Interest Rates on Car Loans in Canada

The average interest rate for car loans in Canada is 7.2%. However, there are several factors that affect this number, such as credit history, income, and loan duration. 

Figuring out car loan interest rates can be daunting but worry not; this article will guide you. Here, you’ll learn about the factors affecting car loan interest rates, how to calculate them, and tips on getting the best numbers. 

Overview of Car Loans in Canada

The average car loan interest rate based on credit score ranges from 5% to 7%. However, getting a reasonable interest rate depends on your credit score. Car loan rates generally vary from 5% to 50% annually.

Canadians can secure car loans in two ways; through car dealerships like online vehicle retailers, online lenders, and brokers, or financial institutions like banks and credit unions. 

Factors Affecting Car Loans Interest Rates in Canada

According to WOWA, the average car loan interest rate is 7.2%. 

Interest rates on auto loans are usually the second most expensive part of buying a car, and it  varies for every lender, and this can be affected by the following factors:

Credit History 

A credit score is one major determinant of interest rates in Canada that shows your creditworthiness, ranging between 300 to 900. A Canadian with a high credit score above 700 will get a lower interest rate.

Proof of Income

Lenders also examine your level of income and debt service records to ascertain how you pay off your debts. An individual with a low debt service ratio can quickly negotiate for a lower interest rate and vice versa.

The Type and Current Condition of the Car

Lenders prefer cars that are still in high demand without mechanical issues, as it will be easier to sell them off if you cannot pay off your loan. As a result, new cars in excellent condition attract lower interest rates from lenders than used ones. 

Loan Duration 

Your loan term also determines how much interest the lender will place on a loan. Short-term loans attract lower interest rates than long-term loans. A long-term loan attracts a higher interest rate as the lender takes on more risks.

Down Payment Size

The amount you pay as a downpayment when taking out a loan also determines your interest rate. A large downpayment will decrease your interest rate, indicating less risk to the lender.

Your Debt-to-Income Ratio

Lenders use your debt-to-income ratio computation to determine whether you can repay your loan. This computation compares recurring income with recurring expenditure. You can negotiate for a lower interest rate if your debt is high and your income is low. Lower debt ratios imply lower car loan interest rates.

How to Calculate Auto Loan Interest Rate

The total cost of your car loan depends on your loan amount, interest rate, and loan term. 

Calculating your car loan amount before signing will put you in control of your finances and prevent you from paying more interest than you should.

Here are the different methods for how calculating auto loan rates: 


You can calculate your car loan interest rate by dividing it by the number of payments in a year (loan term) and multiplying it by the loan amount.                                                                                                                                     

Auto Loan Calculator

A more straightforward way to calculate the interest rate is using a car loan rate calculator. An auto loan calculator will show your estimated monthly payment, total interest paid, and a complete amortization schedule.

Contact a Loan Officer

You can speak directly with a loan officer for a more detailed experience. Talking to a loan officer lets you experience how interest rates and loan payment calculations work and compare options.

Tips on How to Get the Best Car Loan Rate

Before deciding, you should research and compare interest rates and other loan terms and conditions from different lenders to determine the most favorable.

Here are some suggestions on how to get the best car loan rates: 

Maintain a Good Credit Score

You should maintain a good credit score of about 700 and above to get the best car loan rate. You must maintain a high debt-service ratio by making regular payments.

Increase in Downpayment

Lenders expect the borrower to pay a certain amount as a downpayment. If you spend a higher downpayment of 20% and above than your lender requires, you will likely get a lower interest rate, showing you can complete the loan payment.

Opt for a Short-Term Loan

Short-term to lenders implies reduced risk. Therefore, going for a short-term loan ranging from 36 to 48 months as it lowers interest rates more than long-term loans is advised.

Apply With a Cosigner

In a situation whereby you have a bad credit score, you add a cosigner with a good credit score to help you get a lower interest rate. However, your cosigner becomes liable if you fail to repay the loan.

Compare Rates From Different Lenders

You should not be in a hurry to secure a loan; instead, take your time and get quotes from different lenders and compare their loan rates with the minimum amount and other terms before deciding on the best option.


To get the best loan rate in Canada, you must have a high credit score, a relatively new vehicle, and a good income stream that can quickly pay off your loan payments. Getting the best car loan rates reduces the car’s total price and helps you save money throughout your car loan.



Are interest rates on used cars higher than on new cars?

Yes, interest rates on new cars are lower than on used cars, as lenders find it easier to sell them off and recover their money if you fail to pay off the loan.

What credit score do I need to buy a car in Canada?

Credit scores vary by lenders, but you can strive to score at least 670 and above to get a reasonable interest rate. To get the best loan rate, you can aim for a score above 700.

Why are car loan interest rates so high in Canada?

The Central Bank of Canada increased interest rates eight times between March 2022 and January 2023. The increased rates consequently increased the car loan rates lenders charge their clients.

Florence Desiata
We will be happy to hear your thoughts

Leave a reply