership In-House Financing
In-house financing allows you to shop for your car and loan in the same place, making it a convenient option. This means you won’t have to go through a third party like a bank or dedicated loan provider. Dealerships also tend to offer more promotional discounts and sales compared to banks.
Dealership financing is best suited to those looking for convenience and a quick solution, especially if your credit score isn’t particularly strong. However, interest rates may be higher compared to other lenders, and the terms available may not be as flexible as those offered by your bank.
Online Car Loans
Online lenders can be a good source for used car loans, sometimes offering competitive rates, terms and discounts. When it comes to speed, convenience and comparison shopping, online lenders are hard to beat.
A used car loan from an online lender can be approved within a matter of hours and will suit those who are comfortable shopping online and navigating loan comparison websites. Rates can be competitive, and for those with low credit scores online lenders are often one of the few options available. Just be sure to check each lender’s credibility before signing a loan agreement.
| Amount | Interest | Term (Months) | ||
|---|---|---|---|---|
 | $500 - $50,000 | Up to 35% | 12 - 84 | Learn more |
 | $7,500+ | Varies | 24 - 96 | Learn more |
 | $500 - $35,000 | Starting at 29.99% | 9 - 60 | Learn more |
 | $500 - $10,000 | 12.99% - 34.99% | 9 - 60 | Learn more |
 | $5,000 - $40,000 | Varies | 12 - 72 | Learn more |
 | $5,000 - $45,000 | 4.90 % - 29.95% | 36 - 72 | Learn more |
 | Varies | 11.9% + | 12 - 84 | Learn more |
 | Up to $50,000 | Varies | 12 - 84 | Learn more |
Documents Required To Get Used Car Loans
Most lenders will require you to provide some or all of the following documentation to be approved for a used car loan:
- Identification: Lenders may ask you to provide your driver’s license, passport, permanent residence card etc. to prove your identity.
- Proof of Income/Employment: Most lenders will ask for your bank statements, but you may also be asked for tax returns or pay stubs to confirm that you are employed and can afford the loan repayments.
- Bank Account Information: Lenders will require you to provide direct deposit details for your bank account to facilitate monthly payments towards your loan.
- Proof of Insurance: Some lenders will need you to provide proof that the vehicle is insured before agreeing to finance it.
Do You Need A Down Payment For Used Car Loan?
Providing a down payment for a used car loan is standard practice. However, you don’t always need a down payment for a car loan, as some lenders will offer 100% financing if the right conditions are met. Some Canadian banks, for example, offer up to 100% auto financing for new and used vehicles.
However, several benefits come with taking on a loan with a down payment:
- Lower Monthly Payments: A down payment will reduce the amount you need to borrow overall, which in turn will lower your repayments. A down payment thus makes your loan more affordable over time and reduces the strain on your budget.
- Reduced Interest Costs: Since a down payment will lower the loan principal, you can make significant savings on interest over the life of the loan. This can be especially helpful if your interest rate is high or your loan term is longer.
- Improved Terms: Putting in a down payment can also help you access better loan terms, as lenders typically view those who can make down payments as lower risk.
Can You Get A Used Car Loan With Bad Credit?
Yes, you can get a used car loan with bad credit, although the reality is that your options will be limited. While banks and credit unions are traditionally cautious about lending to those with lower credit scores, it is possible to secure a bad credit car loan from an online lender or even a dealership.
For example, some online lenders cater specifically to borrowers with bad credit. These often have more flexible criteria, but the downside is that bad credit loans are almost always going to come with high interest rates.
Some dealerships also offer in-house financing options for those with poor credit scores. While interest rates will also be higher here, with limited options choosing this kind of dealership loan can still get you the car you want with a manageable repayment schedule.
Can You Get 0% Financing For A Used Car?
It’s unlikely because 0% financing offers are typically reserved for new cars.
0% financing is sometimes available for new cars as part of promotional offers from manufacturers or dealerships. These deals are made to attract buyers to new models, and they often come with specific terms and conditions.
On top of that, these deals usually require excellent credit and a strong financial standing overall. Lenders and dealerships will offer 0% financing to incentivize high-credit buyers, minimizing risk.
Used car loans usually come with average interest rates, at best, due to the depreciative nature of most vehicles, and the higher risk of breakdown and damage associated with older models. If you have good or excellent credit you could secure a competitive interest rate on a used car, but 0% financing is extremely unlikely.
What Are Certified Pre-Owned Vehicles?
Certified Pre-Owned (CPO) vehicles are used cars that have been tested thoroughly, undergoing a standard inspection and refurbishment process by either the manufacturer or the dealership to meet certain quality standards.
CPO cars typically have extended warranties, additional benefits like roadside assistance, and a detailed history report. And importantly, a CPO vehicle usually means a better financial package.
Lenders and manufacturers usually offer better interest rates and loan terms, as well as special incentives for CPO cars. This is because they represent lower risk for lenders. The detailed inspection and certification process gives lenders more confidence in the vehicle’s overall reliability, which translates into more favourable loan terms for the borrower.
Should You Finance Your Used Car?
Choosing whether or not to finance a used car is a big decision, and while it ultimately will depend on your circumstances, needs and preferences, there are several benefits to going with a used car loan:
Spread The Cost
One of the biggest benefits of financing your used car is spreading the total cost over several years, rather than paying it all upfront. This allows for much more flexibility with your budget, although taking out a loan will of course increase the overall cost as opposed to outright purchase.
Protect Your Savings
Chances are if you purchase a vehicle outright, you’ll need to take a large chunk of cash out of your savings account. Financing helps you avoid this by committing to a manageable repayment schedule.
Credit Building
Consistent and timely repayments toward your car loan can help you build or improve your credit score.
Better Choice
By financing a used car you’re likely going to increase the quality of vehicles available to you, allowing you to afford newer models or ones in better overall condition. This can also result in lower maintenance costs over the years.
Final Thoughts
Financing a used car can be a smart financial move, but it’s important to be thorough and carefully consider your various options. Even if you’re searching for a bad credit used car loan, you’ll find a few different options to compare.
