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Despite it being one of the most expensive investments you’ll ever make, buying a new car can make a world of difference in your life, whether you use it for work, school, grocery runs or road trips. The only problem is that a new car could cost you tens of thousands of dollars throughout the years, which is enough to steer any driver away from the idea. Luckily, there’s always the option of financing your car using a loan. 

That said, new car financing can come with a few expenses of its own, one of the largest being the interest rate your dealership or lender charges. So, in order to save as much money as possible, it’s important to find the best rate you can. Keep reading this article to learn how you can do just that. 

What Affects Your New Car Financing Rate?

Essentially, interest is what you pay to borrow from a dealership or lender. You can either apply for in-house financing and make payments directly to your auto dealer or take out a loan to purchase the car outright, then repay your lender in installments. The lower your interest rate is, the less you’ll pay overall to finance your new car.  

Although both types of car financing have similar application and payment procedures, the associated interest rates can be quite different. In addition, there are a number of factors that can affect how high or low your specific rate ends up being, such as:

  • Credit Scores – Your credit score can tell a dealer/lender a lot about how you’ve handled your previous credit products. If it’s within the bad range (300 – 600), it might be due to unpaid debts or even bankruptcy. As a result, your interest rate will be higher because you present more risk than someone with good credit. 
  • Income Level & Debt Level – Your income and other debts (mortgage, credit cards, etc.) are just as, if not more important than your credit score because they let the dealer/lender know if you’ll be able to afford your future loan payments. The larger your income is and the less unpaid debt you have, the lower the rate.
  • Loan Amount & Loan Term The average car financing term is at least a few years long. While the size of your loan and frequency of your installments can vary, the general rule is that the less money you borrow and the shorter the term is, the more you’re charged in interest so the dealer/lender can maximize their profits.
  • Depreciation – The more years and mileage your car has, the more value it loses. If the loan is secured against your car as collateral and you go into default, the dealer/lender has to repossess and resell a less valuable car. As such, the faster your car is estimated to depreciate, the higher your interest rate will be. 
  • Economic Factors – If you’re lucky, you might be able to lock in a low fixed financing rate, which won’t change during your payment term. However, if you have a variable rate or you don’t find a good fixed rate in time, your car payments can fluctuate in size when the Bank of Canada’s benchmark rate rises or drops.
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How Can You Get the Best Financing Rate For Your New Car?

It’s true that your interest rate can make your new car payments much larger than you were initially expecting. Don’t worry, because there are a few easy ways of finding and qualifying for the lowest car financing rates possible, including but not limited to: 

Ask For Multiple Quotes

Compare new vehicles, dealerships, and lenders in your area. You’ll find that every one of them offers different financing rates, loan amounts, and approval conditions. After you fill out some simple forms, they should also give you a free price quote, so you’ll have an idea of what rate you’ll qualify for.

Get Pre-Approved

Before you actually apply for new car financing, it’s a good idea to get pre-approved by your dealer/lender. Not only will this let you know if you’ll qualify for a loan, but it can also help you narrow down your car search, shop smarter and save money by finding you the lowest financing rates. 

Offer a Larger Down Payment 

Offering the largest down payment you can comfortably afford can also help you earn a lower rate, especially if you don’t have good credit. Plus, it can reduce the overall size and length of your debt. Most experts suggest that you put down at least 20% of the car’s asking price. 

Find a Co-Signer

If your income and/or credit aren’t great, a financially stable friend or family member can cosign your application and agree to take over your payments if you can’t afford them. Due to this extra security, your dealer/lender may give you a better rate than you would get from bad credit car financing.

Build Your Credit Score

Prior to applying, be sure to increase your credit score by paying off existing debts, checking your credit report for errors and avoiding any other new credit. The closer your score is to 900, the easier it would be for you to make payments (theoretically), so you may qualify for a lower rate.

Organize Your Finances

One of the best ways to earn a low rate is to show your dealer/lender that you can afford all associated costs when they inspect your finances. Be sure to have a solid job for at least a few months prior and enough extra money saved to cover a down payment and any other future costs.

Who Are The Best Car Financing Providers in Canada?

AmountInterestTerm (Months)
Loans Canada Logo - Bad Credit Loans Canada$500 - $50,000Up to 46.96%12 - 84Learn more
ClutchVaries8.49% +24 - 96Learn more
Canada Drives$500 - $35,00029.99% - 46.96%9 - 60Learn more
SkyCap Financial$500 - $10,00012.99% - 39.99%9 - 36Learn more
Carloans411$5,000 - $40,000Varies12 - 72Learn more
Canada Auto Finance$5,000 - $45,0004.90 % - 29.95%36 - 72Learn more
Eden ParkVaries11.9% +12 - 84Learn more
Splash Auto Finance by RifcoUp to $50,000Varies12 - 84Learn more
SafeLendUp to $50,00015.99% +12 - 72Learn more

How You’ll Benefit From The Right Financing Rate

For most drivers, buying a new car is not very easy or affordable. Some have to work for months, even years just to save up for a down payment. Since your dealer or lender’s interest rate can drastically increase the cost of your car financing installments and repayment term, it’s important to seek out the lowest rates possible.

In fact, if you’re a responsible borrower, qualifying for a low new car financing rate can start a ripple effect that will gradually improve your financial health and credit report:

  1. Saving You Money – Primarily, finding the best financing rate is about cutting down as many of your new car costs as you can. Thankfully, a low rate can save you hundreds, if not thousands of dollars over the life of your loan. Not only can you spend that extra money on other necessities, but you can also invest it in your future.
  1. Fixing Your Credit – When looking for new car financing, you should always apply with a dealer/lender that reports their clients to Canada’s credit bureaus. While your credit score will drop slightly whenever you apply (hard inquiry), it will increase every time you make a payment and add variety to your credit mix.
  1. Making You a Better Borrower – Paying your debts and keeping a high credit score are two of the most effective ways to get approved for any credit products with low interest rates. The same goes for your new car payments, which can eventually help you get approved for a mortgage or other major financial service.  
  1. Enriching Your Life – As mentioned, a decent car financing rate can save you a lot of money in the long run, which you can use for other things; like groceries, investments and vacations. Not to mention, you’ll have access to a brand new car, so getting around won’t be as time-consuming as with public transit or taxis.
New vs. Used Cars

Haven’t Found The Best Financing Rate For Your New Car?

There are plenty of simple ways to find the best car financing rates for a new car and your finances. However, if you’re still having trouble, Loans Canada can help you find prime auto financing sources and the lowest interest rates in your area. 

Bryan Daly avatar on Loans Canada
Bryan Daly

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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