What Is the Average Interest Rate for Car Loans in Canada?

Research suggests that around 40% of Canadians take out a loan to buy a new car. Of course, if you’re shopping around for a vehicle, it’s wise to set a budget. When you’re budgeting, you’ll need to factor in running and maintenance costs, as well as the cost of monthly payments for your car loan. 

Interest rates vary, and they will affect how much you pay for your car in the end.

The Average Interest Rate for Car Loans in Canada

The average loan rate by the end of 2024 was 7.5%, even though the exact figure will vary according to the individual. Still, there are multiple factors that affect the rates that lenders offer.

The majority of Canadians pay interest rates of 6.9% to 9% on car loans, but some customers may be offered higher or lower interest rates depending on their financial situation. 

Interest rates have been going down since the last year, as the average rate by the end of 2023 was at 8.21%, but even with the decrease, the average rates are almost double what they were in 2020.

Factors Affecting Car Loan Rates

The interest rate varies according to several factors, which include:

New or Used Car

Typically, interest rates are higher for used cars, but this is not always the case. The lender will evaluate multiple factors when determining the rate it offers to each customer.

If you’re taking out a personal loan and the vehicle acts as collateral, the lender will take this into consideration and may adjust the interest rate to lower risks if the car is damaged or the value deteriorates more than expected. 

New cars may be available at 0% for customers with good credit history. In most cases, the lowest interest rate available for used car loans is around 4%. 

Your Credit Score

Your credit score is a numerical figure that is determined by credit bureaus. Lenders and banks use credit scores to assess the level of risk the customer poses. A high number represents a good or excellent score, while a low number indicates a poor credit rating. The higher your credit score, the better the interest rates available.

The average credit score in Canada is approximately 760, according to FICO. A score of 650-750 is considered ‘good,’ while a score of over 750 is categorised as ‘excellent.’ With a good credit score, you can access preferential interest rates and your chances of borrowing money are higher.

If your credit score is below average, you may find it harder to borrow money and the interest rate on your car loan will be higher. If your credit score is very low, your application may be rejected. If you do secure a loan, the interest rate may be above 10% because the lender considers you a high-risk client. 

Loan Term

This is the duration of the agreement. Longer terms usually carry higher interest rates, which increases the amount you’ll pay overall. 

Down Payment

The bigger the down payment you make on the vehicle you’re purchasing, the lower the interest on your car loan will likely be. Most people put down a deposit of 10% to 20%. Some lenders offer loans for buyers with no down payment, but they usually have higher interest rates. 

Your Debt-to-Income Ratio

Your debt-to-income-ratio is a calculation that provides lenders with information to help them decide whether or not you’ll be able to pay back your loan. The figure compares recurrent income against regular outgoings.

If your debt is large and your income isn’t great, you’ll find it harder to get a loan. If you do succeed, the interest rate will be higher than average. 

Tips for Finding aCar Loan

If you’re looking for a new or used car, it’s wise to take some time to parse through the leading car loan offers in 2025. Here are some tips to help you save money:

• Save as much as you can for a down payment.
• Try to improve your credit score by paying bills on time, clearing debts, and reducing your debt-to-income-ratio before you apply for a car loan.
• Compare deals and offers from different lenders.
• Negotiate prices with dealers.
• Consider getting a guarantor or a co-signer if you have a poor credit score.