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8 minute read Published on Jan 5, 2026 by BrokerLink Communications
Buying a new car is exciting, but financing one... that's where uncertainties lie. If you're thinking about financing your new or used car, you're likely wondering how you can get approved for an auto loan, what the application process looks like, and how to find the best interest rates. According to J.D. Power, car loans accounted for 51% of new vehicle transactions in Canada in 2024.
In this guide, we're going to be breaking down all there is to know about loan approvals, so you can find the best deal available. We’ll explain how to navigate secured vs. unsecured loans, the role of credit scores, and the steps you can take to increase your odds of being approved. Whether you're buying your first car or upgrading to a new one, here’s everything you need to get behind the wheel as soon as possible, without added financial stress.
Getting a car loan is more than signing a bunch of documents. It requires thoughtful consideration and a basic understanding of how financial loans work. In Canada, there are two categories of loans: secured and unsecured loans. Below, we explain the distinctions:
Secured loans require collateral, which in this case will be your vehicle. If you are unable to meet your repayment terms, your lender has the right to seize your vehicle to make up for their losses. These generally offer slightly lower interest rates as they reduce the lender's risk.
Unsecured loans often come with higher interest rates, as there is no collateral involved.
The following terms are essential to keep in mind:
Your annual percentage rate (APR) includes your interest rate plus any fees. You can think of it as the real cost of borrowing money. In April 2025, Statistics Canada reported an average auto loan APR of 6.86% for new car models.
Your loan term is the amount of time you have to pay back the money you borrowed. Loan terms will typically range between 36 and 84 months (most Canadians choose 60 to 72 months). The longer your loan term, the lower your monthly payments will be. However, the total interest you pay on your loan will be higher.
A down payment is an amount of your own money you put toward a vehicle. Loans Canada recommends a 10 to 20% down payment as it can help you lower your monthly payments and potentially secure a more favourable interest rate. This is optional, though sometimes recommended; it is not always necessary to secure financing for your vehicle.
Your monthly payment goes partly toward your original loan amount (the principal) and partly toward your borrowing costs (interest).
Before approving you for a loan, any car loan lender will review your credit score, as your credit score is a clear indication of a person’s financial responsibility. If you hope to be approved for an auto loan, you want your credit score to be as high as possible. Some lenders will not approve you for a loan if you do not meet a certain minimum credit score threshold. In Canada, scores range from 300 to 900, with ranges defined roughly as:
Excellent: 725–900
Good: 660–724
Fair: 560–659
Poor: 300–559
Most car loan lenders require a minimum credit score of 660 to 680 for you to get a decent rate. If your score is below that, you'll likely be able to qualify for a car loan, but you can expect higher interest rates between 10% to 15% APR, or more. In the first quarter of 2025, Experian Canada found new car APR averages were:
Excellent score (781–850): 5.18%
Good score (661–780): 6.70%
Fair score (601–660): 9.83%
If you're serious about getting a car loan approval with a good interest rate, we recommend requesting a credit report from the credit bureau to see where you stand. Once you know your score, here are some tips to improve your credit and overall finances:
Pay off high-interest debt, including credit cards. This will help you lower your credit utilization and boost your score over time.
A debt-to-income ratio is a percentage that indicates how much of your monthly income goes towards paying off your existing debts. The goal is to keep your debt-to-income ratio (DTI ratio) below 30%.
If your credit score is on the lower end, adding a cosigner with strong credit can significantly improve your loan terms and may help you secure a more competitive interest rate.
Here’s a step-by-step breakdown of the loan application process:
You can obtain free scores in Canada through most of the major credit bureaus, like Equifax and TransUnion. Don’t simply look at the credit score on the report you receive. Instead, read through the report in detail to ensure there are no errors. If there are any errors, take the time to file a credit report dispute before applying for a car loan.
Experts recommend applying for a car loan pre-approval. Soft-credit checks are available through banks, credit unions, or online lenders. They also won't affect your score. Contact each to learn more about the different financing options they offer.
Proof of a steady source of income (pay stubs, T4 slip, etc.)
Government-issued photo ID (driver’s license, passport)
Proof of Canadian residence (utility bill, bank statement)
Proof of insurance or a quote if you don't have car insurance yet.
Down payment confirmation (personal bank statements).
When comparing cars, we recommend considering factors like the price of the car, its safety rating, the size of the car, its rate of theft, average car insurance premiums, depreciation levels, and more. Also, determine whether you're going to be buying a new or used car, depending on your transportation needs, financial health, and budget.
Before submitting your application for your car loan, we recommend shopping around with different lenders to compare interest rates. This can help you get competitive rates and ensure you're not missing out on special financing rates somewhere else.
If you're having trouble comparing the different car loans, use an auto loan calculator, which can make the process much simpler. When you’ve decided which offer is right for you, contact that lender to proceed with the formal application process.
Read over your loan agreement, paying special attention to how much your car loan payments will be (monthly or bi-weekly car payments), your total loan amount, how long you have to pay off your loan, whether there are any hidden fees, and if there are any prepayment/cancellation penalties.
When it comes to financing options, where you apply for your car loan matters. Here are some of the options we listed below:
Below we will discuss the pros and cons of getting a car loan with the bank:
Big banks (e.g., CIBC, RBC, TD, Scotiabank).
Pros: Competitive rates, available across Canada, can be applied for online or in-person, and may have favourable rates for current customers.
Cons: May be stricter in terms of their loan approvals.
Vancity and Coast Capital Savings are community-based lenders offering competitive, flexible terms.
Pros: Personalized service, often has lower fees.
Cons: May need to meet specific criteria, may not be available outside of big cities.
Below we will discuss the pros and cons of getting a car loan with dealerships:
Dealerships are convenient if you are looking for a vehicle and a car loan in one place.
Pros: Sometimes they have promotional car loan rates like 0%.
Cons: Potentially marked-up rates or additional fees.
Below we will discuss the pros and cons of getting a car loan online:
Digital platforms match the car loan rates of well-known lenders.
Pros: Quick approvals, transparent rate comparison, soft credit pulls. For example, independent lenders (e.g., Clutch, Car Deal Canada) offer more loan access, but their rates can vary anywhere from 2.95% to 29.95%.
Cons: May be predatory based on your current financial situation.
Pre-approval and pre-qualification are two different terms that often get used interchangeably, which can cause some confusion. Here's how they differ:
Pre‑qualification: Quick, soft-credit check that gives an idea of what interest rate you may be approved for. This is non-obligatory and doesn't impact your score. You should use this when you're at the beginning of exploring your options.
Pre-approval: A more in-depth review process. Once you’ve narrowed down your next vehicle and chosen a lender, get this so dealerships know you're serious.
Once you've signed your financing documents, managing your loan responsibly is essential. Here's how to stay on track and how to avoid common mistakes:
Consider bi-weekly or weekly payments instead of monthly payments. This can reduce your loan term and help you save on interest.
Round up your payments each month to reduce your principal faster.
Avoid refinancing your loan early on, as it can reset the loan terms, which will put you in debt even longer.
We’ll discuss habits that can derail repayment—and how to steer clear:
Predatory lenders offering rates over 20%.
Long terms beyond 84 months can lead to negative equity (remember, a new car may lose approximately 25% of its value after the first year and between 15% to 25% annually).
Some common questions running through your mind may include:
Yes! Just make sure you are able to provide your business financials or bank statements to confirm your income.
If you're late on your loan payment by 30 days, it can impact your credit, and it will be listed on your credit history. You may also be charged late fees. Late loan payments between 60 to 90 days or more can lead to the repossession of your car if your loan is a secured one.
You can. However, if you owe more on the vehicle than what it is currently worth, what you owe will be added to your next car loan, which can increase your payments.
Whether you have more questions about financing or need to purchase car insurance for your new or used vehicle, the experienced team at BrokerLink is here to help. We've got access to policies like:
Third-party liability
Accident benefits coverage
Uninsured motorist coverage
Collision coverage
Comprehensive coverage
Accident forgiveness
Classic car insurance
And more
Contact BrokerLink today!
Get an auto insurance quote
It depends. Most lenders have credit score requirements that must be met. They vary between providers but typically, borrowers must have a credit score above 630 or 650 to be approved for a car loan. Anything less than this and you may have difficulty obtaining a loan from a traditional lender.
Experts recommend putting down at least 20% of the purchase price when buying a new car. If you’re buying a used car, you may be able to get away with a smaller down payment that is closer to 10%. Remember that the larger your down payment, the more likely you are to be approved for a car loan in Canada and the better your terms are likely to be.
Yes. Car loan pre-approval is an important step in the car loan process. Getting pre-approved will reveal exactly how much you will be approved for, as well as what your interest rate will be. This information can then be used to determine a budget, which will help you narrow down your car search.
If you have any questions, contact one of our local branches.
