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Buying a car is a big deal. Understand the financial part of the purchase and, hopefully, save yourself some money.
You’ve read the car reviews, done the research and scoured for hours through literature on that car or truck, all while lining up pros, cons, rankings and specs against your budget and wants. You’ve shortlisted the contenders that you most want to press the gas on. That’s it: you’re buying a new car. Final answer. No takesies-backsies. Now, how to pay for it.
It’s “go” time and you’re in the dealership parking lot with soggy palms, a twinge in your stomach, and a pounding pulse you can feel in your temples. You’re breathing more quickly, and your pupils are dilated. I know. As an auto journalist, I’ve been there.
Before signing the paperwork, be sure to get up to speed with our beginner’s guide to car loans, and read on for a look at the basics of how car loans work and the implications of the choices and options you’ll face along the way.
In under five minutes, compare personalized auto insurance quotes from Canada’s top providers.
There are a few different ways to pay for that new car or truck.
When you have a car loan, the loan provider pays for the car up front, and you make payments to them (with interest) that spread the cost of the vehicle out over time.
I recently configured a 2024 Ford F-150 STX online that came in at $59,259 after tax and some pricing incentives. Next, I visited the Payment Estimator. It’s like your favourite pizza joint’s “build your own pizza” app, but with dollars, durations and down payments instead of toppings.
A payment estimator lets you free-play with all available options and terms to see which looks the most enticing to you.
First, choose how long you want to make payments for.
With my new truck, I could choose from 36, 48, 60, 72 and 84 months—that’s three to seven years, if you’re counting. This is called the “loan term” or “loan duration,” and the options you’ll be able to choose from will vary.
If you’ve got a trade-in, here’s where to include it. Estimate its value, and plug it into the calculator to watch those regular payment amounts drop. Same thing happens if you’ve got a down payment, which you can enter as well.
As you switch between loan terms, keep an eye on the on-screen interest rate or APR (annual percentage rate).
The lower the interest rate, the less it costs you to borrow the money. Sometimes, you’ll see 0% financing options, in which case you’re borrowing money for free, with no interest.
You’ll also notice that longer loan terms give you lower payment amounts but often come with higher interest rates, which will cost you more money. Choosing a shorter loan can mean higher regular payment amounts, but ultimately means the car will cost you less.
Here’s a breakdown of the best personal loans available in Canada right now.
| Lender | Loan term | APR | Loan amount | Minimum credit score |
|---|---|---|---|---|
| Spring Financial* | 6 months to 5 years | 9.99% to 46.99% | $500 to $35,000 | N/A |
| Scotiabank | 1 to 5 years | 6% to 10% | $5,000 to $75,000 | Undisclosed |
| BMO | 1 to 5 years | 8.99% to 22.99% | $2,000 to $35,000 | Undisclosed |
| TD Bank | 1 to 7 years | 8.99% to 23.99% | $5,000 to $50,000 | 650 |
| CIBC | 1 to 5 years | 9% to 10% | $3,000 to $200,00 | Undisclosed |
| RBC | 1 to 5 years | 9% to 13% | No minimum or maximum listed | Undisclosed |
| Mogo | 6 months to 5 years | 9.90% to 46.96% | $500 to $35,000 | N/A |
| Fig Financial* | 2 years to 5 years | 8.99% to 24.99% | $2,000 to $30,000 | 680 |
| MDG Financial | 3 years | 29.78% to 44.80% | $1,600 maximum | 560 |
| Easyfinancial | 9 months to 10 years | 9.90% to 46.96% | $500 to $20,000 | N/A |
Payment frequency comes into play here, too.
Most new or used car loans offer monthly or bi-weekly payment options, with some even offering weekly payment plans. Choosing an option with lower, more frequent payments (weekly or bi-weekly) can save you thousands of dollars over the duration of the loan. I saved as much as $5,100. (Check out our list of the best used cars in Canada.)
Be aware of the total cost of borrowing, or the amount you’ll be paying in interest throughout the loan. To get it, you need to do just three things.
For instance, if I chose monthly payments and a 60-month loan term, I’d make 60 payments of $1,039, totaling $62,340.
Some Canadian automakers and local dealerships offer in-house financing, which can allow them to extend credit at a lower interest rate than banks and credit agencies. But banks and other financial institutions offer loans as well.
Sometimes, certain credit situations mean you won’t be able to access dealer or carmaker financing, in which case you’ll need to shop for one from a bank, credit union, private or an online lender.
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