Where to get used car loans

A used car loan allows you to finance purchasing a used car. It's similar to a mortgage, where you'll own the vehicle and make monthly payments. As you make payments, your loan balance will decrease, and you'll eventually own the car outright. This shouldn't be confused with leasing, the vehicle equivalent of renting. A lease is a monthly payment that lets you borrow a vehicle, but you don't own it. In addition, leases have additional restrictions such as maximum kilometres driven and limited customization.

Used car loans are available from financial institutions, auto dealerships and private lenders. The amount you can borrow depends on your credit score, income and other criteria. There are many factors to consider when applying for a used car loan in Canada, but with the correct information and our guide, you can get the best deal for your money. Continue reading to learn everything necessary about used car loans in Canada.

Used Car Loans Explained

A used car loan allows you to own a used vehicle without needing the entire money upfront. Instead, you'll be required to have a down payment and make monthly payments. Lenders will add interest to your repayments to compensate for their risk. The interest rate generally ranges from 10%-20%, depending on your creditworthiness. Although you need to make payments, you'll own the car. It is similar to having a mortgage on a home. As a result, you'll be responsible for managing repairs and damages to the vehicle.

In addition, your vehicle generally acts as collateral for the loan. This means missing payments can result in the seizure of your car. To enforce this, most lenders require a spare set of keys; some require installing an ignition inhibitor and GPS tracker. Lenders calculate your car loan based on your income, credit score, and vehicle of interest. The loan size typically ranges up to $35,000. In most cases, you'll also have a 48- 72 month payback period.

Advantages and Disadvantages of Used Car Loans

– Affordable monthly payments
– Build credit
– Higher interest rates
– Depreciating car value


One of the main advantages of a used car loan is that it can help you afford a car you might not otherwise be able to purchase. By spreading the cost of the vehicle out over several years, you can make it more affordable every month. Another advantage of a used car loan is that it can help you build your credit. As you make your loan payments on time, you'll demonstrate to lenders that you're a responsible borrower.


One of the most significant disadvantages of a used car loan is the interest rate. Because lenders consider used car loans riskier than new ones, they often have higher interest rates. This means that you'll end up paying more in interest over the life of the loan. Another disadvantage of a used car loan is that you'll absorb the car's depreciation. This means you'll be making payments while the value of your car decreases. 

The Two Types of Used Car Loans

Before taking out a loan, it's essential to understand the different types of loans available. The two main types of used car loans are secured and unsecured loans. Secured loans provide more favourable lending characteristics but require collateral. This means that continuously failing to make payments will result in the seizure of your vehicle.

On the contrary, unsecured loans don't require collateral but are more difficult to find for used cars. If you find an unsecured used car loan, the lending conditions will be less favourable. For example, you'll have a high-interest rate and may be unable to borrow much money.

1. Secured Used Car Loans

Secured loans are more common for used cars in Canada. This is because more lenders are willing to offer it. A secured loan requires you to provide an asset as collateral, such as your home, car or savings account. This asset is used as collateral to guarantee you'll make timely payments and repay the loan in full.

The advantage of this type of loan is that it offers more favourable terms than unsecured loans. You may be able to borrow up to 90% of the car's value, depending on your credit rating. The interest rate may also be lower because there is less risk for the lender.

2. Unsecured Used Car Loans

An unsecured loan is harder to find and often comes with higher interest rates and shorter repayment periods than secured loans. With an unsecured loan, there is less guarantee that you'll make your payments on time and repay the loan in full. As a result, lenders will charge higher interest rates as they assume more risk.

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The advantage of an unsecured loan is that it doesn't require collateral. You won't have to use an asset to obtain the loan. However, if you have excellent credit and a steady source of income, you may be able to find an unsecured loan with favourable terms.

Used Car Loan Requirements

You'll typically need to meet a few basic requirements to qualify for a used car loan. These may include:

  • A steady income
  • Proof of car insurance
  • Proof of income and employment
  • A good credit score (usually 650 or higher)
  • A down payment (usually 10-20% of the purchase price)

Where to Get Used Car Loans

Dealership Financing

If you're purchasing a used car directly from a dealership, they may provide you with lending options. Dealerships work with different lenders to provide financing options and offer secured and unsecured loans. In addition, dealerships sometimes have special offers that can save you money on financing or lower the interest rate.

The advantage of dealership financing is that it's quick and convenient. You can finance your car and purchase it all in one place without going through a separate lender. You can usually also negotiate the interest rate and terms of the loan with the dealership.

However, dealership financing may have higher interest rates and fees than other lending options. Your selection, such as the lender and loan type options, will be limited. Also, dealerships may pressure you to take out financing through them rather than shopping around for the best rates and terms.

Bank Loans

Banks can provide both secured and unsecured loans for used cars. Secured bank loans require you to use a vehicle or asset as collateral. Depending on your credit rating, banks generally lend up to 80% of the car's value. Unsecured bank loans don't require collateral but are typically more challenging to find for used vehicles.

The advantage of bank loans is that they often offer better interest rates than dealerships and can be easily tailored to your requirements. However, you'll need good credit to qualify for the best rates and terms. Banks may also require a hefty down payment and have strict lending criteria if you're applying for an unsecured loan.

Credit Unions

Credit unions are non-profit organizations that provide financial services to their members. They often have more flexible borrowing requirements and may be willing to work with borrowers with lower credit scores. Credit unions also provide more personalized service than banks, so a credit union is a right choice if you prefer a more hands-on approach to financing.

Private Lenders

Finally, some private lenders offer used car loans. These lenders usually have more lenient requirements than banks or credit unions and may even offer to finance those with bad credit. However, online lenders typically charge higher interest rates because there is a greater risk for them.

Step-by-Step Guide to Getting a Used Car Loan

When getting a used car loan, shopping for the best rate and terms is essential. Be sure to compare lenders carefully and read the fine print before signing any contracts. However, the rest of this section will walk you through the process. 

  1. Determine your budget: Before you start shopping for a car, it's essential to determine how much you can afford to pay for the car each month and for the entire loan.
  2. Shop around: Take the time to compare rates and terms from multiple lenders. Look at both traditional lenders, such as banks and credit unions, and online lenders.
  3. Get pre-approved: Before you visit a dealership, you can get pre-approved for financing. This will help ensure you know your limit and don't pay too much for the car. Some specialized lenders, such as Clutch can pre-approve you for a used car loan.
  4. Negotiate: Once you get to the dealership, negotiate the price of the car before discussing terms and financing. Getting a good deal on the vehicle can reduce your monthly payments and save you money in the long run.
  5. Choose a loan: Once you've settled on a price, it's time to choose your loan. Consider both secured and unsecured loans, as well as special offers or deals from the dealership.
  6. Sign the contract: Read through the entire loan contract before signing it. Ask questions if there is anything you don't understand, and make sure you know your rights as a borrower.
  7. Make payments on time: Once the loan is finalized, make all your payments on time. This will help you establish a good credit score and pay off the loan with minimal interest charges.

Tips for Getting the Best Used Car Loan Rates

If you're looking to secure the best possible rates and terms for your used car loan, there are two categories of things you can do; find the best lender, or increase your creditworthiness. The most obvious is shopping around to find the best lender. Ensure to compare loans between banks, credit unions, and online lenders, such as Car Loans Canada.

A good credit score is also essential when getting the best rates and terms on a used car loan. If your credit score isn't where you want it to be, consider making a larger down payment or applying with a cosigner. A larger down payment can help you qualify for better rates and lower monthly payments. Meanwhile, asking a family member to co-sign your loan allows you to leverage their creditworthiness.

The Finer Details

Interest Rate

8.03% is the average rate for all types of car loans, according to Statistics Canada. However, used car loans typically have higher interest rates because there is more lender risk. As a result, you can pay around 10% to 20 % depending on your credit score, income, and vehicle. However, interest rates can exceed 30% in some situations. Generally, the better your credit score and income, the lower your interest rate.

You can typically choose between a fixed or variable-rate loan. A fixed loan offers more predictability, whereas a variable rate allows you to take advantage of falling interest rates. This is because your monthly payment for a variable-rate loan will change with interest rates while a fixed rate will remain the same.

Loan Size

The size of your loan will depend on the car's value, income, and other factors. Generally speaking, used car loans max out at $35,000. Some boutique lenders may offer more funding to very creditworthy clients. 

Repayment Period

Most used car loans have a repayment period of 48 to 72 months. You can secure shorter or longer terms depending on the lender. In general, longer repayment periods will result in lower monthly payments but may also result in you paying more in interest over the life of the loan.

Fees & Penalties

Used car loans typically come with closing costs, application fees, and other miscellaneous charges. Make sure to read through the terms and conditions of your loan so you understand all the associated costs. Also, late payments can result in penalties or additional interest rates.

Loan to Value

The loan-to-value ratio (LTV) is the amount of money you're borrowing compared to the value of the car you purchase. For example, if a vehicle is worth $10,000, a $2,000 down payment would result in an 80% LTV. The higher the LTV, the more you'll be borrowing relative to the car's value and the riskier the loan is for the lender. Lenders generally prefer to see an LTV of 80% or lower.

Vehicle Restrictions

These can vary from lender to lender, but generally, lenders will only finance vehicles up to seven years old. They may also have mileage restrictions and other requirements. It's essential to check with your lender before applying for a loan so you know what you can and cannot finance.

Processing Speed

The speed at which you can expect to receive your loan depends on the lender. Online lenders often offer faster processing times than traditional banks or credit unions. Some lenders can provide same-day financing, while others may take several days. Be sure to check your lender for more details about their specific timeline.

Alternative Options

Personal Loans

You can use a personal loan to finance a used car purchase. However, this may come with higher interest rates and fees than a traditional car loan. Personal loans are generally unsecured, meaning you won't need any collateral. However, lenders will place more emphasis on your income and credit score.


Leasing a used car can be affordable if you don't have the cash to buy one outright. However, you won't own the vehicle at the end of your lease period and will need to return it to the dealer or find a way to purchase it.

Home Equity Loans

If you own your home, you can use a home equity loan to finance a used car purchase. These loans may come with lower interest rates than personal loans, but they also put your home at risk if you default. Common home equity loans include a HELOC, second mortgage, or refinance. 

The Bottom Line

Used car loans can help you purchase the vehicle of your dreams, but there are several things to consider before applying. Review all the associated costs and understand your loan's terms and conditions. If you need additional help or have questions, don't hesitate to contact a financial advisor or lender for more information.

FAQ About Used Car Loans

How do used car loans work? 

Used car loans work similarly to any other loan. You'll need to apply for the loan and be approved by a lender, who will provide you with the funds to purchase a used vehicle. You'll then make fixed or variable payments over a set period until you fully repay the loan. In most cases, the loan will be secured to your vehicle. This means missing payment can result in the lender seizing your car to cover their unpaid loan. 

Typically, how long are used car loans? 

Used car loans typically have repayment periods of 48 to 72 months. Depending on the lender, you can qualify for shorter or longer terms.

How to apply for a used car loan? 

Applying for a used car loan is relatively easy. Most lenders have online applications that you can complete in minutes. Make sure to compare rates and terms from multiple lenders before selecting one.

Can you get a loan using your existing car as collateral? 

Yes, you can get a loan using your existing car as collateral. This is known as a car title loan. However, these loans generally have very high-interest rates and are not recommended.

Can I use a personal loan to buy a car?

Yes, you can use a personal loan to buy a car. However, personal loans typically have higher interest rates and fees than traditional car loans. Be sure to compare the terms and conditions before making a decision.

Can I use a student loan to buy a car? 

No, you cannot use a student loan to buy a car. Student loans are intended for educational expenses and cannot be used to purchase vehicles or other personal items. However, in theory, a student could use the cash portion of their loan to finance buying a car. 

Can I use my credit card to repay my car loan? 

Yes, you can use your credit card to repay your car loan through a cash advance. However, you should avoid this because you'll likely pay more interest. Credit cards generally have an interest rate of 19.99%, whereas car loans are lower.

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