Get Used Car Financing (2024)

Did you know the average term for a used car loan in Canada is five years?

That's a big commitment which can impact your day-to-day finances. It's crucial to understand the benefits of a used car loan and how to get the best rates in the industry.

Want to be a smart car buyer? Keep readying for our used car loans guide. Learn how used car loans work, who offers used car financing and how to apply. You'll be able to navigate Canada's used car loan process with confidence.

How does a used car loan work?

Both new and used car loans aren't much different from each other. Canada has three main types of lenders to consider (dealerships, banks, and online lenders) for financing the used car of your choice.

When you take out a used car loan, you won’t be able to use the loaned money for any other purpose and the lender will not grant a loan amount that is higher than the cost of the vehicle.

Outlined below is the general process for financing a used car in Canada.

• Check your own credit score first. You may qualify for better terms or rates with a higher score. Lower than expected? Tweaking your approach with a cheaper car or involving a co-signer can help, or paying off past debts affecting your score. 
• Any lending institute can offer you a used car loan. By comparing them, you'll help ensure you get the best rates and terms for you. 
• Complete the application. This can be done in multiple ways, most commonly online or at the dealership. Expect to provide details about the car, your personal details, and your financial history. 
• Sign your approved agreement. Once approved, you will be asked to sign your contract for the loan. The total amount and repayment schedule will be among the details included. If you aren't approved, the lender may advise on the next steps. 
• Collect the keys and repay the loan. Having used the loan to pay off the price of the car, you get to take it home. Ensure you follow the repayment schedule, or the vehicle may be repossessed. 

Who offers used car financing?

It is uncommon to find a credit provider in Canada that does not offer financing for used cars. Used car dealerships, banks and online lenders are the most common options.

Each type of lender has its own pros and cons. We have compared the top three below to help you narrow down which best suits you.

Lender	Pros	Cons
Dealerships	In-house financing allows for a faster, easier process. Take advantage of dealership-only promotions. Trade in your vehicle and apply the value to the car, allowing you to finance less. Compared to other options, their lenience with requirements may make it easier for you to qualify. From start to finish, you can choose your car, add-ons, and negotiate financing all under one roof.	Interest rates can be higher than other options. This can especially be the case for those with lower credit scores. Dealerships partner with specific credit providers, limiting your options on which institute you pay to. Off-tag admin and processing fees can increase the total cost of the car. Interest rates & loan terms are less negotiable than other lenders. This is even more noticeable with poor credit. Depending on the dealership, you may feel higher pressure to use their in-house services.
Banks	Terms and repayment are more likely to have some flexibility through the bank. Fees and charges are up-front, so you know exactly what you’ll be paying. Sleep well knowing you’re working with a well-known and trustworthy bank. A higher loan amount may be approved by a bank over other lenders.	Banks will have limited knowledge of the auto industry. You may have delays while buying your car due to a longer approval process with the bank. Lending criteria is often more strict when compared to other lenders. Some banks may only offer auto loans if you are an existing client. You may need a higher credit score to obtain your used car loan from a bank than other lenders. Banks often have less intuitive online resources or tools to manage your loan.
Online	Apply anywhere or any time. Online lender applications are some of the most convenient. With lower overhead costs, online lenders can pass on lower rates to the buyer. The application process is generally faster than other lending options. Eligibility criteria can be less strict than the banks which may increase your chance for approval.	You may be charged extra for services like paying your loan early, or pre-approvals. From scams to data breaches, the internet poses a risk of being scammed if not using a reputable lender. It can take longer to receive the money after your approval than other lenders. The lack of in-person service can add a less personal feel and be challenging to ask questions or concerns.

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What types of used car loans are there?

In Canada, there are several types of loans that you can use to purchase a used vehicle. Keeping these in mind ensures you get the best rates and terms to suit your needs.

• Secured Used Car Loans: To be approved for the loan, you exchange collateral. Typically, your collateral is the vehicle itself which means that if you don't make your payments, it can be repossessed to pay the debt. You will notice secured loans frequently have lower interest rates. 
• Unsecured Used Car Loans: No collateral is used to secure this type of loan, making it higher risk for the lender and often having slightly higher rates because of it. The lender will primarily be looking for a strong credit history and score.
• Dealership Financing: You will notice that the terms and conditions vary from dealership to dealership. This is because the dealership is not extending the credit to the buyer, but they are acting as a middleman with a partnered lender. It is common for dealership financing to need collateral. 
• Personal Line of Credit: Most commonly obtained from a bank or credit union, a personal line of credit can be used for anything. They have lower interest than a credit card but higher interest than a secured loan. Depending on your credit health, you may qualify for a higher limit than the car is worth. A personal line of credit is revolving credit with more flexibility than other options. 
• Home Equity Loans: Much like a personal line of credit, a home equity loan can be used for any purchase. It can have one of the lowest interest rates on the market, secured by using your home as collateral. If you don't make your payments, your home can be at risk of foreclosure. 

What is the average used car loan interest rate?

As of publication in 2023, the average interest rates for used car loans in Canada range from:

• Secured: 4.99% to 10.99%
• Unsecured: 6.99% to 12.99% 

Keep in mind that rates may rise or fall dramatically over time as market conditions change. Rates can also differ depending on personal circumstances. The lender you choose, your credit score and the loan length can all impact your loan's interest rate.

Used car interest loan rates are typically higher than new car loans. This is due to data showing higher risks for the lender (such as more missed payments or depreciating value).

To compare, the average rate for a new car loan in Canada is currently:

• Secured: 0.00% to 6.99%
• Unsecured: 4.99% to 12.99% 

Knowing the average rates can help ensure you know when you're getting a good deal or should continue shopping around. In some cases, you may even benefit from looking at new vehicles to take advantage of the 0% interest rate reserved for brand-new cars.

How do you apply for a used car loan?

Applying for a used car loan can seem daunting, but choosing the type of lender that best suits you is often the most difficult part.

No matter your decision, you will receive guidance to complete the application. This will either be from the setup on the online lender's website or the staff at the bank or dealership.

To help you further, we've listed some common points lenders look at for the application process. You will need to be the age of minority for the province you apply in.

• Details about the vehicle you are applying for to ensure it meets any requirements (such as age or mileage.) 
• Proof of steady income, this shows you can repay the loan. Typically this will be three months of recent pay stubs.
• Details about outgoing monthly payments. This determines your debt-to-income ratio and shows if you can make the payments.
• A credit check to obtain your credit score. This is almost always a hard check to your score, so submitting your application may affect your credit. 
• Personal information such as your name, address and social insurance number. 

It is best to check out the best used car loan rates in the market before contacting lenders to ensure your loan fits you best.

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What is the longest term for a used car loan?

The term of your loan can be an essential factor to consider. Extending the term can mean your monthly payments are lower but result in more lifetime interest to pay.

Each lender will have their own terms, and we have listed the most common ones below for you. Your specific offering may vary if your credit is above or below average. Other factors like the age or condition of the vehicle also affect the term you are eligible for.

Lender	Term length
Banks	1 to 7 years
Dealerships	1 to 8 years
Online Lenders	1 to 5 years

Can I get a pre-approved used car loan?

While most people think pre-approvals are only for new cars, you can get a car loan pre-approval for a used vehicle in Canada. If you want to know exactly what you are approved to spend and the interest rate you qualify for, it could be an excellent option for you.

Not every lender in Canada will offer pre-approval for used cars, but most do. The process is easy and involves much of the same information you would supply in the application process.

What kinds of cars can you finance?

Each lender will have their own set parameters a vehicle must meet to be eligible for financing. Most commonly, lenders will look at:

• Age: Most vehicles will need to be ten years old or less at the time of the application.
• Mileage: The odometer should have 160,000 km or less at the time of the application. 
• Value: Lenders will determine the market's cash value for the vehicle and issue credit from 70-100% of its value.
• Condition: An inspection and history of the vehicle are looked at to ensure it is in fit condition for the loan term.

Unsure if the vehicle you'd like to purchase is eligible? Picking out a second option can be helpful. You can even seek out pre-approval for both vehicles from your lender.

What credit score do I need for a used car loan?

Your credit score is a key factor lenders will consider before extending credit to you for your vehicle purchase. The higher your score, the more likely you are to be approved.

Each lender will have their own credit score requirements depending on the type of loan you are applying for. Generally speaking, 660+ is considered a good credit score in Canada. A good or excellent score can help ensure you get the best used car loan rates.

Can I get a used car loan with bad credit?

A lower credit score doesn't necessarily mean you won't be approved for a used car loan, but it can add some limitations. It may mean you must shop for a lender with more lenient eligibility criteria. Fortunately there are lenders that specialize in bad credit car loans.

It is common to see higher interest rates due to the added risk the lender takes on for buyers with lower credit scores.

Seeking pre-approval for your car loan could be beneficial if you are concerned about your credit score.

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