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Prime Car Loans Explained

Prime Car Loans Explained

A prime car loan is a type of auto financing offered to borrowers with good to excellent credit scores and histories. Prime loans feature more favorable terms than subprime loans, including lower interest rates, lower or no down payments, and better overall conditions. Prime borrowers present less risk to lenders based on their strong credit profiles. As such, lenders offer prime borrowers their best rates and loan options.

This guide will provide an in-depth look at prime auto loans, how they work, factors that determine your interest rate and eligibility, how to apply and receive loan approval, and tips for securing the very best rates and terms. We’ll also compare prime loans to subprime options to showcase the key differences borrowers should understand.

For those with good credit seeking auto financing, prime loans offer many advantages over other types of lending. Read on for everything you need to know about qualifying, applying, and getting approved for a prime car loan.

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What Are Prime Car Loans?

Prime car loans are a type of auto financing available to borrowers with good to excellent credit scores. To qualify for a prime auto loan, you typically need a FICO credit score of 660 or higher. Prime loans offer more favorable interest rates compared to subprime loans, which are for borrowers with poor credit.

With a prime car loan, interest rates are usually in the 3-7% range for new vehicles and 4-8% for used cars. In contrast, subprime loans can have interest rates from 8% up to over 20%. Lenders view prime borrowers as lower risk, since their strong credit history demonstrates responsibility with managing debt and making payments on time.

So in summary, the key features of prime auto loans are:


  • Require a minimum credit score of 660
  • Offer lower interest rates than subprime loans
  • Have interest rates ranging from 3-8% on average
  • Lenders perceive prime borrowers as lower risk


Having prime-level credit makes financing a vehicle purchase much more affordable. Your interest rate has a big impact on your total loan cost. Prime borrowers can qualify for the best auto loan terms from lenders.


Comparing Prime and Subprime Auto Loans

Subprime auto loans are designed for borrowers with less-than-perfect credit. To be approved for a prime auto loan, you typically need a FICO credit score of 660 or higher. Subprime loans are for those with scores below 660. The lender views subprime borrowers as higher risk, so they charge higher interest rates and stricter loan terms to offset that risk.

Here’s an overview of key differences between prime and subprime auto loans:


  • Interest rates – Subprime loans will have interest rates ranging from 5% to over 20%, while prime loan rates are usually under 5%. The lower your credit score, the higher your interest rate.
  • Down payment – Subprime lenders often require 10-25% down, compared to 0-20% for prime loans. A larger down payment lowers the lender’s risk.
  • Loan term – Prime loans can be 3-6 years. Subprime terms are usually shorter, around 2-4 years.
  • Fees – Subprime lenders charge fees like origination fees up to $500 or more. Prime loans have lower or no fees.
  • Prepayment penalties – These penalties for paying off a loan early are common with subprime loans but rare with prime loans.
  • Co-signer requirements – Subprime lenders may require a co-signer with good credit to get approved or improve your rate.


The stricter requirements of subprime loans make it more challenging for borrowers to qualify and get affordable financing. Improving your credit score to reach prime status can help you access better loan terms.


What Affects Your Prime Car Loan Interest Rate?

When applying for a prime auto loan, your interest rate will depend on several key factors. Lenders use these criteria to evaluate your credit risk and determine what rate to offer you.


Credit Score

Your credit score is one of the most important factors affecting your auto loan interest rate. Borrowers with higher credit scores are seen as lower risk and will qualify for the best rates on a prime car loan. Generally, you’ll need a FICO score of 660 or higher to be approved for a prime rate. The higher your score, the better rate you can expect to receive.


Debt-to-Income Ratio

Lenders will also look at your debt-to-income (DTI) ratio when determining your interest rate. Your DTI compares your total monthly debt payments to your gross monthly income. The lower your DTI ratio, the more favorably lenders will view your ability to manage this new auto loan payment. Keeping your DTI below 36% will help you secure a competitive prime rate.


Down Payment Amount

The size of your down payment is another factor that affects your interest rate on a prime auto loan. Generally, larger down payments reduce your loan amount and represent less risk to the lender. A down payment of 20% or more of the purchase price signals you are financially stable and will result in better rate offers. Smaller down payments lead to higher rates.


Loan Term

The length of your loan term also impacts your interest rate. Shorter loan terms of 3 years have lower rates, while longer 5-6 year loans come with higher interest. This is because the lender’s money is tied up for less time the quicker you repay the principal. Opting for a shorter term can help you get the best prime rate.


New vs Used Vehicle

Finally, interest rates are generally lower for new vehicles compared to used. This is because new cars depreciate less quickly and represent a lower repayment risk to lenders. Those looking to get the lowest rate on a prime auto loan may want to consider opting for a new rather than used car purchase.


Qualifying for a Prime Car Loan

To qualify for the best prime auto loan rates, you’ll need to meet certain credit and financial requirements. Here are the key factors lenders look for when evaluating borrowers for prime car loans:


Minimum Credit Score Requirements

The minimum credit score to qualify for a prime auto loan is generally 660 or higher. Borrowers with scores in the good to excellent range are considered lower risk and will be offered the most competitive interest rates. Some lenders may approve prime loans for applicants with scores as low as 640, but you’ll get better terms with a score of 680 or above.


Proof of Income

Lenders will require you to provide proof of income, usually in the form of recent pay stubs, W-2s, or tax returns. Self-employed applicants may need to provide additional documentation like business tax returns. Having steady verifiable income helps demonstrate you can afford the monthly payments.


Low Debt-to-Income Ratio

Your debt-to-income (DTI) ratio compares your total monthly debt payments to your gross monthly income. Most lenders prefer a DTI of 36% or less for approval of a prime auto loan. The lower your DTI, the more confident lenders are in your ability to manage the new loan payment.


Steady Employment History

Stable long-term employment will help strengthen your prime auto loan application. Lenders generally look for at least 2 years of steady income from the same employer or industry. Job-hopping or gaps in employment may raise concerns about reliability and ability to repay.


How to Apply for a Prime Auto Loan

Applying for a prime auto loan is a straightforward process that involves shopping around, checking your credit, gathering documents, completing an application, and receiving a loan decision. Here are the key steps to take:


Research Lenders and Rates

The first step is researching different lenders and comparing interest rates and terms. Prime auto loan rates can vary between lenders, so shopping around is important to find the best deal. Look at banks, credit unions, and online lenders. Compare both new and used car loan rates. Pre-qualifying with multiple lenders will allow you to see what rates you may qualify for without a hard credit inquiry.


Check Your Credit Reports

Since prime auto loan eligibility depends heavily on your credit score, it’s essential to check your credit reports from Equifax, TransUnion and Experian before applying. This will allow you to understand your current credit standing, check for errors that could be lowering your score, and get a sense of the rates you may qualify for.


Gather Required Documents

To complete a prime auto loan application, you’ll need to submit proof of income, identity, and other financial information. Gather pay stubs, tax returns, a valid driver’s license, proof of auto insurance, bank statements, and any other documents the lender requires to verify your financial situation.


Complete the Online Application

With your documents in order, you can complete a prime auto loan application online, over the phone, or in person at the lender. The application will ask for information on your income, employment, expenses, down payment, the vehicle you want to purchase, and more. This information allows the lender to evaluate and approve your prime auto loan.


Receive a Loan Decision

The lender will review your prime auto loan application and make a decision. Many lenders provide a same-day decision. If approved, you’ll receive loan terms including the interest rate, loan amount, monthly payments, fees, and other details. With an approved prime auto loan, you can confidently shop for your next vehicle.


Tips for Getting the Best Prime Car Loan Rate

Getting approved for a prime auto loan is just the first step. The real goal is securing the most competitive interest rate possible on your car financing. Here are some tips that can help you land the lowest prime car loan rate:


Compare Lender Rates

Interest rates can vary significantly from one lender to another, even for borrowers with excellent credit. Take the time to get rate quotes from several prime lenders before applying. Online lenders like banks, credit unions, and auto financing companies allow you to check rates with just a soft credit pull. Compare all the rate offers side-by-side and go with the lender providing the lowest APR.


Improve Your Credit Score

The higher your credit score, the lower your interest rate will be. Before applying, check your credit reports for errors and work on improving your score. Pay down balances, dispute errors, and limit new credit inquiries. Even small score boosts of 20-30 points can lower your rate. Wait to apply until your score is in the best possible shape.


Opt for Shorter Loan Terms

The length of your loan also impacts interest rates. Shorter term loans of 24-36 months tend to have lower rates than longer 60-72 month loans. Opt for the shortest term you can afford based on the monthly payments. Your total interest costs will be lower than stretching out payments over 5-6 years.


Make a Larger Down Payment

Lenders offer better rates to borrowers who put more money down upfront. Aim for a down payment of at least 20% if possible. This shows the lender you are financially committed to the vehicle purchase. Even an extra few thousand dollars down can make your loan more attractive and reduce the rate.


Consider a Co-Signer

If your credit score or debt-to-income ratio is near the cut-off for prime loan approval, adding a co-signer with excellent credit can improve your rate. The co-signer agrees to be equally responsible for the loan, reducing the lender’s risk. Just be sure the co-signer understands the obligation in case you can’t make payments.


Prime Auto Loan Providers

When it comes to prime auto loans, you’ll want to look for top lenders that offer competitive interest rates, flexible terms, and excellent customer service. Here’s an overview of some of the leading prime auto loan providers in Canada:


Major Banks

Most of the big Canadian banks like RBC, TD, Scotiabank, CIBC, and BMO offer prime auto loans. As established financial institutions, they can offer stability, plus access to branches and advisors. However, their rates may not always be the lowest.


Credit Unions

Local credit unions are a great source for prime auto loans. They are member-owned co-ops, so may offer better rates and service. Some of the largest credit unions like Coast Capital Savings and Vancity can offer very competitive prime auto loan options.


Online Lenders

Online-only lenders like RateHub, Loans Canada, and Borrowell make applying for prime auto loans fast and convenient through their websites. They partner with various lenders and can help you compare multiple loan offers.


Auto Manufacturers

Most major car brands now offer prime lending through their financing arms, like Toyota Financial Services and Ford Credit Canada. This makes it easy to bundle your financing with vehicle purchase.


Third-Party Lenders

There are also many third-party prime auto lenders like Carfinco and Credit Canada that work directly with dealerships to provide financing options. They cater to those with good credit seeking the best rates.

Doing your research and comparing multiple prime lenders will help you find the most competitive interest rates and flexible loan terms to finance your next vehicle.


Prime Auto Loan Calculator

An auto loan calculator is an online tool you can use to estimate your monthly payments, loan costs, and other key details before applying for a prime auto loan. Loan calculators help you determine how much you can afford to borrow and allow you to experiment with different loan terms and interest rates. Here are some key things to know about using auto loan calculators for prime loans:


Loan Amount – Enter the total amount you plan to finance for your vehicle purchase. This includes the sale price, taxes, fees, and any extras like an extended warranty.

Down Payment – Input how much you plan to pay as a down payment upfront. A larger down payment will lower your monthly payments.

Interest Rate – Auto loan calculators will estimate your rate based on prime borrower ranges, often between 3-7%. You can enter different rates to see the impact.

Loan Term – Choose your desired repayment term, typically 24-72 months for a prime auto loan. Shorter terms mean higher monthly payments but less interest paid.


With these inputs, the calculator will estimate your monthly payment amount and total interest costs over the life of the loan. You can tweak the numbers to find a comfortable monthly payment within your budget.

Online auto loan calculators serve as useful tools when considering prime car financing options. They allow you to estimate costs and payments so you can shop for a loan and vehicle that fits your financial situation.


Prime Auto Loan Rates

Prime auto loan rates are generally the lowest interest rates available for auto financing. Prime rates are offered to borrowers with good to excellent credit scores, typically 660 or higher. The specific interest rate you qualify for depends on several factors.

Currently, the average interest rate for a new car prime loan is around 5-7%. For a used car, rates are slightly higher at 6-9%. These rates can fluctuate over time along with the overall economy and Federal Reserve rates.

To qualify for the lowest prime rates, you’ll generally need a credit score over 720, low debt-to-income ratio, significant down payment, and strong income and employment history. Those with scores in the 660-719 range can expect interest rates 1-2% higher on average.

Prime auto loan rates are also influenced by the loan term. Shorter terms of 3-5 years qualify for lower rates around 0.5-1% less than longer 6-7 year loans. The make and model of vehicle can also impact rates.

Generally, lenders view new vehicle loans as lower risk so may offer better rates versus used cars, especially older models. Luxury and sports cars often have higher rates as well due to their higher cost and depreciation.

To get the best prime rate when financing, compare options from multiple lenders. Local banks, credit unions and online lenders all offer competitive prime auto loan rates. Checking rates from 4-5 lenders can help you find the lowest rate for your particular situation.


Prime Auto Refinancing

Refinancing a prime auto loan can be a smart financial move in certain situations. When interest rates drop, refinancing to a lower rate can help you save money on your monthly payments and total interest paid over the life of the loan. Here are some key times when refinancing your prime car loan could make good financial sense:


  • Interest rates have dropped significantly since you took out your original loan. Generally, you’ll want to see at least a 2% drop in rates for refinancing to be worthwhile due to closing costs.
  • You have greatly improved your credit score since taking out your initial prime loan. A jump into a higher credit tier could qualify you for a much lower interest rate.
  • Your financial situation has changed and you need to lower your monthly payments. Refinancing can stretch out loan terms to make payments more affordable.
  • You want to pay off your loan faster. Refinancing to a shorter term means you can pay less interest over time.
  • You want to tap available equity in your vehicle by taking out a larger loan amount.


Before refinancing, carefully compare the costs versus potential savings. Factor in fees like application fees, origination charges, and taxes. You’ll also want to make sure the terms and length of the new loan make sense for your situation. With the right loan and timing, prime auto refinancing can be a savvy financial move.


Prime Auto Loan Terms

The loan term is one of the key factors that affects your monthly payments and total interest costs on a prime auto loan. The term refers to the length of time you have to repay the loan.

Most prime auto loans have terms ranging from 24 to 72 months, or 2 to 6 years. Longer terms of 6 or 7 years are sometimes offered, especially on new cars with higher prices. Here’s an overview of the most common prime auto loan term options:


  • 24 months – 2 year terms offer the lowest total interest cost but highest monthly payments.
  • 36 months – 3 year loans are very popular for their balance of moderate payments and interest costs.
  • 48 months – 4 year terms are also common for their lower payments while keeping interest charges reasonable.
  • 60 months – 5 year loans offer even lower monthly bills but increase your total interest paid.
  • 72 months – 6 years is the longest term typically offered, with the lowest payments but highest total interest.


In general, shorter loan terms are better if you can afford the higher monthly payment. You’ll pay off the loan faster and save on interest charges. But longer terms may be the only way to get a monthly payment that fits your budget. It’s important to run the numbers for different loan term options before deciding.

Many lenders allow you to pay extra each month to pay off a longer term loan faster. This gives you flexibility in case your finances improve. Refinancing is another option to potentially get a shorter term down the road.


Prime Auto Loan Amounts

When determining how much to borrow for a prime auto loan, there are a few key factors to consider. The average prime auto loan amount can vary based on the type of vehicle purchased as well as other loan details.

According to recent data, the average amount financed for a new vehicle prime auto loan is around $34,000. For used vehicles, the average prime auto loan amount is approximately $25,000.

Luxury and performance vehicles that cost more will typically have higher average prime loan amounts between $40,000 to $60,000. More modestly priced sedans or SUVs often see prime loan amounts in the $15,000 to $30,000 range.

The amount you qualify to borrow also depends on the lender’s analysis of your income, existing debt, and credit history. Most lenders will approve prime borrowers for loan amounts up to 125% of the vehicle value.

Your down payment amount will also impact how much you need to finance. The more you can put down upfront, the lower your loan amount will be. Aim for at least 10-20% down if possible.

Additionally, the loan term length affects the amount borrowed. Shorter loan terms usually require higher monthly payments, so you may need to borrow more if you choose a longer-term loan.

It’s important to only borrow what you can reasonably afford to pay back comfortably. Avoid overextending yourself with too high a prime auto loan amount.



In conclusion, prime auto loans can be an excellent financing option for borrowers with good credit seeking the lowest interest rates and most favorable terms. The key factors that determine your prime car loan eligibility and rate include your credit score, debt-to-income ratio, down payment amount, loan term, and the type of vehicle you’re purchasing. While minimum requirements vary by lender, a FICO score above 660 is generally needed to qualify for a prime auto loan. Shopping around for rates, opting for a shorter loan term, making a larger down payment, and taking steps to improve your credit can help ensure you get the best possible deal. Prime car loans make purchasing a new or used vehicle more affordable for millions of consumers each year. Understanding how they work and what determines your rate is the first step to saving money on your next auto financing.


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Questions About Prime Car Loans

Prime car loans in Canada refer to auto loans offered to borrowers with good to excellent credit scores, typically 680 or higher. Prime borrowers qualify for the lowest interest rates and most favorable loan terms from lenders. Prime auto loans generally have interest rates ranging from 4-10% and flexible repayment terms up to 7 years.

To qualify for a prime car loan from most lenders in Canada, you typically need a minimum credit score of 680-700. Some lenders may approve prime loans with scores as low as 640, while others require scores of 720+ for their lowest rates. The higher your score, the better the rate and terms you can qualify for.

Key benefits of prime car loans in Canada include:


– Low interest rates, often under 5% for new cars

– Flexible loan terms up to 84 months

– Higher loan amounts and financing options

– No down payment required

– Approval despite limited credit history

– Option to refinance later at lower rates


So prime borrowers get the lowest costs and most options when financing a vehicle.

When applying for a prime auto loan in Canada, you’ll need to provide lenders with:


– Your personal details (name, address, contact info, SIN, etc.)

– Your employment and income information

– Details on the car you wish to purchase (make, model, year, selling price)

– Your down payment amount if you’re making one

– Supporting documents (recent pay stubs, tax returns, proof of assets, etc.)


Having all required information ready speeds up the application and approval process.

Most prime auto lenders in Canada offer borrowers flexible repayment options including:


– Terms from 2-7 years – longer terms have lower monthly payments

– Payment schedules like weekly, bi-weekly or monthly payments

– Option for accelerated bi-weekly payments to pay loan off faster

– Open loans allowing extra payments without penalties

– Skip-a-Payment options to defer 1-2 payments per year


So you can tailor your prime car loan repayment to suit your budget and needs.

As of 2023, average interest rates for prime borrowers on new car loans in Canada range from 4.99% – 8.99% depending on the lender, loan term, vehicle make/model and down payment. Prime used car loans average 5.99% – 9.99% interest rates under the same criteria. Prime auto refinance loans tend to have average rates of 4.49% – 7.49% currently.

Prime auto loan amounts in Canada are based on factors like your income, existing debts and down payment. But typically prime borrowers can qualify to finance 80-100% of a new car’s purchase price and 80-90% for a used vehicle, up to $100,000. High-income borrowers may obtain prime loans over $100k too.

Banks, dealerships and online lenders all offer prime borrowers competitive rates in Canada currently. Banks may offer more relationship discounts, dealers access manufacturer subsidies, while online lenders provide fast approvals. Compare options to find the best prime loan rates and terms for your situation.

Prime car loans in Canada can include certain fees like:


– Origination fees from $0 – $500+

– Documentation fees of $50 – $150

– Registration and title transfer fees

– Sales tax on interest charges

– Late payment fees if payments are missed

– Prepayment penalties may apply


Ask lenders to explain all fees so prime loan costs are transparent.

Getting a pre-approval letter from a lender is recommended before prime car shopping in Canada. To qualify for pre-approval:


– Submit a loan application with your details in advance

– Provide documents to allow the lender to verify your income, credit, etc.

– If approved, you’ll receive a pre-approval letter with guaranteed rate & terms


Pre-approval gives you strong negotiating power at the dealership.

Subprime borrowers in Canada are generally defined as having credit scores below 620 or 640 by most car lenders. Some lenders have higher subprime score cutoffs of 660. Subprime loans have higher interest rates and stricter requirements due to increased risk.

If you don’t qualify for prime car loan approval on your own in Canada, a co-signer with good credit can help. As co-signer, you are equally responsible for repaying the loan. Defaulting impacts your credit score too. Consider co-signing only for reliable borrowers and set clear repayment expectations with them.

Yes, trading in your used car can help reduce the sales price and minimize sales taxes on a new prime auto loan in Canada. Your trade-in value lowers the amount you need to finance. Just be sure to settle any existing car loans first before trading in the vehicle.

Most prime lenders in Canada allow borrowers to refinance auto loans within the first 6 months without penalties if credit scores have improved. You typically need a 50+ point credit boost along with 20-30% equity in the vehicle to qualify for prime refinancing and improved interest rates.

Self-employed prime auto loan applicants in Canada need to provide additional documents like:


– Last 2 years of personal and business tax returns

– Recent business bank statements documenting income deposits

– Proof of business registration and licenses

– Projected income statements if business is less than 2 years old


Provide as much documentation as possible to simplify verification.


Currently some of the best prime new/used auto loan lenders in Canada offering low rates include:


Scotiabank (4.99%)

– RBC Royal Bank (3.99%)

TD Canada Trust (5.99%)

– National Bank (4.79%)

– BMO Bank of Montreal (5.49%)


Don’t forget to also compare options from leading online lenders too.

As of Q3 2022, Canada’s auto loan delinquency rate is 0.28% according to Equifax. This rate measures the percentage of auto loan accounts that are over 90 days past due. While delinquencies are rising, 99.72% of auto loans remain in good standing. Prime borrowers less likely to default.

If you don’t qualify for a prime auto loan, consider:


– Applying for a co-signer to strengthen chances for approval

– Working on improving your credit score within the next 6-12 months

– Exploring high-interest subprime lending as a temporary option

– Saving a larger down payment of 25-30% on car price

– Looking at private car sale listings instead of dealers


With some time and discipline, prime approval becomes possible.

Responsibly taking out and repaying a prime car loan can help strengthen your Canadian credit score over time. Timely payments get reported to the credit bureaus. Keep credit card balances low too. Limit other credit inquiries for 12 months after your prime auto loan application.

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