Purchasing a vehicle is a significant decision, often driven by essential needs or life changes. Whether you're a first-time buyer or replacing an older model, navigating the car loan process in Alberta can feel overwhelming—but it doesn’t have to be. With the right knowledge, you can confidently navigate the complexities of car financing. Let’s dive into some key terms associated with car loans, a step-by-step guide through the car buying process, along with some common questions.

Understanding car loans: making informed choices

Make the best choice for you. Here are a few terms to get familiar with when looking to get a car loan in Alberta. 

Secured versus unsecured loans

Most car loans are secured loans. This means the vehicle itself acts as collateral. If you fail to make payments, the lender can repossess the car. This typically results in lower interest rates because it’s less risk for the lender.

 Unsecured loans, on the other hand, don't require collateral. While they might seem appealing, they often come with higher interest rates and stricter eligibility criteria. 

For vehicle purchases, secured loans are the most common and generally recommended.

Interest rates

These rates determine the cost of borrowing. They are calculated based on market conditions, your credit score and the lender. Before committing to a loan, confirm whether the interest rates are fixed or variable. Variable rates can change over the loan term, while fixed rates remain constant. 

 Some lenders may allow renegotiation if the rates drop, if your term is up or if you need to change the length of the term, but it's not always guaranteed. Always ask about the possibility upfront.

Loan terms

This refers to the length of time you have to repay the loan. Shorter terms mean higher monthly payments but less interest paid overall. This is ideal if you want to pay off the loan quickly and minimize interest costs.

 Longer terms offer lower monthly payments, which can ease your immediate financial burden, but you'll pay more in interest over time. Keep your budget and long-term financial goals in mind when choosing a loan term.

 You can often apply lump sum payments or increase your monthly payment to pay off the loan before the agreed term. Check with your lender if this pay option is available and if there are no prepayment charges associated with your loan.

Eligibility criteria

Lenders assess your creditworthiness, income and employment history to determine your eligibility. To confirm your eligibility for a loan, they require a valid driver's license, proof of income and employment, and a good credit score (more on this below).

Steps to secure your vehicle financing

1. Assess your financial situation

Before making any decisions, take a moment to evaluate how monthly payments will impact your everyday finances. Create a budget that includes your fixed and variable expenses, using this as a guide to figure out how much you can comfortably afford. Remember to factor in the cost of insurance, maintenance and gas.

Another piece to understanding your financial picture is getting familiar with your credit score. Most financial institutions offer a credit check so you can take a look for anything that could impact your purchase.

2. Get pre-qualified

Pre-qualification through a lender gives you an estimate of how much you can borrow and the interest rate you'll likely receive. Having this information allows you to shop for vehicles within your budget, saving you time (and potential disappointment) in the long-run. A credit bureau is not needed at this point but will be for the final application step and a big factor in getting approved. 

3. Start vehicle shopping

Now that you’ve done your research, you’re ready for the fun part: finding the right vehicle.

As you explore your options, consider fuel efficiency, maintenance costs and insurance premiums. The best vehicle for you is one that aligns with your lifestyle and needs.

4. Compare loan offers

Getting a new vehicle can be exciting—it’s natural to want to move forward as soon as possible. However, we recommend not accepting the first offer you receive. Compare interest rates, loan terms and fees from multiple lenders before committing.

 Here’s what to look for when comparing loan offers:

• Annual percentage rate (APR): this includes interest rate and fees. A lower APR means a lower overall cost of borrowing.
• Loan term: shorter terms save on interest, while longer terms lower your monthly payments.
• Payment frequency and amount: do you prefer weekly, bi-weekly or monthly payments? Confirm that the amount fits your budget.
• Prepayment penalties: some lenders charge fees if you pay off the loan early. Understand these penalties to avoid unexpected costs.

  Often dealerships offer lower interest rates for vehicles on their sale lots, but it's essential to compare them with offers from other lenders—this confirms that you're getting the best deal and best fit for your budget.

5. Finalize the loan agreement

Once you’ve found the right offer for you, carefully review the loan agreement before signing, taking the time to understand all of the terms and conditions. Ask questions if anything is unclear—it’s the lender’s responsibility to support you during this process.

 When you’re applying for a loan, you must provide:

• Bill of sale
• Proof of income and employment (Pay Stubs, Employment Verification Letter, Tax Returns, Bank Statements)
• Valid driver's license
• Insurance, with lender as first loss payable (that means the bank gets paid first if your car is damaged or totaled in an accident)

 At this point, the lender will also pull your credit score.

 Thinking of going for a used car? If it has an existing loan on it from a different lender, you might have to pay off that old loan yourself, directly to that other lender, before you can officially own the car and get your new loan.

6. Get car insurance

You'll need to provide proof of insurance before finalizing the loan. Keep in mind that the make, model, year and any modifications to the vehicle can impact cost and the ability to get coverage.

7. Purchase your vehicle

Now it’s time to buy your vehicle. Before you sign the papers, confirm that the dealership you’re going through is registered with the AMVIC (Alberta Motor Vehicle Industry Counsel) and licensed in Alberta. Also, pay attention to the standard and extended warranty fine print, and maintenance packages your dealership offers.

Extra steps for buying a used vehicle

 Buying a vehicle second hand requires a little more work, to make sure you have the full picture of what you’re committing to. 

 You’ll want to get a vehicle information report (VIR) from an Alberta registry. This report gives 

you the history of any vehicle previously registered (in Alberta only), and includes information about any outstanding loans on the vehicle, the odometer reading and vehicle registration history. 

A lien search is another report you should get from a registry. This type of search scans Alberta’s Personal Property Registry Information System for liens (current outstanding loans) or other legal claims that have been registered against a vehicle in Alberta.

You’ll also want to get a CARFAX Canada vehicle history report, to get the accident history. Take the vehicle you’re interested in for a pre-purchase inspection from a reputable mechanic to uncover any potential surprises. An out of province inspection is mandatory if the car isn’t registered in Alberta. 

Common car loan questions

• What is the length of time (term) of the loan? Vehicle loan terms typically range from 3 to 7 years.  
• What will my monthly payment be? Your monthly payment depends on the loan amount, interest rate and loan term.
• Does my loan have to be secured against the vehicle? Most car loans are secured loans, meaning the vehicle serves as collateral.   
• Can I add a co-signer? Yes, adding a co-signer with good credit can improve your chances of approval and potentially lower your interest rate.   

Find the right loan for your new vehicle

Explore our range of loan options and discover the financing that works for you (and your new car). Our team is here to support you in this process, with the expertise you need to make the best choice for your life.