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What Is a Good Interest Rate On a Car Loan In Canada?

What Is a Good Interest Rate On a Car Loan In Canada?

Owning a new or used car has never been easier for Canadian residents. Thanks to so many types of vehicles, better initial quality, and a wider variety of financing methods, smart shoppers can get the car of their dreams at a price they can afford. While most people spend hours and days finding the right vehicle at the right price, many forget to shop for the best financing. They automatically go straight to their favorite bank or depend on a dealer's recommendation to finance their purchase. But, car loans come in many shapes and sizes, and a little due diligence goes a long way towards significant savings. Here are some questions for new and used car buyers to consider before their next vehicle purchase.



How Do Lenders Determine a Loan's Interest Rate?


Lenders weigh a buyer's credit score, the current interest rates, the age of the vehicle, and whether they're financing a purchased or leased vehicle. Pre-owned cars typically come with higher interest rates than new vehicles, as well. As with buying anything in life, those who shop around will almost always get better deals on their loans than those who don't.


How do Lenders Determine the Loan's Length?


Lenders use the buyer's income, credit score, and the age of the vehicle to come up with the loan length they ultimately offer. They shy away from long term loans on older vehicles that may not outlast the loan. From the buyer's perspective, it's usually best to take the longest term possible on a fixed-rate loan, and the shortest term they can afford on a variable rate loan.


How Is An Auto Loan's Monthly Payment Computed?


Lenders use the total amount financed (the cost of the new vehicle minus any down payment), the term of the loan, and current interest rates to compute the monthly payment.


So, What Is a Good Interest Rate On a Car Loan In Canada?


The answer to that question depends on the buyer's credit history, the vehicle being financed, the type of loan, the down payment, the loan term, and the lender. Auto Loan Rates in Canada can range anywhere from zero percent to almost thirty percent. Occasionally the carmaker themself will offer exceptionally low-interest loans to their new car buyers. These loans will only be made, however, to buyers with excellent credit scores. Shoppers should always check their credit scores before buying a new or used car in Canada. Someone with good or excellent credit generally pay somewhere around five percent, or less, on a new vehicle. For pre-owned cars, trucks, and SUVs, seven percent or below would be considered a reasonable rate. Buyers with fair or poor credit histories will pay considerably more, however. Many lenders also offer lower rates to borrowers who put down larger down payments. Loan length can also affect rates with shorter terms getting lower rates. Overall, car buyers will find that not all auto loans are created equal, and a little homework goes a long way toward getting the car of their dreams at a payment they can afford.



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