Car Deal Canada

Negotiating a Car Loan

Negotiating a Car Loan

Buying a new car is an exciting experience. After years of driving your old clunker, you finally get to cruise around in a shiny new vehicle with that new car smell. But the process of getting financing for your new ride can quickly put a damper on your excitement. Most people walk into the dealership and accept the first interest rate offered without trying to negotiate a better deal. However, you actually have a lot more leverage than you may think when it comes to getting the lowest rate possible on your auto loan.

Paying even 1% higher interest on a 5-year $25,000 car loan costs you an extra $1,300 over the life of the loan. So taking the time to negotiate your rate can save you a substantial amount of money. This guide will provide an overview of the most important steps to take in order to successfully negotiate the best interest rate on your next car loan purchase.

The key things you need to do are: check your credit score, get pre-approved financing from multiple lenders before going to the dealer, negotiate the vehicle price separately from the financing, leverage your pre-approvals to negotiate the lowest rate possible, and consider refinancing later if rates drop. Following this process takes some extra work upfront. But negotiating the best rate you qualify for could save you thousands, so it’s worth the effort.

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Know Your Credit Score

The first step when trying to negotiate your car loan interest rate is checking your credit score. Your credit score gives lenders an idea of how risky it is to lend money to you. The higher your score, the less risk you represent. This means you can qualify for a lower interest rate.

People with excellent credit scores above 720 will get the best rates on a car loan. But even moving from fair credit around 630 up to good credit at 700 can make a big difference. Every person’s situation is different though. Checking your actual credit score ahead of time lets you know the rate range you likely qualify for.

Getting a free copy of your credit report is easy, and you can check your score for free too. There are services like Credit Karma that let you access your credit score regularly without charge. You can also get free reports directly from Experian, Equifax, and TransUnion once per year. Reviewing your credit report also lets you check for errors that could be hurting your score.

Knowing your credit score before ever stepping foot in a dealership gives you power when it comes time to negotiate. You have reasonable expectations about what rates you can qualify for. And you can push back if a lender tries claiming you only qualify for higher rates.


Get Pre-Approved Financing

The next step is to shop around and apply to banks, credit unions and online lenders to get pre-approved for a car loan. This gives you estimates in writing of the rate and loan amount you qualify for. Getting pre-approved financing from multiple sources is key for a few important reasons:


– It allows you to compare rates and loan offers side-by-side. You can see what types of terms and interest rates you qualify for based on your credit score and financial profile.

– Having firm loan offers in hand shows dealers that you are a serious buyer and gives you leverage when it comes time to negotiate financing terms.

– The dealer will know they need to beat the pre-approved rates you already have if they want your business. This takes away any information advantage the dealer may have.

– Pre-approvals give you a backup financing option. If the dealer can’t offer terms as good as your pre-approval, you have a lender ready to fund your loan.


So take the time upfront to get pre-approved rates in writing from banks, credit unions and online lenders before you ever set foot in the dealership. Having multiple pre-approved loan offers puts you in a much stronger negotiating position.


Negotiate the Purchase Price First

When at the dealership, negotiate the purchase price of the vehicle completely separately from discussions about financing. This prevents them from distracting you with talks of monthly payments and interest rates.

Make sure you have agreed upon a final price for the vehicle before bringing up how you plan to pay for it. Do not let the salesperson bundle the negotiation of the car price together with the financing terms.

By keeping these discussions separate, you remain focused on getting the best possible price on the car itself without interest rates muddying the waters. Come prepared with the invoice price, fair market value, and other research on what that specific make/model is selling for so you can negotiate from a position of strength.

If the salesperson insists on talking monthly payments before agreeing on the vehicle price, redirect them back to settling on the price first. You have the right to keep these items separate to avoid confusion and potential manipulation.

Stick firm to this approach. Only once you’ve agreed upon the final price in writing should the topic switch to how you’ll finance the vehicle purchase.


Now Negotiate Interest Rate

Armed with your pre-approvals, you can now negotiate the interest rate on financing. Explain that you have been pre-approved for specific rates from other lenders and ask if the dealer can beat those offers. Dealers often have relationships with lenders allowing them to offer lower rates, so it pays to negotiate.

Don’t be afraid to start higher than your actual pre-approved rate. For example, if you were pre-approved for 4%, tell the dealer you have an offer for 2.5% interest. This gives them room to “negotiate” down to 4% thinking they got a good deal. Just make sure to have the actual pre-approval paperwork with you to back up your initial claim if asked.

If the dealer won’t budge at first, ask them politely but firmly to check with their finance manager again. Explain you have been offered much lower rates and are prepared to finance elsewhere unless they can match or beat your pre-approvals. Be persistent but respectful in negotiating for the best interest rate.


Be Persistent

When negotiating your interest rate, it’s important not to simply accept the first offer from the dealer. Many people are uncomfortable with negotiating, or feel awkward haggling over interest rates. However, this is an expected part of the car buying process, so you shouldn’t be afraid to speak up.

Remember that the dealer likely has some flexibility to adjust the interest rate, especially if they know you are seriously considering walking away. Make it clear you are willing to take your business elsewhere unless they can offer you a more competitive rate. They don’t want to lose a sale over a small change in the interest rate.

Politely but firmly ask if the dealer can do any better on the rate. If their first offer isn’t what you expected, tell them you were hoping for a rate of X based on your research and see if they can match it. Be willing to go back and forth several times to get them to inch down. Don’t take their first counteroffer either. See if you can get them down again. The key is showing you won’t just accept any rate they provide.

As long as you are reasonable with your requests, a persistent but professional negotiation approach can often yield positive results. Don’t be afraid to speak up for yourself to try to maximize your savings.


Check Online Lenders

Banks aren’t the only option when it comes to getting a car loan. In recent years, a number of online lending companies have emerged that can offer competitive and even lower interest rates than traditional banks.

Online lenders have lower overhead costs compared to brick-and-mortar banks, so they can pass some of those savings on to consumers through lower rates. Additionally, online lenders utilize advanced technology and algorithms to streamline the lending process, reducing costs.

While most major banks now allow you to apply for auto loans online, it’s worth checking out companies that operate solely online. Some top options to consider include Lightstream, PenFed Credit Union, and They offer fast loan decisions, flexible terms, and 100% online applications.

Online lenders also tend to be a bit less strict when it comes to credit requirements. If you have less than perfect credit, you may find an online lender offers a rate up to a few percentage points lower than what your bank quoted.

Just make sure to compare all the details like origination fees, prepayment penalties, and other fine print. But often, online lenders provide an excellent alternative source of financing that is quick, easy, and affordable.


Consider Refinancing

Even if you successfully negotiate a good interest rate, continue monitoring rates in the months after your purchase. Interest rates can fluctuate frequently. If you see rates drop significantly, you may be able to refinance your existing auto loan and reduce your interest rate even further to save more money.

For example, let’s say you purchased a car with a 4% interest rate on a 5-year loan. But 6 months later, you notice banks are now offering rates around 3% for auto refinancing. By refinancing your loan at the lower 3% rate, you could potentially save hundreds or even thousands of dollars over the remaining term of your loan.

Refinancing does involve some fees, so you’ll want to calculate the potential savings to see if it’s worthwhile. But in many cases, especially when rates decrease by 1% or more, refinancing ends up being a smart financial move.

So don’t just set it and forget it when you first negotiate your car loan. Actively monitor current interest rates, and if you see a good opportunity, consider refinancing to save money on your existing auto loan.


Watch Out for Penalties

When negotiating your auto loan, it’s important to inquire about any prepayment penalties that may be attached. Prepayment penalties are fees charged by the lender if you pay off your loan early. This gives the lender assurance that they will receive a certain amount of interest payments over the full original loan term.

Many people don’t realize that prepayment penalties are negotiable just like the interest rate. Don’t simply accept them as non-negotiable. Ask the lender or dealer if there is a prepayment penalty and if so, request to have it removed from your loan terms.

With a prepayment penalty, you lose flexibility. If you later come into some extra money and want to pay down your principal more quickly, the penalty discourages you from doing so. Or if interest rates drop in the future and you want to refinance, the penalty makes it more costly to do so. You lose options.

Make sure you understand any prepayment penalties and negotiate to have them removed from your loan agreement. This maintains flexibility down the road to pay off your loan early or refinance if the opportunity arises.


Build Your Credit

One of the most effective ways to get better terms on your auto loan is to improve your credit score. Lenders offer lower interest rates to borrowers with higher credit scores since they are seen as less risky. There are several steps you can take to boost your credit and qualify for a lower rate:


– Pay all bills on time – Payment history makes up a significant portion of your credit score. Be sure to pay all your bills and debts by the due date to avoid late fees and hits to your credit.

– Pay down balances – Keep credit card balances low compared to their limits. High utilization drags down credit scores, so pay down cards aggressively.

– Limit new credit – Applying for too much new credit at once can ding your score temporarily. Try to limit new applications in the months before applying for an auto loan.

– Correct errors – Review your credit reports and dispute any errors with the credit bureaus to maximize your scores.

– Become an authorized user – You can benefit from the long positive history of accounts where you are added as an authorized user.


With a higher credit score, lenders will likely approve you for their lowest advertised interest rates, allowing you to finance your new vehicle as affordably as possible.


Bring Someone Along

Negotiating for a major purchase like a car can be stressful. Having someone you trust come along for the process can help in a few key ways:

Extra pair of eyes and ears – With two people involved, you can be sure important details don’t get missed in the negotiation process. Your companion can look out for terms or fees you might overlook and take notes to compare offers.

Reduces pressure – Salespeople sometimes use pressure tactics to get buyers to make quick decisions that may not be in their best interest. Having someone with you helps dilute sales pressure and gives you time to carefully weigh options.

Having that second perspective provides confidence and support to negotiate the best possible deal on all aspects of your auto purchase – including the interest rate on your car loan.


Be Ready to Walk Away

One of the most important negotiation tactics is being willing to walk away from a bad deal. If the dealer or lender won’t offer you reasonable terms, be ready to take your business elsewhere. This shows you won’t just accept any offer and gives you power in the negotiation.

Before going to the dealership, decide the lowest rate and monthly payment you are willing to accept. Stick firmly to these limits during the financing discussion. If the numbers they offer are higher than you want to pay, politely explain you have better offers on the table so will need to think it over and likely go elsewhere.

Walking away demonstrates you cannot be pressured into accepting terms you are unhappy with. And many times, the dealer will ask you to wait as they suddenly “find” a way to meet your needs after all. So being ready to walk gives you leverage. Just don’t take a deal that doesn’t meet your preset limits.


Avoid Add-ons

When financing a vehicle, the dealer will likely try to sell you extra products and services to add on to your loan. Things like extended warranties, GAP insurance, maintenance plans, and more. While some of these may provide value, most are overpriced and add significantly to the total amount you finance.

Extended warranties in particular tend to cost much more when financed through the dealer compared to buying directly from a third party later on. And GAP insurance may already be included in your regular auto insurance policy, so double check there first.

The main reason dealers push these add-ons aggressively is they generate massive profits. By tacking on an extra $2,000-$3,000 to your loan amount for a warranty, the dealer earns a hefty commission.

So when it comes time to sign the paperwork, carefully review each add-on product and service being offered. Be prepared to politely but firmly decline most of them to avoid inflating your loan principal unnecessarily. Stick to just the essentials required for purchasing the vehicle itself.

The exception would be if there is an add-on you truly feel you need and will use. But scrutinize the costs closely and negotiate the pricing, just as you would for the vehicle. And avoid financing add-ons if you can pay for them upfront instead.

Skipping unnecessary add-ons can save you a bundle over the term of your loan. You’ll end up with lower payments, pay less interest, and pay off the principal faster.


Consider Down Payment

Putting more money down upfront can significantly improve the terms of your auto loan. When you make a larger down payment, it lowers the amount you need to finance. This puts you in a better negotiating position.

Lenders view borrowers who put down 20% or more of the purchase price as lower risk. That’s because there is more equity in the vehicle right away, so the lender has less money at stake if you were to default on the loan.

With a larger down payment, lenders will often offer lower interest rates. Even an extra few percentage points down can make a difference. Going from 15% down to 20% down could potentially lower your rate by 0.5% or more.

Every little bit helps when trying to get the best deal. And the less you finance, the less interest you pay over the life of the loan. Putting extra money down upfront can save you significantly in interest charges down the road.

So be sure to factor the down payment into your budget and financing considerations when negotiating your auto loan. A bigger down payment gives you more leverage to negotiate better terms.


Check Rates Often

Interest rates can fluctuate frequently, sometimes even daily. This is why it pays to check current rates often as you shop for a car loan. Online lenders and credit unions will post their latest rates openly. Tracking these leading up to your purchase gives you current data to use as leverage when negotiating with the dealer.

Rates you see advertised weeks before you buy may change by the time you are sitting down to finalize your auto financing. The day you sign the paperwork is when the rate is locked in. This makes having up-to-date rate information vital for negotiating the lowest possible interest rate.

While it may seem like a hassle to check rates from multiple sources on a regular basis, this small effort can save you thousands of dollars over the life of your loan. Even a seemingly minor rate difference of 0.5% on a $25,000 loan adds up to over $1,000 in interest savings. So monitor those rates closely right up until you sign the dotted line to maximize your negotiating position.


Be Flexible on Terms

When negotiating your interest rate, be open to flexibility on other loan terms as well. Specifically, consider negotiating the length of the loan term in addition to the interest rate.

Extending your loan term from 36 months to 48 or 60 months means lower monthly payments. This is because the same loan amount is spread out over more months. And with lower monthly payments, the lender may agree to a lower interest rate.

Of course longer terms mean paying more total interest over the life of the loan. But a lower rate can save you more money each month. Run the numbers to see if it makes sense for your situation.

The bottom line is that by being open to a longer repayment term, you expand your negotiating possibilities with the lender. More options on the table gives you a better chance of getting approved for the lowest rate.



Negotiating a lower interest rate on your auto loan is possible with some advance preparation and persistence. Here are the key steps to remember:


Check your credit score so you understand your starting point

– Get pre-approved for financing from multiple sources before visiting the dealer

– Negotiate the vehicle purchase price separately from the financing terms

– Use your pre-approvals as leverage when negotiating interest rates

– Be persistent and willing to negotiate – rates are not set in stone

– Consider refinancing later on if interest rates drop


With a combination of research, persistence, and negotiation leverage, you can often get the dealer or lender to lower the interest rate below their initial offer. This little extra effort can save you thousands over the loan term. Now that you know what to do, you can confidently negotiate the best interest rate possible on your next auto loan.

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Questions About Negotiating a Car Loan

Yes, you can negotiate your car loan in Canada with the dealership finance manager or your bank/credit union. When negotiating, focus on the interest rate, loan term, down payment amount, additional fees, and more. Come prepared with your credit report, budget, desired monthly payment, and competitive offers from other lenders for leverage. Be reasonable but firm in requesting a lower rate or better overall deal.

Before negotiating your Canadian car loan, check your credit score so you understand your creditworthiness. Research current auto loan rates and determine what rates you qualify for based on your credit score. Narrow down the car you want to purchase and get pre-approved for financing from your bank or credit union to use as leverage with the dealership. Know the exact MSRP, invoice price, incentives, and fair purchase price for your vehicle so you negotiate a good deal on the car itself before discussing financing.

In Canada, you can negotiate the interest rate, loan length, down payment, additional fees and more on your car loan:


– Interest rate: This is typically easiest to negotiate, aiming for the lowest rate based on your credit.


– Loan term length: Longer terms (e.g. 72-84 months) have lower payments but pay more interest over time.


– Size of down payment: Larger down payments give you equity and lead to lower rates.


– Bank fees: Ask to remove administrative, documentation or loan origination fees.


Be prepared to compromise across terms to get the best overall deal. Know your budget, monthly payment goal and total loan amount you are comfortable with before negotiating.

These strategies and leverage points can strengthen your negotiating position for your Canadian car loan:


– Get pre-approved financing from your bank or credit union at a competitive rate to use as leverage and even transfer to the dealership if they beat it.


– Shop around between dealerships and banks to compare rates and terms.


– Be ready to walk away if you aren’t getting reasonable terms.


– Ask for discounts for recent college grads, military, loyalty programs or first-time buyers.


– Make the auto loan negotiations separate from negotiating the vehicle price itself.


– Secure manufacturer incentives for special financing offers on certain models.

Yes, you can still negotiate your auto loan interest rate in Canada even with bad credit, but your negotiating power will be more limited compared to buyers with good credit. Make sure to get pre-approved financing from your bank, credit union or subprime lenders before heading to the dealership so you know your credit score and rates you qualify for. Be realistic in your rate requests and focus on shorter loan terms to pay less interest over time.

Tips for negotiating your car loan at Canadian dealerships include:


– Negotiate the price of the car first, before discussing financing terms.


– Use competitive pre-approvals and rates from your bank to strengthen your position.


– Ask about current financing offers, incentives and discounted rates they can offer.


– Request to see the rate sheets they use to know what rates you actually qualify for.


– Say you’re unwilling to sign that day unless they meet your requested loan terms.


– Be willing to walk out and try another dealership if your terms aren’t met after negotiating in good faith.

If you already have a car loan in Canada but want to lower your interest rate, here are steps to potentially renegotiate it:


– Review your loan contract and confirm if there are penalties for early repayment.


– Check your current credit score to make sure it hasn’t improved significantly since you originated your loan.


– Research current market rates for auto loan refinancing from banks and credit unions.


– Calculate potential monthly payment and interest savings from refinancing at a lower rate.


– Contact your current lender and directly request that they match the better rate you found to retain your business.


– Formally apply to refinance your car loan with the lender offering the new, lower rate if your current lender won’t negotiate.

When negotiating your Canadian car loan, avoid these missteps:


– Sharing your desired monthly payment number early in the process. This gives away negotiating power.


– Agreeing to payments you can’t actually afford long-term.


– Getting fixated on small differences in monthly payments rather than big differences in rates or loan lengths.


– Putting money down on a vehicle or signing paperwork before the loan terms are final.


– Adding unnecessary extras into the loan amount before locking in financing. This increases your loan principal.


– Accepting extra fees you didn’t request or agree to in negotiations.

Yes, you may be able to negotiate down your remaining auto loan balance with your Canadian lender if you wish to pay off your car loan early. This works best for loans held directly with a bank or credit union versus indirect loans through a dealership. Note that most Canadian car loans do not have prepayment penalties, making early repayment feasible. Confirm you have no penalties, then present your request to make a lump-sum payment by a specific date in exchange for an agreed discounted payoff amount. Be realistic in your requested discount off the balance.

While it varies case-by-case, on average you may be able to save 0.5% – 1% off your interest rate by negotiating your car loan at a dealership in Canada, especially if your credit is very good. On a $30,000 loan at 5% over 5 years, a 0.5% reduced rate would save you about $300 in interest over the loan. Maximizing your negotiation on the vehicle price itself saves much more overall than negotiating financing terms.

As of 2023, current average interest rates for new auto loans in Canada are:


– New Cars: 4.99% for 5-year loan terms


– Used Cars: 7.15% for 5-year loan terms


Rates range quite a bit based on your credit score, history, income, loan term, and type of vehicle. New auto loans for those with excellent credit can range from 0% to 4%. Compare any rates you are offered to these current 2023 Canadian averages when negotiating your car loan.

It’s generally recommended to get pre-approved for auto loan financing from your own Canadian bank or credit union first. Then compare this rate offer when negotiating with dealership finance managers. Dealers may be able to beat your pre-approval rate given incentives from their lending partners. By securing external pre-approval first, you negotiate from a position of strength and ensure you get the best financing terms.

No, dealerships cannot change the agreed upon interest rate after you sign the final car purchase contract and auto loan agreement in Canada. The interest rate is locked in for the full loan term once contracts are signed. Review all paperwork closely before signing to ensure the agreed interest rate and other negotiated terms match what you had verbally agreed to with the finance manager. Ask for a copy of the final signed contract for your records as well.

Some helpful Canadian resources for learning more about negotiating auto loans include:


– Canadian Automobile Association (CAA) car buying tips


– advice on getting the best financing


– Loans Canada guide to getting approved for car loans


– auto loan calculator and rate comparison tool


– FCAC Canada guides on auto financing and budgeting for a car purchase


Also talk to friends and family who recently purchased a vehicle in Canada about their first-hand experience negotiating auto loans.

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