Please wait seconds.

Used Car Financing Guide Should I finance or lease a used car?

How does financing a used car work?

Because the cost of buying a new car can be quite expensive these days, a great alternative to consider is financing a used car. Financing a used car means getting a loan to pay for the vehicle so you don’t have to come up with the money all at once. There are a few different ways you can do this – either through a dealership, a bank/credit union or online – which we will explain more later.

How can I check my own credit score?

If you’ve ever gotten a loan or applied for a credit card, you have a credit score and it affects your ability to get a loan for a vehicle and the rate you receive. The higher the score, the better your chances of getting a loan at a good rate as you have a proven track record of paying things back in a timely manner. The lower the score, the more challenging it can be (although not impossible). To check yours, visit Equifax Canada or TransUnion Canada.

ould I spend on financing a used car per month?

When it comes to smart auto financing, a good rule of thumb is the 20/4/10 equation. According to this way of thinking, you should put at least 20% towards the down payment, finance for four years and keep your monthly payments around 10% of your gross monthly income. Some agreements may be a bit longer and that can be OK in some cases – just make sure it works for you. Don’t forget to keep in mind total operating costs of the car so you can make sure it all works within your budget.


How do I find the best interest rate?

There are two options when it comes to interest rates: fixed or variable rates. With a fixed finance rate, the interest amount doesn’t change for any reason over the duration of the loan. The downside? If the market rate decreases, you still have to pay the rate you locked in at. The upside? If the market rate increases, your payments stay at the lower rate you locked in at. Variable rates offer more flexibility but can add more risk, as fluctuations in the market could cause rates to increase or decrease – it’s a bit of a gamble either way.

A helpful tip: CPOs (certified pre-owned vehicles) typically come with better interest rates, plus you know it’s a great car because these vehicles undergo rigorous safety inspections, fit certain age and mileage requirements, and typically come with extended warranties.


What do I need to finance a used car?

When financing a used car, your greatest ally is knowledge. Make sure you have all your ducks in a row by gathering the documents you’ll need for the journey, including proof of address and proof of income. Then, do your homework – know your credit score before you apply, research lenders, compare different used car financing options, you can even apply for a used car loan before you start looking (more on that later). Another really important step in all of this is learning how to recognize red flags, like loan markups and hidden fees.


How do I get pre-approved for financing?

Whether you have good credit or bad credit, one place to start is to get pre-approved financing before you even set foot in a vehicle. Shop around to 2 or 3 lenders to make sure you’re getting the best rate, starting with your own banking institution or credit union. Once you determine the one that’s right for you, simply apply for auto loan pre-approval and away you go. You can also work through a dealership to get pre-approved before you begin shopping their lot.


Where do I start looking for a vehicle to buy?

Start online by checking out your local used car dealerships and searching through their available inventory. Another option is to check listing sites like and Kijiji Autos. No matter what vehicle you’re interested in, make sure you take the time to inspect it properly: have a look at it in person, take it for a test drive and be sure to get the full vehicle history report.


How do I finalize my paperwork?

Now that you’ve found the vehicle of your dreams, it’s time to close the deal. On the finance side of things, sign the loan contract with your lender or through the dealership, set up monthly withdrawal payments, (the first payment will probably be due within 30 days), and most importantly, make sure you understand the financing terms of your agreement. If you have any questions whatsoever, now is the time to ask!

On the car sale side of things: Sign the bill-of-sale contract, ensure you have proof of insurance, (a copy of which should always be kept in the glove compartment), and complete your registration information, including the license plates. Remember, every province has its own regulations for finalizing a sale, so make sure you follow yours.

Back to top

Should I finance or lease a used car?

The difference between financing and leasing a car can be likened to renting vs. owning a house. Leasing is like renting – you enter into a contract through the dealership agreeing on a set monthly payment schedule and time frame for using the car. Leasing can offer lower monthly payments and shorter terms, as you’re not paying to own the vehicle at the end of it all. However, there are restrictions that come with this option, like a kilometer/year cap. Leasing is less common in used vehicles, but not unheard of.

Financing a used car is like owning a house – you get a loan directly from the bank/credit union or through the dealership with the intention of paying off the car in full so you own it in the end. Compared to leasing, there are no kilometer limits or additional penalties to watch out for, and you can customize the vehicle however you’d like because you don’t have to give it back. However, financing can incur higher monthly payments and longer terms. Either way, they’re both great choices as long as you’re aware of the terms and it works for you!

What is the best way to finance a used car?

With so many options on the market, it’s important to find out which one is best for you, so it fits into your finances. So, how do car loans work for used cars? Let’s take a look at the options.

Banks or credit unions

If you plan on getting a loan through a bank or credit union, you can get pre-approval (as we mentioned before) saving yourself some time when finalizing the sale. While it takes a bit more time on your part, you can be sure that you’re doing your due diligence and getting the rate that’s perfect for you and your specific needs. It’s also a great option if you’re buying privately.

Through a dealership

Loans through a dealership work the same way as bank or credit union loans do, the only difference is the dealer works on your behalf. They submit your application to different lenders to try and get you the best deal. While it saves you time and energy, you don’t have as much control over the process as if you were doing it yourself.


Especially if you have a low credit score, online companies like Canada Drives can be a great option to help get financing. Complete an application, and quickly and easily get connected with dealer partners who can work with your terms to get you into a vehicle – on budget.

And there you have it – the complete comprehensive guide to financing a used car in Canada. Remember, the most important thing in this whole process is to make sure you’re equipped with all (and we mean ALL) of the information you need so you can be sure you’ve made the right decision all around. Good luck!

Leave a Comment