Financing a Car in Ontario (2024)

With even the average price of a used vehicle in Ontario exceeding $30,000, most Canadians can't afford to purchase their much-needed transportation outright.

The main solution is a car loan, as it allows you to split the cost into more manageable monthly or bi-weekly payments (with added interest) for either a new or used car. 

This guide will answer pressing questions from “How does a car loan work” to “Can I get a car loan in Ontario with bad credit” and everything in between, giving you confidence that you have the best auto financing in Ontario.

How do car loans in Ontario work?

To get a car loan, you'll need to apply with a lender offering the service. There are a few options to choose from:

• Dealerships
• Banks or credit unions
• Online lenders

Each lender has its advantages and requirements. These lenders will look at factors such as your credit history, income vs. debts and work history to determine if they can confidently approve a loan (and at what rates) for you. 

After securing a car loan, you'll make regular payments over a set amount of time (the term) until the total amount is repaid. You can only use this type of loan for the vehicle in your application and its directly associated fees. While every lender will have their own eligibility requirements and rates, the factors listed below will be reviewed to determine your loan offering.

• Credit Score: Your credit score reveals to your lender your trustworthiness in repaying your debts. 
• Loan Term: The length of time your loan is spread across can impact the size of your instalments, or the lifetime interest you pay. 
• Type of Car: Reliable vehicles with as much value retention as possible are favoured by lenders. 
• Income: Proof you have a steady income and that too much isn’t already promised to other debts (debt-to-income ratio).
• Down Payment: A partial payment towards the balance means you have to borrow less money from the lender.

Types of Car Lenders in Ontario

There are three types of lenders to consider working with for your new or used car loan. Each one has both positives and negatives for you to consider. We have compared them here so you can confidently choose the right one for you.

Type	Pros	Cons	Best for
Banks & Credit Unions:	Wide range of loan options making them more flexible Reward good credit with lower interest rates Trusted in the market with advisors to help you through the process	Have stricter eligibility requirements than other lenders Interest rates are increased if you have poor or no credit Longer approval process with additional paperwork	Those with a good credit score who prioritize long-standing financial institutes and personalized customer care.
Dealerships:	Can conveniently source your vehicle, apply, supply documents and sign the loan under one roof  Often have promotional offers other lenders don’t have access to Specialize in the automotive industry giving you expert advice through the process	Tend to have higher interest rates than other lenders The upselling of add-ons or more expensive vehicles is common among staff You’re limited to using the lender the dealership is in partnership with	Those who benefit from industry-specific customer care, are looking for the most convenience or want to take advantage of dealership-only deals.
Online Lenders:	Online application process lets you apply anytime, anywhere  Commonly offer competitive rates Feature a faster approval process than other lenders	Limited customer service when compared to other lenders Less transparent with their fees Often less established in the financial market	Those who value fast turnaround times and the convenience of applying anywhere there is a wifi connection.

We’ve partnered with leading lenders to make sure you get the best rates on your car loan. Check out our comparison tool to see the best offers from our partners!

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How to get a car loan in Ontario

Car loans work similarly across the nation, so whether your car loan is from Toronto or another province hours away, lenders have streamlined the process.

For your convenience, we have outlined the common steps so you know what to expect:

• Set a budget: Look at your finances so you have an idea of what you can comfortably afford. Will you finance the total amount? Car loan calculators, like ours, will be your best friend.
• Shop around: Pick the lender type that fits you best and then compare their rates, terms, and requirements.
• Consider pre-approval: Your lender will likely have a quick and easy application to complete so you have a preemptive idea of what you can borrow, the rate and the term.
• Pick your Car: With a pre-approved budget, you can choose the perfect car with confidence that you can afford the payments.
• Finalize the loan: You've picked your dream car! The lender will finalize the loan, having you sign to the agreed repayment details. 
• Enjoy: Having a reliable mode of transportation to get to and from work or other responsibilities can significantly impact your quality of life. Remember to ensure your payments are timely for a positive effect on your credit, too. 

When it comes to the application and eligibility, it's common for different lenders to have unique requirements. You can, however, anticipate that every lender will ask you for:

• Basic personal information such as your name, address and proof of residency. 
• Proof of employment showing steady income. This is usually through pay stubs. You may need to show 3 years' annual earnings if you are self-employed. 
•  Consent for a hard credit check to determine your score. This will show your repayment history and other debts you have out. A hard check can negatively impact your score temporarily, so be sure to be sparing with the applications you complete. 
• Details on the vehicle you're purchasing. Lenders will want to know that the car is not too old, is in good condition and holds onto value well. This will be subjective to the lender you choose but expect to have the car's details on hand when you apply. 

How does car loan interest work in Ontario?

Ontario car loan interest rates work much like the rest of the country. When you borrow money to buy a vehicle, you will be repaying not only the initial amount but also the interest charged by the lender.

You will often see the interest expressed as "APR," which stands for "Annual Percentage Rate," and it is a term used to describe the interest rate + application processing fees that the lender has packaged together for your convenience. When shopping for the best interest rates for car loans in Ontario, comparing the APR and not just the interest rate will help you avoid any unexpected fees later. 

The amount of interest you will be charged will not only vary depending on your chosen lender but also hinge on:

• Your credit score (lower score = higher interest, higher score= lower interest)
• Length of the loan specified in your application
• The type and age of car you're trying to buy

Ontario has one of the country's highest car loan interest rates, which has been legally capped at 10%. To get the most accurate insights into what a lender will offer you, consider filling out a pre-approval with your chosen lender. The information needed will be a simplified version of the actual loan application with a soft-check (no effect on your credit score) but will give you a clear cut idea of what rate, term and amount your lender will allow you to borrow. 

Is it possible to get a 0% interest car loan?

The 0% interest banners have likely caught your attention while passing dealerships. After learning there are different types of lenders, you're likely asking "Who is offering zero percent financing on cars Canada" ?

It is incredibly rare to find 0% financing from any other lenders other than dealerships. They commonly offer promotional deals on new cars only to help them meet sales targets (a very different business model from financial institutes like Banks and Online Lenders). These promotional offers are very rarely spanning the entire term of your loan.

Depending on your circumstances, these promotions can work in your favour but read the fine print to avoid paying higher admin fees or interest after the promotional timeframe ends. Otherwise you may be hit with unexpected charges a year or two into your loan.

Did you know:

It’s not just the price of the vehicle you can negotiate, but also your interest rate and administration fees, particularly if your credit is good. This can lower your APR further than what’s advertised in the market.

Is there different types of interest on auto loans?

Car loan interest can be either fixed or variable; in Ontario, it is most common for borrowers to choose fixed interest. Most lenders will allow you to choose what is best for you.

Fixed: The interest rate is set for the full duration of your auto loan. This means your payments will be the same amount as the interest amount is locked in, regardless of what is happening in the market. It is favourable for budgeting.

Variable: The interest rate fluctuates based on the current market. This means your monthly payments will be higher or lower, depending on conditions. You can benefit from making larger payments during low-interest times.

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Can I pay off my car loan early?

Paying off your car loan early is generally allowed and can be really beneficial for:

• Decreasing the total interest amount you pay during the lifespan of the loan.
• Positively impact your credit score due to no late or missed payments.
• Lessen your debt burden by freeing up your debt-to-income ratio.

Some lenders do charge administrative fees if you pay your auto financing off early (Banks are the most common lender to do this). Speaking directly with your lender about their early repayment policies will help you avoid unexpected fees.

Can I afford a car loan in Ontario?

With Ontario residents making some of Canada's highest car loan payments, it is understandable to wonder if it's the right decision for you.

How affordable the payments (bi-weekly or monthly) are will be subjective from person to person. Factors that affect the cost of your repayment installments can be:

• Credit health
• Income-to-debt ratio
• length of time for repayment (term)
• Annual Percentage Rate (APR)

You will want to avoid higher interest rates. Not only does it increase how much you pay per month, but your payment will be going more toward interest than paying off the principal loan amount.

You may also be tempted to choose a longer loan term to keep your regular payments low, though it isn't to be confused with paying less. Extending the lifespan of your loan results in paying more interest in the long run.

As a first step, creating a budget that feels comfortable with your other outgoing expenses per month is wise when deciding if you can afford a car loan.

Using our comparison tool at the top of the page and the tips and resources in this guide, we are confident you can find the best car loan that fits your budget.

What is the average cost of car loans in Ontario?

Based on surveys conducted by Autotrader at the end of 2022, we have identified the province's average loan amount, term and interest rate for new and used vehicles. 

This can help you identify if you're getting the best car loan rates in Ontario.

	Average Loan Amount	Average Interest Rate	Average Term Length	Average Monthly Car Payment
New	$56, 173	5.29%	72 months	$848.38*
Used	$37, 698	5.29%	72 months	$569. 35*

*Based on 20% down payment

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Is the term of my car loan important?

The loan term is crucial in ensuring your car loan is affordable monthly as well as throughout its lifespan. 

• Longer term:  You'll pay lower installments (available bi-weekly or monthly), but you'll end up paying more interest over the lifespan of the car loan.
• Shorter term: You'll pay higher installments (available bi-weekly or monthly) with less paid interest over the lifespan of the car loan.

Whether you choose a short or long-term for your loan, you will be living with the decision for at least a few years. Selecting a term that fits your lifestyle and financial situation is critical to ensuring your payments are more convenient than stressful. 

Are there hidden fees on a car loan?

Lenders will have a level of transparency with you regarding rates and fees, but if you are new to the process, you may not expect that they will be charged and when they will be charged. No one likes to be caught off guard by a surprise cost, especially if there wasn't foresight to avoid it.

Some of the fees you might encounter when taking out a car loan in Ontario:

• Administration fees: Lenders charge for security registration, processing and discharge fees to maintain your loan, and once paid, remove the loan from the car title. On almost all occasions, these will be packaged into the APR (Annual Percentage Rate) with your interest.
• Late & NSF Fees: If your payment was late, or you have missed making a payment all together, it is likely that all types of lenders will charge a penalty fee. This is typically a separate charge to your bank account and not typically added to your monthly car payment. 
• Prepayment penalty: Some lenders will charge a fee if you pay off your loan faster than the agreed term. This is most commonly seen with banks as opposed to other lenders, and the fee is charged outside of your monthly loan payment.
• Loan insurance: Some lenders may require you to purchase loan insurance (such as GAP insurance covering the difference between the owed amount of the loan and the vehicle's value in the event of a high-impact accident or theft) which increases your monthly loan payments. 
• Vehicle inspection fee: Depending on the lender and the car you're buying, you may be required to have a licensed mechanic inspect the vehicle before they approve or decline the loan. This is typically at cost to you and not rolled into your car loan repayment.
• Extended warranty: Many dealerships will offer an extended warranty if you choose a longer term for your loan. This means the warranty will cover most, if not all, of the duration you are making payments to your car for. It's usually added to the cost of your car loan before the APR and can increase your monthly payment.
• Registration Fee: In Ontario, you must register your vehicle with the provincial Ministry of Transportation. It covers things like license plate issuing or insurance validation. The fee for this can vary depending on the type of vehicle and how you plan to use it. It is charged outside of your monthly loan payment.

It's important to carefully review the loan documents and ask questions about any fees that you need clarification on to avoid any surprises later on.

What happens if I can't afford my car finance anymore?

If you find yourself struggling to make payments on a financed car, you do have a few options:

• Contact your lender: They may be able to offer a short-term modification to help you for a few months until you're on your feet or renegotiate the term to make your monthly payments smaller.
• Refinance: If you qualify or find a loan with less interest, some lenders (or your current one) will pay off your old loan with the new, lower-interest one, meaning you pay less.
• Trade-in: A dealership can tell you how much they will take your car for, you can apply that balance to a different, less expensive car. If you don't have negative equity, this can ensure you're no longer paying for a vehicle outside of your means. 
• Sell the car: If you don't have negative equity, you may find it is in your best interest to sell your car to pay off your loan. Keep in mind that your lender may charge a penalty for paying off your loan early.

Late or missing payments can damage your credit score and have a lasting impact for several years. It can mean you pay more in the future for anything you need to finance or not be approved. Taking action as soon as possible is critical if you are falling behind. 

Multiple missed payments can result in repossession of your car.

What are the pros and cons of getting a car loan?

Financing a vehicle can impact your lifestyle and financial situation. We have compared the most common positives and negatives to help bring confidence to your decision.

Can I get a car loan with bad credit in Ontario?

Even if you have bad credit, getting a car loan on either a new or used car is still possible. It is best to expect some challenges or lenders charging higher rates due to the added risk that you may default on your payments.

If you're asking, "How to finance a car with bad credit?" we have a few tips for you:

• Paying off your current debt or find ways to increase your income. You will likely need to wait at least three months for the effects to hit your credit report.
• A co-signer with good credit can make the difference if you're approved and at a lower rate.
• Ontario has several lenders specializing in bad credit willing to work with you.

Can I refinance my car loan in Ontario?

Yes, it is possible to refinance a car loan in Ontario. When refinancing a car loan, you take out a new loan with a new lender to pay off the existing car loan. 

You want to ensure the new loan has better interest rates or a suitable term to make the monthly payments comfortably affordable.

To refinance your car loan, you will need to go through much of the same process and requirements as you would for a regular car loan.

Tips to get the best car loan in Ontario

Our specialists have curated our top 5 tips to getting the best car loan in Ontario, they won’t disappoint.

• Pick a newer, popular car that retains its value
• Aim for a credit score of 700+ 
• Pay 15-20% of the car's value as a down payment
• Keep your term as short as comfortable
• Use our comparison tool to easily shop the market for the best rate

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