Used Car Financing in Canada

There are a number of options available to customers looking to secure used car financing in Canada. Two primary choices are available: either finance your used vehicle through a car dealership, or obtain financing through a bank.

Whether you choose on-the-spot financing through a used car dealership, or apply for a used car loan through your bank, there are a few facts that you should know to make an an informed decision.

Know Your Budget

Most used car dealerships will have an online car credit calculator to help you estimate your payments on a vehicle. Knowing your rate can help you choose a vehicle that fits your budget.

When financing a vehicle, most major lending institutions recommend that you don't exceed 15% of your gross monthly income for car loan payments. For example, if you have a monthly gross income of $2,000 then your car payment should be no more than $300.

Determine Your Down Payment In order to maximize your budget, a larger down payment will reduce the monthly car financing payment. It also improves your chance of being approved for financing with bad credit or poor credit.

Know Your Credit Score

When you walk into a dealership it helps to know your credit score beforehand so you have an idea of whether you will be able to qualify for low percent or 0% financing, or if you should be considering a bad credit car loan.

There are two major credit-reporting agencies in Canada that can provide you with a detailed report that includes your credit score:

  • Equifax: Toll-free number: 1-800-465-7166
  • TransUnion: Toll-free number: 1-800-663-9980

Financing Through a Used Car Dealership

There are a number of reasons to choose to finance your vehicle through a used car dealership. In many cases, interest rates offered by a dealership can be better than those offered by a bank (although this is not always the case).

A dealership may also be able to arrange financing for you through a bank, although there may or may not be an extra charge for this service.

Pros to Car Dealership Financing

  • The most convenient and fast option. Unlike all banks, your car dealership is open at any time you are buying your car. It's one-stop-shop financing.
  • Even if your bank has turned you down for financing, your car dealership may be able to get you approved.
  • Car dealership financing rates are usually competitive.
  • Dealerships may have special offers like zero percent financing.
  • Options are often available for low-credit or bad-credit customers

Cons to Car Dealership Financing

  • Car Dealerships don't always offer a better financing rate than the bank.
  • Just as with a bank, you can be turned down depending on your credit
  • A dealership may offer you extras that would drive up your monthly payment

Financing a Used Car Through Your Bank

Financing through your bank offers a no-pressure atmosphere, and in some cases your bank will give you advice like telling you if you are paying too much for a car. And if a car dealership charges you a fee to arrange financing through your bank, that can be a good reason to deal with the bank yourself.

Pros to Bank Financing

  • Low-pressure atmosphere
  • Rates may be lower than those offered by dealership
  • Bank can give you tips and suggestions like telling you if you are overpaying for a vehicle

Cons to Bank Financing

  • The Finance Process may not be as fast, and you may wait longer for an answer.
  • You may be turned down.
  • Less-convenient hours of service (may not be open weekends or evenings)
  • May not offer the lowest car financing rate