If you plan on financing a car with a loan, one of the most important things to consider is your interest rate. That’s because the rate you pay can add hundreds, and even thousands of dollars to the final cost of your car purchase. So, what’s considered a good interest rate on a car loan, and what can you do to ensure you pay the lowest possible rate?
Key Points
- Car loan rates in Canada are currently just under the 7% mark.
- A good interest rate on a car loan depends largely on your credit score, down payment, loan term, and lender.
- Used car loan rates tend to be slightly higher than new car loan rates.
- To get the lowest possible rate, consider increasing your down payment, boosting your credit score, choosing a shorter loan term, and comparing lenders.
What Is A Good Interest Rate On A Car Loan?
Generally speaking, most Canadian drivers pay around 5%-8% interest on their car loans. As of December 2024 (the latest data available), car loan interest rates are 6.76%. However, your interest rate could vary greatly depending on factors such as your income, credit score, down payment, and loan term.
Average Car Loan Interest Rates
As of the latest data available from Stats Canada, interest rates for car loans are just under 7%:
| October 2024 | November 2024 | December 2024 |
| 6.87% | 6.92% | 6.76% |
How To Get A Good Interest Rate On A Car Loan?
Locking down a great financing deal can be tough at times, but there are several things you can do to qualify for a good interest rate on a car loan:
Compare Rates
Car loan interest rates may differ from one lender to the next, so remember to shop around and ask all the questions you need. While it can be tempting to accept the first deal you find, there are a ton of lending sources all across Canada.
Get Quotes And Pre-Approval Offers
Most car lenders and dealerships should be able to give you a commitment-free loan quote or pre-approval offer. This will give you a basic idea of how much your car loan will cost and what interest rates you may qualify for.
Pre-qualifying shouldn’t affect your credit score or lead to any fees. Instead, it might give you some negotiating power when you compare lending sources.
Learn more: How To Get A Car Loan Pre-Approval
Review Your Finances And Credit Score
Before you apply for a car loan, don’t forget to create a realistic budget, then check your bank account, credit report and debt levels to confirm that they’re all healthy. If you have a decent monthly income, good credit, and little outstanding debt, it shouldn’t be too difficult to qualify for a good interest rate on a car loan.
Check your credit score for free using Loans Canada Compare Hub.
Don’t Choose A Car Loan Based On Your Monthly Payments
When shopping for car loans, think about more than just your payments. For example, longer loan terms often feature lower interest rates, but they can cause you to pay more interest over the life of the loan. On the other hand, short terms come with higher rates and payments, which can be pricier upfront but cheaper overall.
Negotiate
While it’s more common with auto dealers, some car financing lenders will be open to negotiating your interest rate. Then again, most hope that you’ll accept the first rate they give you, so take their “best offer” with a grain of salt. If you can’t qualify for a better rate with your finances and credit, try offering a down payment or trading in your existing car.
Use A Cosigner
If you don’t have a down payment or collateral, you may have a better chance of securing a lower interest rate by applying with a cosigner. Some lenders even require you to find a cosigner when you have bad credit. By signing the loan agreement, the cosigner promises to take over your loan payments if you can no longer afford them.
Choice Of Vehicle
If you finance a used car, your lender could charge you a higher interest rate. That’s because its market value is lower than that of a new vehicle, which means more risk if you default on your loan.
Best Car Loans
| 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 |
Where Can You Get A Good Interest Rate On A Car Loan?
Here are some places where you can get competitive interest rates on car loans in Canada:
- Banks/Credit Unions – Most major financial institutions and credit unions offer car loans. These institutions generally offer the best car loan interest rates, but have strict requirements, which make it hard to qualify. If you have a solid income and credit score, you may be able to secure a good interest rate with a bank or credit union.
- Dealerships – Many auto dealers may negotiate and offer you competitive interest rates to sell you a car. Additionally, they may provide in-house loans or partner with a third-party lender, which gives you multiple financing options. Compare different dealerships before you settle on a car loan.
- Online Brokers/Lenders – If your low credit is preventing you from getting approved by a bank or auto dealer, you can find plenty of alternative lenders and car loan brokerages online who offer good car loan interest rates. These lenders may have higher rates and fees than banks, but their requirements are generally easier to qualify for.
How A Good Car Loan Interest Rate Can Affect Your Car Loan Cost?
A good car loan interest rate can save you hundreds, if not thousands of dollars. To illustrate, let’s assume the following:
- Car Loan Amount = $30,000
- Car Loan Term = 60 months
| Interest Rate | Monthly Payment | Total Interest | Total Paid |
| 5% | $566.14 | $3,968.22 | $33,968.22 |
| 6.76% | $590.64 | $5,438.69 | $35,438.69 |
| 10% | $637.41 | $8,244.68 | $38,244.68 |
In this example, you can see that you can save thousands of dollars regardless of whether the interest rate difference is small or large.
Types Of Car Loan Interest Rates
Car loans may come with fixed and variable interest rates:
- Fixed Interest Rates. Fixed rates remain the same throughout your payment term, providing more stability and predictability with car loan payments.
- Variable Interest Rates. Variable rates go up and down with Canada’s prime rate. When rates are low, drivers pay less on car loan payments. But when rates rise, car loan payments simultaneously increase.
Can I Get A 0% Car Interest Rate?
Lenders often advertise promotional rates as a way to attract car buyers. One rate they may advertise is 0% car financing, which means you’d only be paying the principal portion of your vehicle’s sales price for a specific period.
Depending on where you apply and how strong your finances are, you may be able to find a 0% car financing deal. That said, there are some stipulations that typically come with 0% car financing offers that you should understand:
- Good Credit Required. You typically need a credit score of 660+ to qualify for 0% car financing.
- Limited Promotional Period. Zero interest is a sales tactic that often lasts only the first few months of a loan.
- Trade-In May Be Affected. If you accept a 0% financing offer, you may not get as much money for a trade-in.
- Limited Negotiating Power. Lenders may not be willing to negotiate or change the conditions of a 0% car financing deal.
Final Thoughts
Finding a good interest rate on a car loan can help keep costs low. The rate you get is based on several factors, like your credit score and loan term. Generally, lower rates are available to borrowers with good credit, while higher rates apply to those with lower scores. Be sure to compare lender offers and improve your credit score to help secure the best possible rate on your car loan.
