Car Loan Interest Rates in Canada 2025

Updated March 2025  |  10 min read

What Determines Your Car Loan Rate?

Your car loan interest rate is not one-size-fits-all. Lenders set rates based on several factors:

• Your credit score: The most important factor. Scores above 720 qualify for the best rates. Scores below 600 typically result in subprime rates of 15% or higher.
• Loan term: Shorter terms (36–48 months) often carry lower rates than longer terms (72–84 months). Lenders take less risk over a shorter period.
• New vs used: New vehicles typically qualify for lower rates because they are easier to value and more liquid as collateral. Used vehicles, especially older or high-mileage ones, carry higher rates.
• Down payment: A larger down payment reduces the lender's risk (lower loan-to-value ratio), which can result in a lower rate.
• Vehicle age: Vehicles older than 7–10 years are harder to finance and carry higher rates or may not qualify at standard banks at all.
• Lender type: Banks, credit unions, dealership financing, and alternative lenders each have different rate structures.

Current Rate Ranges by Lender Type (2025)

Big 5 Banks (TD, RBC, BMO, Scotiabank, CIBC)

Major banks offer auto loans directly to consumers and through dealer financing programs. Rates for new vehicles for excellent credit borrowers: approximately 6.5–8.5%. Used vehicle rates at major banks: 8–12%. Banks are relatively conservative — they prefer newer vehicles and prime borrowers.

Credit Unions

Credit unions have historically been competitive on auto loan rates. Member-owned, they can sometimes offer rates slightly below major banks for members with strong credit. Rates vary by credit union — some of Canada's larger credit unions (Meridian, Servus, First West) may offer new car rates in the 6–8% range for qualified members. Worth checking as a first step if you are a credit union member.

Manufacturer Financing (Captive Finance)

Toyota Financial Services, Ford Credit, Honda Financial, GM Financial, Hyundai Capital, and other manufacturer financing arms regularly offer promotional rates — sometimes as low as 0% or 1.9% for well-qualified buyers during incentive periods. These promotional rates are often reserved for specific models, specific terms, and buyers with excellent credit (typically 700+ score).

When a manufacturer is offering 0% financing on a specific model, it is hard to beat. However, promotional financing sometimes precludes cash rebates — compare whether taking a manufacturer rebate and financing through a bank comes out ahead or behind the promotional rate with no rebate.

Online Lenders and Alternative Finance

Car Loans Canada, Loans Canada, CarsFast, and similar online platforms specialize in connecting borrowers with lenders who can accommodate challenging credit profiles. Rates for subprime borrowers can range from 15–29.99% (the legal maximum for licensed lenders in most provinces). These platforms are useful if traditional lenders have declined you, but the total interest cost at these rates is significant.

New Car Loan Rates 2025: What to Expect

• Excellent credit (750+): 5.9–7.9% at banks; potentially 0–3.9% with manufacturer promotions
• Good credit (680–749): 7.9–10.9%
• Fair credit (620–679): 10–15%
• Below 620: 15–24%+ through alternative lenders or buy-here-pay-here

Used Car Loan Rates 2025: What to Expect

• Excellent credit (750+): 7.9–10.9% at banks
• Good credit (680–749): 10–14%
• Fair credit (620–679): 14–19%
• Below 620: 19–29.99% through alternative lenders

Note: Used car rates are higher because used vehicles depreciate faster, carry more uncertainty about condition, and are less liquid as collateral.

How to Get the Best Car Loan Rate

• Improve your credit score before applying: Paying down existing debt, correcting errors on your credit report, and avoiding new credit applications can improve your score meaningfully over 3–6 months.
• Get pre-approved before visiting the dealership: A bank or credit union pre-approval gives you a rate benchmark. If the dealer cannot beat it, use your own financing.
• Shop multiple lenders: Rate shopping within a 14-day window is treated as a single credit inquiry by Equifax and TransUnion, so getting multiple quotes has minimal impact on your score.
• Consider a shorter loan term: Lower rate and less total interest paid, though higher monthly payments.
• Make a larger down payment: Reduces the loan amount and may improve your rate tier.

The Total Cost of a Car Loan

Total interest cost over a loan life is often underappreciated. A $35,000 loan at 8% for 72 months incurs approximately $9,000 in interest. The same loan at 5% for 60 months incurs approximately $4,600 in interest — saving $4,400 despite slightly higher monthly payments. Minimizing your rate and term minimizes your total purchase cost significantly.