What Is A Good Interest Rate On Car Loan?

If you plan on financing a car with a loan, one of the most important things to consider is your interest rate, because it can add hundreds, even thousands of dollars extra to the final cost of your payment plan. That means you could pay far more for your car than you originally hoped. 

Don’t worry, there are ways to obtain a lower interest rate if you’re willing to put in the work. Read this to learn how you can get a good interest rate on a car loan in Canada. 

What Is A Good Interest Rate On A Car Loan?

Generally speaking, most Canadian drivers pay 4% – 7% interest on their car loans. As of May 2022, car loan interest rates are 5.80%.  However, your interest rate could vary greatly according to factors such as your income, credit score, down payment and loan term. 

Car Loans Interest Rate 

Types Of Car Loan Interest Rates

Some lenders charge fixed and variable interest rates on car loans:

• Fixed interest rates remain the same throughout your payment term and can be somewhat higher than variable interest rates, especially if you have bad credit. 

• Variable interest rates go up and down with Canada’s prime rate. Many drivers start out paying a low rate but have to deal with higher rates as time goes by.  

Where Can You Get A Good Car Loan Interest Rate? 

	Amount	Interest	Term (Months)
	$500 - $50,000	Up to 46.96%	12 - 84	Learn more
	$500 - $35,000	29.99% - 46.96%	9 - 60	Learn more
	$500 - $10,000	12.99% - 39.99%	9 - 36	Learn more
	$5,000 - $40,000	Varies	12 - 72	Learn more
	$7500 - $59,995	3.95% +	12 - 96	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
	Up to $50,000	8.99% +	12 - 72	Learn more

How To Get A Good Interest Rate On A Car Loan?

Locking down a great financing deal be tough at times but there are several things you can do to qualify for a good interest rate on a car loan, including:

Compare Rates

Every lender offers different interest rates for their car loans, 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 & Pre-Approval Offers

Most car lenders and dealerships should be able to give you a commitment-free loan quote or pre-approval offer, so you can get a basic idea of how much your car loan will cost and what interest rates you may qualify for. This shouldn’t affect your credit score or lead to any fees and it might give you some negotiating power when you compare lending sources.     

Review Your Finances & 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-to-no outstanding debt, it shouldn’t be too difficult to qualify for a good interest rate on a car loan.    

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, collateral or another type of security, you might score a good interest rate by applying with a cosigner. Some lenders even require you to find a cosigner when you have bad credit. Essentially, the cosigner will become responsible for your loan payments if you can no longer afford them, which acts as a guarantee.       

Types Of Lenders You Can You Get A Good Interest Rate On A Car Loan

Here are some places 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 will gladly negotiate and offer you competitive interest rates to sell you a car. Additionally, they may provide in-house loans or partner with more than one 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 Do Lenders Calculate Your Car Loan Interest Rate? 

Lenders will normally use these elements to calculate your car loan interest rate:

• Income – The higher your income is, the more lenders will trust that you’ll pay your loan on time. When you apply for financing, your lender/dealership may ask for your most recent bank statements and/or pay stubs to confirm your income. 

• Credit Score – Some lenders may inspect your credit and debt history prior to approving or denying you for a car loan. A lower credit score of 300 – 660 is typically interpreted as frequent late payments on existing debt. In turn, this often leads to higher rates. 

• Type of Interest Rate – As mentioned, variable rates tend to be lower starting off but may fluctuate throughout your car loan term. Fixed rates are usually higher but won’t change at all, making them more reassuring and easier to calculate.    

• Choice of Vehicle – If you finance a used car with a secured loan, 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.

• Payment Term – Remember, longer financing terms may result in lower interest rates, but it also means you will be paying more in interest in the long run. Why? The longer your financing term, the longer you pay. Although payments and rates will be higher, a shorter term may help you save a lot more interest.   

How Much Does A Good Car Loan Interest Rate Cost? 

It’s not smart to apply for a car loan without doing a bit of basic math first. For example, here’s what you can expect to pay when financing a new car in British Columbia:

• Cost of Vehicle = $50,000
• Car Loan Term = 72 months (6 years)
• Provincial Sales Tax = 12 % on most privately acquired vehicles 
• Down Payment = $10,000 (20%)

Searching For a Good Interest Rate On Your Next Car Loan?

If so, you’re making a financially responsible choice. Even though it’s easier to accept the first interest rate you come across, qualifying for a lower rate can potentially save you thousands of dollars over the course of the loan term. For help finding good car loan interest rates in your area, don’t hesitate to contact Loans Canada today.