Hardbacon logo

The 8 Best Ways to Finance a Car in Canada

By Arthur Dubois | Published on 06 Sep 2023

Car key exchange between two men

    So, you’ve found your dream car but its price goes beyond the cash you have in your account. Don’t despair since you can easily finance a car in Canada. You have plenty of options to help you get that ideal vehicle. 

    In this article, we’ll explore the 8 best ways to finance a car in Canada. Whether you’re a first-time car buyer or have less-than-perfect credit, we’ve got you covered. Let’s dive in!

    How to get approved for a car loan in Canada?

    Getting approved for a car loan in Canada requires following a few key steps. To increase your chances of approval, start by checking your credit score. Lenders typically look for a credit score of at least 650. If yours sits below that range, consider taking steps to improve it before applying for a loan.

    First, start paying your bills on time and reducing your overall debt. Lenders want to see that you manage your finances and debt effectively. For instance, create a budget and stick to it, allocating enough funds to cover your monthly loan payments.

    Second, tidy up your employment history. Stability in employment matters as it demonstrates your ability to maintain a steady income. If you have recently changed jobs, wait until you have a few months of consistent employment before applying for a loan.

    Third, identify a stable source of income. Lenders want to see that you have the means to repay the loan. Collect all the necessary documents, such as proof of employment, pay stubs and bank statements, to strengthen your application.

    Next, when applying for a car loan, shop around and compare offers from different lenders. Each lender may have different approval criteria and interest rates, so you can save by exploring multiple options. For example, reach out to banks, credit unions and online lenders to find the best terms and conditions for your car loan.

    Lastly, save up for a down payment. A larger down payment can help lower your monthly payments and increase the likelihood of loan approval. Aim for at least 20 percent of the car’s value, but the more, the better! Saving up for a down payment also shows lenders that you commit to the loan.

    Remember, getting approved for a car loan in Canada lies within your reach. Start by taking proactive steps to improve your credit score, demonstrate stable employment and save for a down payment. As a result, you can increase your chances of securing a car loan that fits your needs and budget.

    How much can I spend on a car based on my financial situation?

    The amount you can spend on a car depends on your financial situation. Look over your budget and consider your monthly income, expenses and other financial obligations.

    When determining what you can afford, analyze your monthly income and calculate the percentage you can put towards car payments. Generally, financial experts recommend that your monthly car payments should not exceed 20 percent of your monthly income. This ensures that you have enough money left for other essential expenses and savings.

    However, this 20-percent guideline may not work for everyone. Each individual’s financial situation varies, so consider other factors that may affect your budget. If you have significant monthly expenses or other debts, you may need to choose a smaller percentage for car payments. 

    Moreover, remember that the purchase price of a car comes with additional expenses, such as insurance, fuel and maintenance. These costs can vary based on the type of car, your location and your driving habits. Always factor in these long-term costs when setting your budget.

    Car insurance can create a significant expense that you should consider when budgeting for a car. The cost of insurance can differ depending on your age, driving history and the type of car you plan to purchase. Wisely, obtain car insurance quotes for different car models to get an estimate of the potential insurance costs.

    Fuel expenses can also add up quickly. If you use your car for long commutes or frequent road trips, budget a higher amount for fuel. Beforehand, research the fuel efficiency of different car models to estimate your monthly fuel expenses.

    In addition to insurance and fuel, factor maintenance costs into your budget. Regular maintenance, such as oil changes, tire rotations and brake inspections, keep your car running smoothly. Naturally, unexpected repairs and replacements may arise, so set aside some funds for these potential expenses.

    Eight Options to Finance a Car in Canada

    Once you set up your finances so you can finance a car in Canada, you have these 8 options:

    1. Buying a Car With Cash

    If you have the means, buying a car with cash provides the most freedom. By paying upfront, you avoid monthly payments and interest charges. Additionally, cash buyers can negotiate better deals and more favourable terms as sellers prefer immediate payment. Use this leverage to negotiate a better price or additional perks, such as extended warranties or maintenance packages.

    When you pay in cash, you don’t get tied down to a long-term loan or lease agreement. This means you have the flexibility to sell the car whenever you want without any restrictions. You can also upgrade to a new vehicle anytime, without worrying about outstanding loan balances or early termination fees.

    Even better, you will likely save money in the long run. When you finance a vehicle, you have to pay back the principal amount and the interest charged by the lender. Over the course of several years, these interest charges can add up significantly. By paying in cash, you avoid paying interest, freeing up money for other financial goals or investments.

    However, keep in mind that paying in cash means you’ll need a significant amount of money upfront. While this may work for some individuals, it can create a challenge for others. Above all, assess your financial situation and determine whether buying a car with cash aligns with your goals and priorities.

    Before making a decision, consider the potential opportunity cost of paying in cash. With a low-interest rate loan, you could invest your cash in other assets with the potential for higher returns. 

    Take your time to compare prices at different dealerships and explore various models so you get the best deal possible.

    2. Buying a Car with a Home Equity Line of Credit

    If you own a home with equity, tap into a home equity line of credit (HELOC) to finance a car. HELOCs often have lower interest rates compared to car or personal loans, resulting in significant savings.

    With a HELOC, you essentially have a revolving line of credit secured by your home’s equity. This means that you can borrow against the value of your home and use the funds for various purposes, such as purchasing a car.

    However, carefully consider the potential risks before tapping into your home’s equity. While using a HELOC to finance a car can work well, it also comes with certain risks. If you default on the loan, you could lose your home. Unfortunately, if you fail to make the required payments, the lender has the right to foreclose on your property.

    Furthermore, when using a HELOC to finance a car, you must have a clear repayment plan in place. Unlike a car loan with a fixed repayment term, you can borrow against a HELOC and repay it multiple times. Think of it as similar to a credit card. Having a strategy to pay off the borrowed amount within a reasonable timeframe helps you avoid accumulating excessive debt.

    3. Buying a Car Through In-House Dealership Financing

    In-house dealership financing, also known as dealer financing or in-house financing, occurs when the dealership itself offers the loan. This option conveniently completes the car purchase and financing process in one place. With an online dealer like Clutch, you can get pre-approval for financing within minutes.

    When you choose in-house financing, you eliminate the need to go through a third-party lender. This can save you time and effort, as you won’t have to search for a separate loan provider. Additionally, the dealership may have more flexibility in approving your loan application, especially if you have a less-than-perfect credit score.

    However, use caution when considering in-house financing. Since dealerships take on more risk by extending credit directly to customers, their interest rates are higher than traditional lenders. Additionally, some dealerships may charge additional fees or require a larger down payment to secure the loan.

    Before committing to any agreement, thoroughly read and understand the terms and conditions of any in-house financing. Pay close attention to the interest rate, repayment period and any potential penalties for late payments or early loan termination. Also, compare the dealership’s offer with other car financing options available to you, such as bank loans or credit union financing.

    While many dealerships offer a wide range of vehicles, some may limit the makes, models or years of cars eligible for in-house financing. Beforehand, inquire about the dealership’s inventory and whether your desired vehicle qualifies for their financing program.

    Furthermore, evaluate your own financial situation before opting for in-house financing. Closely look at your budget and any other financial obligations you have to avoid any strain on your financial stability.

    4. Buying a Car with a Bank Loan

    Most people finance a car through a bank loan. This straightforward process involves borrowing money from the bank and paying it back, with interest, over a set period of time. This option suits those who prefer to own their car outright and feel empowered to negotiate on price.

    When considering a bank loan, compare interest rates and loan terms from different banks. You’ll also want to take time for monitoring your credit score for free, as this will impact the interest rate on offer. With a good credit score, you may secure a lower rate and save yourself some money in the long run.

    Before applying for a loan, you must clearly understand your budget to know how much you can afford to borrow. This way, you avoid taking on more debt than you can handle, experiencing financial stress and missing timely repayments.

    Once you have a budget in mind, start researching different banks and their loan offerings. Look for banks that specialize in auto loans or have competitive rates. You can visit their websites or contact them directly to gather information about their loan terms and application process. Some may have additional fees or requirements.

    When comparing interest rates, even a small difference can significantly impact your monthly payments and the total amount you’ll pay. Take the time to calculate the total cost of the loan, including the interest, so you make an informed decision.

    Also, consider the loan term. Shorter loan terms typically come with higher monthly payments but can save you money on interest. On the other hand, longer loan terms may have lower monthly payments but can result in paying more interest overall. Ideally, you want to strike a balance that fits your financial situation.

    Once you’ve chosen a bank, fill in an online application via a convenient and efficient process. You’ll need to provide personal information, employment details and financial documentation, such as pay stubs and bank statements. The bank will review your application, assess your creditworthiness and offer a loan amount and interest rate.

    If approved, the bank will provide you with the funds to purchase the car. Carefully review the loan agreement before signing to understand all the terms and conditions. Pay close attention to the interest rate, repayment schedule and any penalties or fees for early repayment. For example, zero-per-cent financing may sound like a great deal, but its other terms may not work for you.

    With a bank loan, you have the advantage of being a cash buyer, which can give you more negotiating power. Research different car models, visit dealerships and test drive vehicles to find the one that meets your needs and budget.

    5. Getting a Car Through a Car Lease

    If you’re not keen on owning a car, leasing could be a great option for you. With a car lease, you essentially rent the vehicle for a set period of time, typically two to five years. This allows you to drive a newer car with lower monthly payments compared to buying.

    Leasing comes with its own set of considerations. You’ll have mileage limits, with excess wear and tear resulting in additional charges. However, if you enjoy having the latest model without owning the car, leasing can conveniently finance a vehicle. This means that you can always enjoy the latest features, such as an advanced infotainment system or enhanced safety features. 

    When leasing, you essentially pay for the depreciation of the car during the lease term, not the vehicle’s full value. This can result in significantly lower monthly payments, making it more affordable to drive a newer car.

    However, leasing has its own set of limitations, such as mileage limits. Most leases come with a predetermined range around 20,000 to 24,000 kilometres per year. If you exceed this limit, you may face fees of seven to 15 cents for every additional kilometre. Therefore, estimate your annual mileage accurately and choose a lease agreement that suits your driving habits.

    Further, excess wear and tear can also result in additional charges at the end of the lease term. On top of normal wear and tear, excessive damage, such as dents, scratches or interior stains, may incur extra costs. So, take good care of the leased vehicle and address any damages promptly to avoid unexpected charges when returning it.

    Despite these considerations, car leasing can appeal to those who prefer not to own a car. It offers the flexibility of driving a newer vehicle with lower monthly payments. Additionally, leasing to finance a car eliminates the need for a large upfront payment.

    6. Buying a Car With a Bad Credit Personal Loan

    If your credit score ranks as less than stellar, don’t fret. You still have options available to finance a car via a bad credit personal loan. These loans suit individuals with poor credit scores, albeit with higher interest rates. However, they can provide you with the funds necessary to purchase a car and start rebuilding your credit.

    When considering a bad credit personal loan, read the terms and conditions carefully to make sure it fits within your budget. Each lender may have different criteria, so do your research offers from traditional banks, credit unions or online or private lenders.

    When applying for a bad credit personal loan, lenders will typically consider factors beyond just your credit score. They may also look at your income, employment history and overall financial stability. Providing documentation, such as pay stubs, bank statements and proof of assets, can help strengthen your loan application.

    Before committing, evaluate your income and expenses to determine how much you can afford to borrow and repay each month. Remember that taking on additional debt should align with your long-term financial goals.

    These companies help people with bad credit get loans to buy cars:


    Fairstone has provided loans to Canadians for nearly a century. It offers financing via 250 branches coast to coast. To work with Fairstone, prospective borrowers simply answer a few simple questions. Soon, you’ll get a quote that won’t affect your credit score. Loan amounts range from $500 to $50,000, depending on the situation.

    Spring Financial 

    With Spring Financial, you can score a loan starting at 9.99 per cent without a bank branch visit. Its Evergreen Loan program allows you to borrow, grow and repeat, rewarding you for improving your credit. Meanwhile, with the Foundation, you can build your credit while saving $750 in a year. This option also comes with a free credit score.

    Loan Connect

    Meanwhile, LoanConnect offers loan offers within a minute after you submit a thorough and simple online form. It lends car-buying funds of $500 to $50,000 with rates between 6.99 to 46.96 percent. Its flexible loan repayment terms range from three months to many years. Interest rates and fees may vary by province or territory.

    Finally, beware of predatory lenders who take advantage of individuals with poor credit by charging exorbitant interest rates or imposing hidden fees. Research the reputation of the lender and read reviews from other borrowers to find a reputable institution.

    Additionally, by making timely payments and demonstrating responsible financial behavior, you can gradually rebuild your credit history. This can open doors to better loan terms and lower interest rates in the future.

    7. Buying a Car With a Second-Chance Car Loan

    When purchasing a car, having a less-than-ideal credit score can make the process challenging. However, there is a glimmer of hope in the form of a second-chance car loan. These loans address individuals who have faced financial hardships, such as bankruptcy.

    This type of loan provides an opportunity for individuals to rebuild their credit. By making timely payments, borrowers can demonstrate their creditworthiness and improve their credit score over time. This crucial step moves them towards financial recovery and control over one’s financial future.

    However, second-chance car loans often come with higher interest rates compared to traditional car loans. After all, lenders consider borrowers with a less-than-ideal credit history to be higher risk. However, these rates should not deter individuals from exploring this option, as its long-term benefits can outweigh the short-term costs.

    Online resources and platforms can be helpful in comparing loan options and finding lenders who specialize in second chance car loans. For example, these companies give you this option:

    Car Loans Canada

    CarLoans Canada takes two minutes to gather the data it needs to tell you if you qualify for a loan or not. It also offers a used car guide and rates competitive with major banks so you can buy one. You don’t need a down payment and can pay weekly, monthly or anytime in between. Its open-ended loans allow you to pay off your debt in full anytime without expensive penalties. 

    Loans Canada

    With Loans Canada, you begin by choosing the type of vehicle you wish to buy, then delve into financial details. You can change your choice later at no cost or obligation. Once they understand your budget and history, they tap into the largest dealer network in Canada. Its platform is easy to use and provides financial relief for those in need for various reasons.

    When applying for a second chance car loan, lenders may also consider other factors besides credit score. These factors can include employment history, income stability and the ability to make a down payment. By showcasing stability and responsibility in these areas, borrowers can increase their chances of securing a favourable loan offer.

    8. Buying a Car Through a Car Lease-to-Own Program

    If you cannot secure traditional financing options due to a limited or poor credit history, try a lease-to-own program. This option allows you to make regular payments towards owning the car, with the goal of eventually owning the vehicle.

    Unlike traditional car loans, lease-to-own programs often skip the credit check entirely. This feature makes them accessible to a broader range of people, particularly those who might get rejected by other lenders. The only prerequisites usually include presenting proof of identity, stable income and sometimes residency or citizenship.

    Unlike traditional leases where the car gets returned, a lease-to-own agreement ends with the lessee owning the car outright. Payments typically occur weekly or bi-weekly, with each payment contributing to eventual ownership. The terms of these agreements are usually shorter than those of standard leases or loans, spanning just one to two years. This shorter duration can make it easier for individuals to plan and budget for their financial future.

    However, prepare to face some limitations and extra costs that come with a lease-to-own program. First, the selection of cars available for these types of arrangements is often smaller. This means you may have to compromise on make, model or features. Additionally, a down payment and extra signing fee create barriers for some buyers. Furthermore, since these agreements do not traditionally get reported to credit bureaus, they won’t help improve a low credit score.

    Finally, the onus of all repairs and maintenance falls on the lessee in a lease-to-own agreement. While this might seem daunting, it aligns with the end goal of ownership so plan for this extra cost.

    If this arrangement sounds good to you, you can secure this type of loan from Loan Canada or Edmonton Auto Loans.

    Best Ways to Finance a Car in Canada: The Bottom Line

    When it comes to financing a car in Canada, various options suit different financial situations. From traditional bank loans to rent-to-own schemes, consider your goals and priorities before making a decision.

    Remember to research and compare offers from multiple lenders so you get the best deal. Take the time to understand the terms and conditions thoroughly. Finally, don’t hesitate to seek advice from financial professionals if needed. By taking a strategic approach, you can secure the best financing option for your car purchase in Canada.

    Compare Car Insurance Policies in Canada
    Compare Car Insurance Policies in Canada
    Compare Canadian car insurance policies and find the one that best suits your needs.
    Arthur Dubois is a personal finance writer at Hardbacon. Since relocating to Canada, he has successfully built his credit score from scratch and begun investing in the stock market. In addition to his work at Hardbacon, Arthur has contributed to Metro newspaper and several other publications