Skip to ContentSkip to MenuSkip to Footer

How Do Car Loans Work?

An easy guide on what you need to know

Benefits ogf Loans
benefits card image

Understanding Car Loans

So, what exactly is a car loan? Well, it's a type of financial assistance offered by banks and other financial institutions to help you purchase what they call a necessity in this day and age OR a pre-loved beauty. Put simply, a car loan lets you own a car even if you’re not ready to come up with the money to pay the total price upfront. Essentially, they lend you the money needed to buy the car, and you'll repay the loan in monthly instalments over an agreed-upon period.

Benefits ogf Loans
benefits card image

How Do Car Loans Work in Canada?

In Canada, car loans work in a pretty similar way to how they do in other parts of the world. You approach a bank or a lender, apply for a car loan, and they evaluate your financial history and creditworthiness. Based on that, they'll offer you a loan amount, along with the terms and interest rates. Basically, the bank or any other lending institution extends you the credit, which is generally equal to the cost of the vehicle, and you make loan payments to repay that amount. Once you make your final regular car loan payments, you will fully own the vehicle.

Step-by-Step Car Loan Process

Benefits ogf Loans
benefits card image

Research, Research, Research

First things first, you need to do some research! Look for the car that suits your needs and budget. The reason why we are even considering this point is because owning a car might mean different things to different people, depending on their requirements. Once you have a specific car in mind, you'll have a better idea of how much money you need to borrow.

Benefits ogf Loans
benefits card image

Loan Application

With your dream car in sight, it's time to apply for a car loan. You can either do this in person at your local branch or conveniently apply online through the website. Remember to compare different lenders to get the best deal!

Benefits ogf Loans
benefits card image

Credit Check and Approval

In Canada, credit scores range from 300 to 900. A higher score increases your chances of approval and may even lead to lower interest rates. However, these figures are nothing to worry about! This is because roughly less than 1 in 6 people have scores high enough to reach the 800 mark, and the average credit scores range from 650 to 700.

Benefits ogf Loans
benefits card image

Loan Terms and Interest Rates

Once your creditworthiness is evaluated, the lender will offer you a loan amount and present the terms and interest rates for car loans in Canada. Be sure to read through the terms carefully to understand the total cost of borrowing and avoid any hidden fees.

Benefits ogf Loans
benefits card image

Monthly Payments

After all the paperwork is done and you drive off with your new car, it's time to start making those monthly payments. These payments usually include both the principal amount and the interest.

Benefits ogf Loans
benefits card image

Loan Repayment

Car loans in Canada usually have a fixed repayment schedule, commonly ranging from 3 to 7 years. The longer the repayment period, the lower your monthly instalments, but keep in mind you'll end up paying more in interest (at the trade-off of having lesser monthly payments, of course).

Car Title Loans

Now, you might have heard about car title loans. While they might sound similar to regular car loans, they work differently. With a car title loan, you use your car's title as collateral to secure a loan. This means that you might have to temporarily surrender the hard copy of your vehicle title in exchange for a loan amount. These loans often come with higher interest rates and shorter repayment periods. It's essential to be cautious with car title loans, as you might risk losing your car if you're unable to repay the loan.

Bank Loans for Cars

Instead of opting for traditional car loans from third-party lenders, you can also consider getting a bank loan directly. Many Canadian banks offer car loans, and it might be a convenient option if you're already a customer, provided you have a good banking history. Just like other lenders, they'll assess your creditworthiness and present you with suitable loan options.

Final Thoughts

This is a guide on how car loans work in Canada! Whether you choose a traditional car loan or explore bank loan options, remember to make informed decisions based on your financial situation and needs. Owning your dream car is possible with the right planning and a reliable car loan by your side.


So, what are you waiting for? Get ready to hit the roads in style with your new wheels! Happy driving!

Need a car loan? We look beyond your current situation to help you get your car sooner, even if you have no or low credit

Putting Canadians on a path to a better financial future

When banks aren’t an option, we can help you get approved for the loan you need today.

400+

locations in

Canada

800K

customers

served

93%

satisfaction

rate

60%

of customers improve

their credit score

1in3

customers graduate to

prime rates

Putting Canadians on a path to a better financial future

When banks aren’t an option, we can help you get approved for the loan you need today.

400+

locations in

Canada

800K

customers

served

93%

satisfaction

rate

60%

of customers improve

their credit score

1in3

customers graduate to

prime rates

What people love about us

person img
person-image

Have questions? We can help.

What credit score do I need for easyfinancial?

arrow

This is determined on a case-by-case basis. We use many factors to approve applicants for a loan, including monthly income and credit score. We factor in your debt-to-income ratio (50%), debts in collections, car payments, and monthly debt obligations. Those with bad credit (300-720) are encouraged to apply.

What is a soft inquiry and how is it different than a hard inquiry?

arrow

A soft inquiry is when your credit report is pulled for informational purposes and does not affect your credit score. A soft inquiry is simply a review of your credit report that's used to determine if you are eligible for a pre-approved offer and may be used to verify who you are.  When a company conducts a soft inquiry, this is only visible to you, and is not seen by other lenders therefore it will not negatively affect your credit score. 

A hard inquiry is when a credit report is requested from the credit bureau for the purpose of evaluating you as a borrower. A hard inquiry can affect your credit score and can be seen by other lenders. However, keep in mind that hard inquiries are only one of the five major factors that help determine your credit score.  Other factors such a payment history and credit utilization play a much bigger role in determining your credit score. 

What documents are needed to get an approval?

arrow

We require the following documents:

2 recent pay stubs

  1. Last 90 days of banking information 

  2. 1 recent bill addressed to your current home 

  3. A piece of government photo ID