How car loans work
You borrow the purchase price (minus any down payment or trade-in) and repay it in monthly instalments over a set term. The vehicle itself usually serves as collateral, which is why car loan rates are often lower than unsecured personal loans.
Car loan terms in Canada
Terms typically range from 36 to 84 months. A longer term lowers your monthly payment but increases the total interest you pay — and can leave you owing more than the car is worth early on. Choose the shortest term you can comfortably afford.
New vs used car financing
- New cars: often qualify for the lowest promotional rates from manufacturers.
- Used cars: slightly higher rates, but a lower purchase price and less depreciation.
What affects your rate
- Your credit score and history
- The loan term (longer terms can mean higher rates)
- Your down payment size
- Whether the car is new or used
- The lender (bank, credit union, dealership or online lender)
The benefit of pre-approval
Getting pre-approved before you shop tells you exactly what you can afford and strengthens your negotiating position at the dealership. It lets you focus on the price of the car rather than the financing pitch.
How to apply
- Check your credit and set a realistic budget.
- Save a down payment to lower your loan and rate.
- Compare lenders and get pre-approved.
- Shop for the vehicle within your approved amount.
- Finalize the loan and drive away.
Tips to save money
Make a larger down payment, choose a shorter term, compare offers from more than one lender, and watch out for add-ons rolled into the financing. Paying attention to the APR — not just the monthly payment — is the key to a good deal.
Frequently asked questions
What credit score do I need? Higher scores get the best rates, but financing is available across the credit spectrum, including bad credit.
How much down payment is ideal? Even 10–20% reduces your rate and monthly cost and helps you avoid being underwater.
Can I pay off a car loan early? Many lenders allow it — check for any prepayment penalty.
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Disclaimer: LoanWave.ca is an affiliate / comparison website. We are not a lender and do not provide loans. We may earn a commission from partners. Rates and terms are set by lenders. Informational content only, not financial advice.