What credit score do I need for a car loan in Canada?

Most prime lenders require a credit score of 620 or above for standard auto financing. Scores of 680+ get better rates. Below 620, you may still qualify through subprime auto lenders but at significantly higher rates — sometimes 15%–25% APR.

Should I finance through the dealer or my own bank?

Get a pre-approval from your bank or credit union before visiting the dealership. This gives you a benchmark rate. The dealer may beat it through manufacturer financing promotions, or they may not. Having your own financing secured gives you negotiating power and prevents financing from being bundled with the purchase price.

Is 0% financing from a car dealer actually free?

Not always. Dealers offering 0% financing often require you to forgo a cash rebate. Depending on the rebate size, taking the rebate and financing at a regular rate through your bank may cost you less overall. Always compare both scenarios in writing.

What is the total cost of owning a car in Canada?

Beyond the purchase price, budget for: insurance ($1,200–$2,500+/year), fuel ($1,500–$3,000/year), maintenance and repairs ($1,000–$2,500/year), registration ($100–$500/year), and parking. Total annual ownership costs of $8,000–$15,000 are common, beyond the loan payment.

How long should a car loan be in Canada?

Most financial advisors recommend no longer than 60 months (5 years). Loans of 72–96 months reduce monthly payments but mean you are likely underwater (owing more than the car is worth) for years, and paying significantly more total interest.

What is a good car loan interest rate in Canada?

As of 2025–2026, prime car loan rates from major banks and credit unions range from roughly 6%–10% for well-qualified borrowers. Manufacturer financing promotions can offer 0%–4% on select models. Subprime rates can be 12%–25%+.

Before You Get a Car Loan in Canada: What to Check

Short Answer

The car loan decision is more complex than the monthly payment makes it appear. This checklist helps you understand total cost, spot dealer traps, and confirm the financing actually fits your budget.

Step 1: Decide Between Buy vs Lease vs Finance

Option	Best for	Watch for
Pay cash	Eliminates interest cost, no financial obligation	Ties up capital that could compound elsewhere
Finance (loan)	Building equity in an asset you own	Total interest cost adds significantly to purchase price
Lease	Lower monthly payments, drive newer cars	You never build equity, mileage limits, wear charges

If you drive more than 20,000 km/year or want to modify the vehicle, leasing is usually a poor fit. Leasing also means perpetual car payments — it never ends unless you buy out the lease.

Step 2: Calculate Total Cost of Financing

Never evaluate a car loan by monthly payment alone. Calculate the total you will pay:

Scenario	Car price	Rate	Term	Monthly payment	Total paid	Total interest
A	$35,000	6.9%	60 months	$688	$41,285	$6,285
B	$35,000	6.9%	84 months	$530	$44,494	$9,494
C	$35,000	12%	72 months	$663	$47,741	$12,741
D	$35,000	0% dealer	60 months	$583	$35,000	$0

The 0% dealer financing in Scenario D looks ideal — but if the cash rebate forgone was $3,500, you would have been better off taking $32,500 and financing at 6.9%:

Financed at 6.9%, 60 months on $31,500 → total paid ~$37,200 (still $800 less than Scenario A)

Always model both paths when a cash rebate vs 0% option exists.

Step 3: Get Pre-Approved Before the Dealership

Why pre-approval matters	Detail
Separates car purchase from financing negotiation	Two separate deals instead of one bundled mess
Gives you a real rate benchmark	Know what you actually qualify for before a dealer tells you
Protects against rate markup	Dealers can mark up financing rates and pocket the spread
Rate held for up to 30–60 days	Lock in current rates during your shopping window

Go to your bank or credit union first. If the dealer’s financing is genuinely better (manufacturer promotion), use theirs. If not, use your own.

Step 4: Review the Full Total of Obligations (TTO)

The deal sheet will include items beyond the vehicle price:

Add-on	Legitimate?	Notes
Freight and delivery	Yes	Mandatory, built in
Air conditioning tax	Yes	Federal levy
Documentation fee	Sometimes inflated	Negotiate
Extended warranty	Optional	Compare cost vs self-insuring
Tire protection	Optional	Rarely good value
GAP insurance	Sometimes justified	Only if financing high LTV on depreciating vehicle
Paint/fabric protection	Usually poor value	Negotiate out
CPAP, life/disability credit insurance	Optional	Usually expensive through dealers

Always ask for the out-the-door price with all fees itemized. Do not agree to monthly payments before seeing the total purchase price.

Step 5: Insurance Cost Before You Commit

Get an insurance quote for the specific vehicle before you sign the purchase agreement. Insurance costs vary dramatically by:

Factor	Example
Vehicle make and model	Sports cars, luxury vehicles cost significantly more
Your age and driving history	Young drivers pay 2–4x what experienced drivers pay
Province	BC (ICBC), Manitoba (MPI), Saskatchewan (SGI) have public insurance
Financing requirement	Lenders require comprehensive and collision coverage

A $300 monthly loan payment becomes unaffordable if the car also requires $300/month in insurance. Get both numbers before committing.

Step 6: Know Your Negative Equity Risk

Vehicles depreciate faster than most people expect:

Year	Approximate remaining value (typical new car)
Year 1	80–85%
Year 2	70–75%
Year 3	60–65%
Year 4	50–60%
Year 5	40–55%

An 84-month loan at low payment means you are almost certainly underwater (owing more than the car is worth) for the first 4–5 years. If you need to sell or the car is written off, you still owe the difference.

GAP insurance covers the gap between the car’s value and what you owe — it is worth considering on long-term loans with minimal down payment.

Budget Check: The 20/4/10 Rule

A common framework for sustainable car buying in Canada:

Rule component	Guideline
Down payment	At least 20% of the vehicle price
Loan term	Maximum 4 years (48 months)
Total vehicle costs	No more than 10% of gross monthly income

On a $120,000 gross annual income (~$10,000/month), the 10% guideline suggests no more than $1,000/month total for car payment + insurance + gas + maintenance.

Before You Sign: Checklist

Total purchase price (not just monthly payment) calculated and accepted
Total interest over the full loan term calculated
Pre-approval rate from bank or credit union obtained
0% financing vs cash rebate scenario compared if applicable
Insurance quote obtained for the specific vehicle
All add-ons reviewed — declined or consciously accepted
Loan term is 60 months or less (unless strong justification)
Monthly car costs (payment + insurance + fuel + maintenance) fit within ~10–15% of income
Negative equity / GAP risk understood for the term length

Bottom Line

The biggest mistake Canadian car buyers make is evaluating a loan by the monthly payment and ignoring total interest, fees, and insurance costs. Get pre-approved, calculate total cost end-to-end, and treat the financing and purchase as two separate negotiations.

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