When shopping for a new (or used) car, one of your first decisions is likely how you'll pay for it. If you’ve come to the conclusion to finance your purchase, it's well worth it to determine your credit score, research available interest rates or annual percentage rate (APR) and how much you can afford. The interest rate you’re likely to receive also depends on the car itself. A good interest rate is what works best for you. While it might not be 0%, it’s a rate you qualify for and can afford, that won’t damage your credit in the end. Read on for what determines interest rates and how to make it work for you.

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What is the Average Interest Rate?

There can be a lot of variance between rates, which is why you should first check your credit score. Canadian credit scores range from 300 to 900, with the average credit score approximately 650. Ultimately, the interest rate you’ll pay will depend on your credit score.

According to Statistics Canada, the average interest rate in Canada is 4.65%. This means you can often expect to pay between 4% to 6% interest, along with other factors such as whether the car is new or used and if the interest rate is fixed or variable. With that said, if your credit score is lower, that could mean a higher interest rate of up to 30%.

Factors that Influence the Interest Rate

The lower the interest rate, the better deal, right? That depends on three big factors. Some of these are out of your control, like the Bank of Canada target interest rate. However, there are others very much in your control. Like we mentioned earlier, your credit score is the most important one. Applicants who have a higher credit score qualify more easily for loans with lower interest rates.

  • Auto loan rates can change daily: Banks control interest rates and which bank you use can have an impact. Other reasons are detailed below.
  • Auto loans include simple interest costs: This is the case no matter what rate you end up paying. When you, the borrower, agree to pay the money back, this includes a flat percentage on the amount borrowed. With compound interest, that interest keeps growing which inflates the rate.
  • Auto loans are "amortized": Akin to a mortgage, the interest you owe is “front-loaded” in the early payments, which means you pay more earlier in the loan term. This can be avoided with a larger down payment or exchanging a late-model trade-in.

Obtaining a Good Interest Rate

We don’t mean to be the bearer of bad news but more times than not, you’re likely to pay some interest. At Surgenor Auto Credit, we want to help you get the best possible interest rate. Here are some things to keep in mind:

  • Take some time before you come to see us to improve your credit score: this includes making adjustments to paying bills on time and keeping your credit utilization (how much you spend) low. 
  • Length of finance term: terms tend to run longer these days—anywhere from 24 (2 years) to 84 months (7 years). A longer term has lower monthly payments, but likely a higher interest rate.
  • Your choice of vehicle: generally, newer cars have lower interest rates than used models. While there are different reasons, used cars tend to be riskier to the lender because a newer vehicle is less likely to break down or become unusable. Why? Because until the car is paid off, technically, the bank still owns it and wants to make sure their asset is in good condition.
  • Get preapproved: We get it, it’s very difficult to beat that 0% promotional rate, consider getting pre-approval from a bank or credit union as an added buffer to secure a lower rate when you visit the showroom.
  • Get a cosigner: If a lower credit score is holding you back, asking a person you know who has a better score could help.
  • Put more money down: Making a larger down payment reduces the total amount to be financed AND could make you eligible for a lower interest rate, along with smaller monthly payments and less overall interest.

Get approved at Surgenor Auto Credit

It is our mission to make sure you drive away with your dream vehicle. This means we’ll help you with getting pre approved, selecting the appropriate vehicle and finalizing your financing rate. When you come to Surgenor Auto Credit, it won’t be an expensive or stressful process. Simply fill in our form and come see us. We look forward to helping you!

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