Thinking about financing your next vehicle? It can be difficult to understand how car loan interest rates work and why each lender may have a different rate. However, we’re here to break it down and make it easy to understand. 

In this post, we’ll discuss the average car loan interest rates in Canada, what affects them, and most importantly–how you can pay your loan the smarter way. 

*note that these figures in this post are subject to change based on economic conditions, lender policies, and individual credit profiles. Consult dealerships or your financial institution for the most accurate and personalized information. 

Average Car Loan Interest Rates in Canada 

As of April 2025, the average car loan interest rate in Canada is 7.10%. 

When buying a car, you might see an average of 6.7% to 9% interest on your car loan. This depends on the purchase price of the car, whether the car is new or used, and whether it is a fixed or variable-rate loan. 

New vs Used Auto Loan Rates in Canada

Here’s a breakdown of the average second-hand car loan interest rate vs new cars:

New cars: 6.07%

Used cars: 10.26%

Why the Difference?

New cars often qualify for lower interest rates due to:

• Longer loan terms available

• Lower risk of vehicle breakdowns

• Manufacturer or dealership financing promotions 

Used cars often have higher interest rates because:

• Shorter loan terms and higher lender risk 

• Lower resale value

• Greater risk of mechanical issues 

What is a Good Car Loan Rate in Canada?

A good car loan interest rate should be around the average of 7.10%. It can be slightly higher or lower, depending on several factors, like your credit score, the dealership offers, and the current economy. 

How Does Interest Work on Car Financing?

Interest is calculated using the lender’s prime rate, which is adjusted by the Bank of Canada based on factors like economic changes and the current monetary policy. 

For example, the average car loan interest rate increased from 4.25% in 2017 to 7.10% in 2025, an increase of 2.85% in 8 years. In 2022, the interest rate rose significantly after the rate increases by the Bank of Canada. 

Lenders increase car loan rates to remain profitable when the prime rate increases. When the prime rate decreases, they lower their rates to remain competitive. This is why you may see fluctuations in the cost. 

What Determines a Car Loan Interest Rate?

Aside from the prime rate, lenders use other factors to set their interest rates. This includes:

• Your Credit Score and Borrowing History: If you have a higher credit score and a longer borrowing history, you’ll typically get a lower interest rate because lenders see you as less risky than those with a lower credit score. 

• Down Payment Amount: If you have a larger down payment, you may get a lower interest rate, as this reduces the amount you need to be financed. Since you’re investing more in the vehicle upfront, you’re viewed as less risky. 

• Length of the Loan: Shorter-term loans usually have lower interest rates than longer-term loans. However, longer-term loans have lower monthly payments–you’ll need to weigh the pros and cons of each. 

• Lenders: Different lenders offer different interest rates based on many factors, including their policy, the current market, and risk assessment. 

• New vs Used Cars: Interest rates vary depending on the type of vehicle. New car loans typically have a lower interest rate than used cars. 

• Economic Conditions: It all depends on the state of the economy–stability and growth can mean lower interest rates, whereas downturns can mean higher risk and higher interest rates. 

• Loan-to-Value-Ratio (LTV): This is the car’s value vs the loan amount. A lower LTV (with a higher down payment or a lower loan amount) can mean a lower interest rate.

• Dealership Promotions: During certain times of the year, dealerships or manufacturers may offer promotional interest rates. 

Does My Credit Score Affect Car Loan Percentage Rates?

Yes, your credit score affects your car loan interest rate. As a simple rule of thumb, a higher credit score = a lower interest rate, and a lower credit score = a higher interest rate. 

Okay, it’s not that simple. Multiple factors go into assessing your credit score and determining an interest rate. 

In general, a higher credit score means that you are trustworthy and more likely to repay a loan on time, which lowers the lender’s risk. This is why they’ll give you a lower interest rate. 

On the other hand, most lenders view someone with a lower credit score as a higher risk, and they may think you won’t pay back the loan on time. Thus, resulting in a higher interest rate. 

Here’s a breakdown of each credit score range and how it can affect your car loan interest rate:

• Excellent (800-850): You will likely qualify for the lowest auto interest rate–often around 3% to 5%. 

• Very Good (740-799): You can get low interest rates, though slightly higher than those with excellent credit–typically around 5% to 7%. 

• Good (670-739): You are considered moderately risky, so you might get a higher interest rate–typically around 7% to 10%. 

• Fair (580-669): You’ll likely get a higher interest rate–often 10% to 15%. 

• Poor (300-579): You’ll likely struggle to secure financing from lenders and may have to get an auto loan for bad credit. This can be 15% or higher. 

How to Find the Best Car Loan Interest Rates

When looking at loans of any kind, do your research and shop around. It’s important to compare loan interest rates and terms with different lenders, as they may offer different amounts. You can find some of the lowest vehicle loan interest rates in Canada through:

• Online Loan Search Platforms: Sites like Loans Canada, CarsFast, and Finder compare multiple auto loans to show you the best deals. 

• Dealerships: Ask your dealership about financing options. Some partner with banks and other lenders, while others offer in-house financing. 

• Banks and Credit Unions: Financial institutions can offer you competitive interest rates. 

How to Get a Better Car Loan Interest Rate

Here are a few tips to get a better car loan interest rate:

• Improve Your Credit Score: This won’t happen immediately, but working towards a good to excellent credit score can greatly help reduce the interest rate on your auto loan. If you’re a renter, you can opt into Chexy’s Credit Builder to have your monthly rent payments reported to Equifax. After a few months, check back–your credit score might have increased enough to get you a lower interest rate. 

• Get a Co-Signer: If you have a low credit score or not enough money to make a sizeable down payment, a co-signer can strengthen your application and get you a lower interest rate. 

• Increase Your Down Payment: Try to save up for a larger down payment, or hold off until you can. A bigger upfront payment can help you qualify for a better interest rate and reduce the overall cost of your loan. 

• Negotiate with the Dealer: You can try negotiating with the dealership, especially if you have a great credit score, a co-signer, and/or a large down payment.

How to Pay a Car Loan in Canada 

Once you’ve secured your car loan, it’s time to think about how you’ll stay on top of those monthly payments. Most lenders offer flexible repayment options, including online banking, pre-authorized debit, or in-person payments. But if you're looking for a smarter, more rewarding way to pay your car loan—use Chexy.

With Chexy, you can pay your car loan using your credit card, even if your lender doesn’t accept credit cards directly. It’s simple: you link your lender as a bill payee, use your credit card to pay through Chexy, and enjoy the perks that come with it. 

This means you can earn credit card rewards like cash back or travel points (hello, free flights to Europe!), build your credit score by paying on time, and have better cash flow by paying with your credit card instead of your bank account. 

Ready to upgrade the way you pay bills? Get started with Chexy today. 

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