Auto Loans in Canada

Get a Car Loan in Bankruptcy

For most Canadians, an auto loan is option for getting a new car. Like buying a home, a vehicle purchases are often outside of the average person’s budget. With the help of a bank or auto lender, a car loan make buying an unattainable vehicle, possible.

Auto loan contracts can be broken down into two main categories, finance contracts and lease contracts. While there are other types of vehicle and auto loans, Bankrupt Auto Loans focuses on the most common ones.

Financing vs Leasing in Canada

Both auto loans and auto leases are secured loans. The security for these loans is the asset itself (the vehicle) and is secured against the borrower and their credit bureau. Like any type of loan an auto loan or auto lease involves debt being assigned to a consumer (or business).

In exchange for this debt, which must be repaid, the borrower obtains a vehicle to either finance or lease.

Both auto leases and financed auto loans have pros and cons. In this section of Bankrupt Auto Loans, we break down the key differences between Auto Leasing and Auto Financing.

Vehicle Financing

When you finance a vehicle you are choosing to own it. After you get the car loan approved and the contracts are signed, the vehicle is then secured against you. Once the auto loan agreement is signed and completed you go from being the customer of the car dealership to being a customer of the bank (or finance company).

As a customer of the bank you are required to make a regular auto loan payment on a predetermined schedule until the loan has been paid in full. Once you have completed all of your obligations (auto loan payments) you will then own the vehicle.

Vehicle Leasing

Just like financing, a lease involves a loan being secured against the debtor (in this case referred to as the lessee) in exchange for use of a vehicle. A major difference between a financed auto loan and an automotive lease is the end result of the auto loan agreement.

While a financed auto loan agreement will end with the consumer owning the vehicle, a vehicle lease agreement will not. A lease involves the lessee renting or borrowing the vehicle for a specified term. Instead of owning the vehicle at the end of the lease term, the lessee is faced with a choice – return the vehicle or agree to a lease buyout.

Returning a Leased Vehicle

If a lessee wishes to return the vehicle at lease end, they are only obligated to drop it off a car dealership in acceptable condition. If the vehicle isn’t damaged beyond regular wear and tear, does not have excessive kilometres on its odometer and all lease payments have been made, then the lessee has no further obligations.

If however a leased vehicle is returned in poor condition, with high kilometres or with past due lease payments, then the lessee will owe their creditor appropriate amounts.

Buying Out a Leased Vehicle

If an auto loan lessee decides to purchase their vehicle at the end of their lease, they must pay their lease buy out amount. A lease buyout is calculated and agreed upon at lease inception. Sometimes a lessee will purchase their lease because they are happy with their vehicle and they want to continue to drive it. Another more common scenario involves a lessee purchasing their vehicle for financial reasons.

A major driving force behind lease buyouts are lease ends fees such as kilometre overages or excess wear and tear charges. When a consumer first applies for an auto lease they must decide how many kilometres they expect to drive during the lease term.

In Canada the average number of kilometres driven per year is around 24,000 km. That number depending on the person and their lifestyle can be significantly lower or higher.

Since the odometer of a vehicle plays a major role in its value, it is important for an auto finance company (called a lessor) to anticipate the mileage of its returning vehicles. If a lessee exceeds their kilometre allowance, then they will be charged (per kilometre) extra fees.

Excess kilometres and vehicle damage outside the realm of regular wear and tear are both major expenses that can be avoided by taking the lease buyout option.

Leasing vs Financing

This topic is debated often. Both auto leases and auto finance agreements have strengths and weaknesses. Here are some auto lease facts, financing facts and a short list of benefits for both auto leases and auto financing. Auto

Benefits of Leasing


  • New Vehicles – A leased vehicle is almost always a brand new car. If you’re like most people, switching to a new car every 3-5 years is ideal.
  • Warranty Protection – A standard lease allows the lessee to always drive a vehicle with a full factory warranty. Your leased vehicle is protected by its warranty until the lease is over.
  • Upgrade Vehicles – At the end of a lease term you can walk away from your leased vehicle. This allows you to move onto a new (and hopefully better) vehicle at the end of each vehicle lease.
  • Insurance Liability – As a lessee, you are not the owner of the vehicle, therefore major accidents with big owner liabilities are covered by the lessors extensive insurance policy.
  • Smaller Payments – Lease payments are much smaller than finance payments. This is largely due to a large portion of the vehicles value being left in the lease buyout amount.
  • Shorter Terms – A lease term is general shorter than a finance term. Many leases are only 36 months. Some are even shorter.

Car Financing Benefits

  • Ownership – The vehicle is registered to your name and not a lease company, so you own it.
  • No Lease Obligations – As the owner, you can drive as many kilometres as you like and if you want, damage your vehicle without being charged extra fees.
  • Control – Again as the owner you have more control over the vehicle and what you do with it. Many leases won’t permit the lessee to take the vehicle on long international trips.
  • Insurance – If you decide to park the vehicle for an extended period of time, you can choose (with some finance companies) to remove your insurance. With a lease you must always have insurance on your vehicle, even if it’s not being driven.

There are many benefits to leasing a vehicle and there are also many benefits to financing one. The choice will ultimately depend on your lifestyle and financial situation.

Types of Auto Financing

When it comes to vehicle financing there are 2 main sets of credit criteria for auto loans to be approved under. The two primary types of credit for auto loans are Prime loans and Subprime loans.

A prime loan almost always has a lower interest rate than a sub-prime loan. Naturally a sub-prime (non prime, near prime, below prime) loan will have a higher interest rate. details the key differences between prime and sub-prime auto loans below.

Prime Auto Loans

A prime loan is a basically a regular bank loan. A bank or finance company usually approves and finances auto loans at prime rate. A prime rate is often referred to as a bank interest rate.

Because prime and bank rates are considered the norm and less risky than subprime or near prime, getting approved on a prime loan usually means you have good or decent credit.

Subprime Auto Loans in Canada

Prime is considered good credit or decent credit, subprime (below prime) is often considered bad credit or poor credit. Although many individuals with bad credit, slow credit or bankruptcy credit qualify for subprime loans, it is important to note that not all subprime situations equal bad credit.

A young applicant with no credit history, seeking a car loan or a credit card will often be rejected by the bank (prime creditor) for having no credit history. Although that person may be approved for a bad credit loan or subprime auto loan, their credit is not bad – it’s new.

Bankrupt Auto Loans

Bankruptcy in Canada is common and affects thousands of good people across the country. Bankruptcy also leads to hundreds of denied credit applications every month. If every bankrupt Canadian was declined on every credit or auto loan application, then thousands of hard working Canadians in both the auto industry and the general population would be without a drive to work and in some cases, without a job.

Although the risk of financing a bankrupt consumer is greater than that of a prime applicant, there are still many auto loan solutions available for bankrupt Canadians.

Explore the rest of Bankrupt Auto Loans to get bankruptcy facts and find tips on how to get approved for a bankruptcy loan or after bankruptcy auto loan.

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