How to get a car loan

12 minute read Published on Oct 26, 2023 by BrokerLink Communications

Blurred woman sitting in a car receiving the car keys from a man's hand

If you’re thinking about buying a new car or buying a used vehicle in Canada, then you may need to obtain a car loan first. A car loan can help you fund your new car purchase. However, there are a few things to know about car loans, like the minimum requirements to be approved for one and how to increase your odds of getting one. Keep reading to learn all there is to know about obtaining a car loan in Canada.

What do I need to be approved for a car loan in Canada?

First thing’s first, it’s important to know what requirements you must meet in order to be approved for a car loan in Canada. Before a lender will review your application, you must ensure that you have the following pieces of information and meet the requirements:

Credit score

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. In fact, some lenders will not approve you for a loan if you do not meet a certain minimum credit score threshold. This varies between lenders but typically, borrowers must have a credit score of approximately 630 to be approved.

Personal income

Some lenders have a specific income requirement that you must meet in order to be considered for a car loan. The required income level varies between lenders. However, it typically falls between $1,200 and $1,800 depending on the vehicle type you are looking to purchase. You will need to provide proof of income when applying for a car loan, which could include bank statements, pay stubs, letters of employment, or a letter of assessment.

Valid driver’s licence

In order to be approved for a car loan that allows you to purchase a car, whether you’re buying a classic car, a used car, or a new car, you will need to present the lender with a valid driver’s licence.


You cannot legally apply for a car loan in Canada when you are below a certain age. Age requirements vary depending on the province but are either 18 or 19 years old.

Step-by-step guide to getting a car loan

If you think you’re ready to apply for a car loan, check out this detailed guide to doing so. From how to get pre approved for a loan to obtaining the right kind of car insurance, continue reading for step-by-step instructions for getting approved for a car loan in Canada:

1. Check your credit score

The first step is to check your credit score. As mentioned above, any lender you speak with will request a copy of your credit score, and you will need to have a certain credit score if you want to be approved for a loan. Thus, it’s good practice to check your credit score before you even apply. You can obtain free credit 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. If the dispute gets resolved in your favour, it could increase your credit score, which could improve the terms of your car loan. We also recommend turning on notifications from the different credit bureaus so that you will know if your credit score changes in the future.

2. Shop around for car loans from multiple lenders

The second step to obtaining a car loan in Canada is to contact multiple companies. Whether you’re buying multiple auto insurance policies or trying to get approved for a car loan, shopping around is key. This is the only way to ensure that you are getting the most bang for your buck, or in the case of a car loan, the best terms and conditions for your loan. There are many types of lenders in Canada that offer car loans, ranging from major national and regional banks to smaller community banks, credit unions, car dealerships, online auto lenders, and even online car retailers. Contact each to learn more about the different financing options they offer. Even if you don’t end up applying for a loan at all of them, obtaining quotes can help you compare your options and determine which one is right for you. Generally speaking, the bank or credit union that you already have an account with may be the best option, as they might give you a special rate.

3. Apply for car loan pre-approval

If you were taking out a mortgage on a home, you would get pre-approved for a mortgage during the house hunting process. Similarly, when you are planning on buying a car, experts recommend applying for a car loan pre approval. Unlike basic quotes, a pre-approved car loan will provide you with all kinds of valuable information, including the interest rate that you will be approved for. Plus, car loan pre approvals are much more accurate than general quotes as a lender will review your specific circumstances, like your credit score and income, in order to provide you with your pre approved loan amount.

Please note that some lenders provide car loan pre-approvals and others provide car loan pre-qualifications. These are not the same. Pre-qualifications, while still useful, are not as accurate or reliable as pre approvals. This is because the lender only has access to limited information when issuing a pre-qualification. The advantage is that to pre-qualify someone for a car loan, the lender only has to do a soft credit check, which will not impact your credit scores. However, the drawback is that the final car loan you are approved for may be very different from the details of your car loan pre-qualification. In contrast, getting pre approved for a car loan requires a hard credit check, which could temporarily lower your credit scores.

4. Determine your budget

Once you’ve been pre approved or pre-qualified for a car loan, it’s time to determine your budget. Since you’re pre-approved car loan includes the principal amount you will be approved for, as well as the interest rate, you can use this information to create a budget for yourself. We recommend plugging this information into an auto loan calculator so that you can discover how much you will expect to pay on a monthly basis. With an auto loan calculator, you can input different car prices, allowing you to clearly see how the price of the car you purchase will impact your monthly payments and the total amount of interest you will pay. Experts recommend not maxing out the amount you are pre approved for. You should allot a minimum of 10% for additional fees and taxes.

5. Start shopping for a car

Step number five is the fun part - it’s time to start shopping for a car! Armed with a realistic budget, you can begin your hunt for a new or used car. Before falling in love with a certain vehicle, review the terms and conditions of the car loans offered by your lender. Why? Some lenders will not issue car loans for vehicles of specific brands or models, such as discontinued models. There may also be other conditions to be aware of, like time restrictions most lenders only give borrowers 30 days to accept a loan offer or dealership requirements some lenders mandate that borrowers must obtain a car from a specific network of dealers. As long as you meet the terms and conditions set by your lender, you can choose whichever vehicle your heart desires. When comparing cars, we recommend considering factors like the price of the car, its safety rating, the size of the car, and its rate of theft. All of these factors can influence the final loan you obtain, as well as how much you pay for different types of auto insurance.

6. Confirm your auto loan

You’ve chosen the car you want to purchase using your car loan - now what? Now is the time to finalize the details of your auto loan. If you're buying your car from a dealership or online retailer, it might be worth letting them know that you've been pre approved for a car loan to see if they can beat it. There’s no harm in trying to negotiate for a lower interest rate. Once you have all your car loan offers in hand, take a look at the car loans that you were pre approved for and compare them, giving careful consideration to which one offers the best terms, such as the lowest interest rates. If you're having trouble comparing the different car loans, use an auto loan calculator, which can make the process much simpler. You can also contact a BrokerLink insurance advisor for help.

When you’ve decided which offer is right for you, contact that lender to proceed with the formal application process. This is also a good time to ask for a rundown of the loan agreement, ensuring that there are no hidden fees.

Tips to increase your chances of being approved for a car loan in Canada

Worried about your odds of being approved for a car loan in Canada? Keep reading for a list of tips that can improve your chances of getting an auto loan:

Do what you can to raise your credit score

The higher your credit score, the more likely you are to be approved for practically any loan, from a mortgage loan to a car loan. Thus, working to raise your credit score can go a long way. In addition to increasing your odds of being approved for a loan, a higher credit score can also improve the terms and conditions that you qualify for. As mentioned above, check your credit score regularly and set up alerts so that you are notified if your credit score changes.

You should also aim to pay all your bills on time, including student loan payments, credit card payments, insurance payments, cell phone bills, and more. Late or missed payments can considerably reduce your credit score. You should also avoid applying for multiple types of credit in a short time frame. Keeping open old lines of credit can also help you raise your credit score, as it will increase the length of your credit history.

Remember that good credit scores in Canada typically range between 660 and 900, and most lenders will refuse to approve you for a car loan if your credit score is below 650 or 630 the minimum threshold varies between lenders.

Make sure you meet the minimum income requirement

Before applying for a car loan, you should also ensure that you meet the lender’s minimum income requirement. The amount of money you earn gives the lender an idea of whether you will be able to afford your monthly car loan payments or not. Income requirements vary between lenders, but typically hover between $1,200 and $1,800 per month depending on the type of vehicle you are looking for. If you don’t meet one lender’s minimum income requirements, do some research to see if there’s one out there with lower requirements. Further, the more stable your job, the more likely they will be to issue you a loan. So if you can show a steady stream of income, whether from a full-time job or a mix of part-time jobs, this can be extremely valuable.

Pay off your debt

Reducing your debt-to-income ratio by paying off your debt can increase your odds of being approved for a car loan in Canada. A person’s debt-to-income ratio is the amount of debt that they have accumulated compared to their monthly income. Lenders will use this ratio to see if you have enough funds to afford to pay your car loan after you’ve paid your other debts.

As you might suspect, a low debt-to-income ratio is preferred. So if you can afford to pay off your debt or consolidate it in some way, you could be in a better position to obtain a car loan. Having a lower debt-to-income ratio may also lead to a reduced credit score.

Find a co-signer

If you do not meet the minimum requirements mentioned above, whether your credit score or income level is too low, consider finding a co-signer. A co-signer could help you obtain a loan, if you can find the right person. A good co-signer is one with a high credit score and stable income. When you choose to work with a co-signer, the lender will only look at the financial profile of the co-signer, not you.

That said, your co-signer would be on the hook for your car loan payments if you missed them, so you need to make sure that the co-signer you find is someone you trust and that they understand the terms of the agreement. If you started missing car loan payments, it could have serious financial ramifications for the co-signer, such as lowering their credit score and financial standing.

Buy a cheaper car

The less money your car costs, the less of a loan you will need. Being approved for a smaller car loan is usually easier than being approved for a big loan. Thus, if you want to increase your odds of getting an auto loan, consider buying a less expensive car. You should definitely do this because interest rates are high, as you don’t want to be locked into a long-term loan with high interest rates.

Used cars are often cheaper than new cars, as are older models. Some dealerships or automakers may even allow you to downgrade certain features in a car to minimize the loan amount you need.

Increase your down payment

One final tip for improving your odds of getting a car loan is to increase your down payment amount. When you buy a car, just as if you were buying a home, you are required to make a down payment. The loan you receive will partially depend on the down payment you make. The larger your down payment, the more financially stable you will seem, and the better the terms of your car loan are likely to be.

For example, those who make larger down payments on vehicles may receive better interest rates and higher principal loan amounts.

Contact BrokerLink to learn more about how to obtain a car loan

If you want more information on how car loans work in Canada, including how to obtain one, contact BrokerLink. We know the ins and outs of car loans and are also experts on car insurance. That means that we can provide insight into what types of insurance are required when you take out a car loan in Canada. For instance, beyond the mandatory coverages in the province you live in, you may also need to purchase additional coverage, such as collision coverage, comprehensive coverage, or gap coverage.

We can explain how each coverage type protects you, as well as shop around to ensure you receive the best possible rate for your policy. We can even explain how the insurance process differs between buying a new car and a used car, as well as provide tips for both, including tips on buying a used car that was in an accident. Reach out to BrokerLink today to get started. You can also get a free car insurance quote from us online, in person, or over the phone.

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FAQs on getting a car loan in Canada

Can I get a car loan with poor credit?

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.

How much of a down payment do I need to obtain a car loan?

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.

Should I get pre-approved for an auto loan?

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.