With bad credit, plan on putting down 10% to 20% of the car’s price: we found no law that sets a minimum, but that is the range lenders most often look for, according to Canada Drives and Loans Canada. On a $25,000 car at 14.99% APR over 72 months, putting $5,000 down instead of nothing cuts the payment from $528.49 to $422.79 a month and saves $2,610 in interest (our calculation).
A down payment also protects you from owing more than the car is worth, which the Financial Consumer Agency of Canada calls negative equity. This guide covers BC, Alberta and Ontario, where sales tax and trade-in rules change how far your down payment goes.
The short answer
- 10% to 20%
The down payment range lenders commonly look for with bad credit; this is industry practice, not a legal rule.
- $522
Roughly the interest each $1,000 down saves on a $25,000 loan at 14.99% APR over 72 months (our calculation).
- 25%
How much value a new car may lose in its first year, according to FCAC, which is why $0 down usually means negative equity.
- 13%
Ontario HST on a dealer purchase, charged on the price after a trade-in but not after a cash down payment (CRA).
How much down payment do you need for a car loan with bad credit?
Most bad-credit lenders want to see 10% to 20% down, though some approve less. Loans Canada says lenders “generally ask for a down payment between 10% and 20% of the car price” and suggests aiming for 20%, especially on a new car (updated October 4, 2024). Canada Drives says a down payment is not always required, but that 10% to 20% “strengthens your application and can lower your car loan rates”.
Treat those numbers as rules of thumb. We found no minimum down payment in the federal or provincial consumer credit rules we reviewed for BC, Alberta and Ontario, so each lender sets its own, and it often depends on your credit, income and the car. On a used car, Loans Canada notes, a lender will likely accept less than 20% because the car has already taken its steepest depreciation.
| Share of price | Amount | Who suggests it |
|---|---|---|
| 10% | $2,500 | Low end of the range lenders commonly look for (Canada Drives, Loans Canada) |
| 20% | $5,000 | Loans Canada’s suggested target, especially for a new car |
| $0 | $0 | Available from some lenders, including with bad credit (Canada Drives), at the cost of more interest and early negative equity |
How does a down payment change approval, your rate and the total cost?
A down payment shrinks what the lender has at risk, which helps approval, and it shrinks what you pay interest on, which always lowers the total cost. Loans Canada explains that most lenders do not want to lend more than the car is worth, because they lose money if they repossess it.
Whether a down payment lowers your rate is up to the lender. Canada Drives says it “can” lower your rate, and Loans Canada’s rate estimates by credit tier (roughly 12% to 19% APR for fair credit and from about 19% up to the 35% legal maximum for poor credit, updated July 10, 2026) show how much room there is. The interest saving below holds even if the rate stays the same.
| Down payment | Amount financed | APR | Term | Monthly payment | Total interest | Total repaid on loan | Total cost incl. down payment |
|---|---|---|---|---|---|---|---|
| $0 | $25,000 | 14.99% | 72 months | $528.49 | $13,051 | $38,051 | $38,051 |
| $2,500 (10%) | $22,500 | 14.99% | 72 months | $475.64 | $11,746 | $34,246 | $36,746 |
| $5,000 (20%) | $20,000 | 14.99% | 72 months | $422.79 | $10,441 | $30,441 | $35,441 |
Each $2,500 down saves about $1,305 in interest at this rate and term, roughly $522 per $1,000. The table leaves out sales tax to keep the comparison clean. If you finance Ontario’s 13% HST as well, the $0-down loan becomes $28,250 and costs $14,748 in interest over the same 72 months at 14.99% APR, against $12,138 with $5,000 down.
The money can also buy a shorter term instead of a smaller payment. The two examples below have almost the same monthly payment, but the second one, with $5,000 down and 60 months, costs about $3,205 less in interest.
Representative example: $25,000 car, $2,500 down, 72 months
- Amount financed
- $22,500
- APR
- 14.99%
- Term
- 72 months
- Monthly payment
- $475.64
- Cost of borrowing
- $11,746.08
- Total repaid
- $34,246.08
Assumes equal monthly payments, no fees outside the APR and no early repayment. Illustration only, not an offer.
Representative example: $25,000 car, $5,000 down, 60 months
- Amount financed
- $20,000
- APR
- 14.99%
- Term
- 60 months
- Monthly payment
- $475.69
- Cost of borrowing
- $8,541.40
- Total repaid
- $28,541.40
Assumes equal monthly payments, no fees outside the APR and no early repayment. Illustration only, not an offer.
What is negative equity, and how does a down payment prevent it?
FCAC defines negative equity as owing more on your car loan than the car is worth (Financial risks when buying a car, October 14, 2025). A down payment is the most direct way to avoid it, because it starts the loan below the car’s value.
Depreciation is what creates the gap. FCAC says a new car may be worth about 25% less after one year, and then typically loses 15% to 25% a year over the next four years. FCAC’s own example finances a $31,300 new car plus $3,700 in taxes and fees, a $35,000 loan at 4% over 8 years, and shows $3,700 of negative equity on day one, rising to $8,520 after two years.
Applying FCAC’s depreciation figures (25% after one year, and the 40% total drop after two years in FCAC’s worked example) to the loans in our table gives the illustration below for a new car. A used car usually loses value more slowly, so treat this as a picture of the risk, not a forecast.
| Down payment | Loan balance after 1 year | Equity after 1 year (car worth $18,750) | Loan balance after 2 years | Equity after 2 years (car worth $15,000) |
|---|---|---|---|---|
| $0 | $22,220 | minus $3,470 | $18,993 | minus $3,993 |
| $2,500 | $19,998 | minus $1,248 | $17,094 | minus $2,094 |
| $5,000 | $17,776 | plus $974 | $15,194 | minus $194 |
Negative equity hurts when life changes. FCAC lists three risks: if you sell, you may need to borrow to cover the gap; if the car is written off, the insurance payout may not cover the loan; and if you trade in, the unpaid amount is rolled into the next loan, so you borrow for the new car plus the old debt. Among FCAC’s tips for reducing the risk: choose the shortest term you can afford, put money down if possible, and avoid trading in a car while you are in negative equity.
Does a trade-in count as a down payment, and what does it do to sales tax?
A trade-in counts toward your down payment only to the extent of its equity: what the dealer allows for it minus what you still owe on it. A car the dealer values at $8,000 with a $6,500 payoff gives you $1,500 of equity, not $8,000.
A trade-in also lowers your sales tax, which a cash down payment does not. When a dealer accepts a trade from someone who does not charge GST/HST, which covers most consumers, the dealer charges GST/HST on the price minus the trade-in allowance (CRA; Excise Tax Act, s. 153(4)). The CRA’s example is a $25,000 car with a $10,000 trade-in, taxed on $15,000.
- Ontario: 13% HST on a dealer purchase (CRA), charged on the price after the trade-in.
- Alberta: 5% GST and no provincial sales tax (CRA), charged on the price after the trade-in.
- British Columbia: 5% GST plus PST on passenger vehicles from a dealer, starting at 7% under $55,000 and rising to 8%, 9%, 10%, 15% and 20% in tiers up to $150,000 and over (PST Bulletin 116, revised April 2026). Zero-emission vehicles have their own tiers starting at $75,000. The trade-in reduces the taxable price, but the PST rate is set on the price before the trade-in is deducted.
In BC, the trade-in only reduces PST if the dealer accepts it as part of the same sale and shows its value on the sales agreement; a trade recorded as a separate transaction does not qualify (PST Bulletin 116). BC’s definition of the purchase price for PST is the price “before a deduction for a trade-in or down payment”, so cash down never lowers the PST.
| Province | Tax rate | Tax with $5,000 cash down | Tax with $5,000 trade-in | Tax saved by the trade-in |
|---|---|---|---|---|
| Ontario | 13% HST | $3,250 | $2,600 | $650 |
| Alberta | 5% GST | $1,250 | $1,000 | $250 |
| British Columbia | 5% GST + 7% PST | $3,000 | $2,400 | $600 |
Get the trade-in value in writing before you talk about the new car’s price, and check the payoff figure with your current lender. A generous trade-in number paired with a higher price is not a better deal.
What do “$0 down” car loan ads leave out?
A “$0 down” offer means you borrow the full price, usually plus taxes and fees, so you pay interest on all of it and start with negative equity. Canada Drives confirms that zero-down loans “do exist” for customers with good and bad credit, and that is the honest part; the rest is in the terms.
- Tax and fees get financed. In Ontario, 13% HST alone adds $3,250 to a $25,000 car; FCAC’s example shows financed taxes and fees creating negative equity on the first day.
- The term gets longer. A low payment on $0 down often comes from 84 or 96 months. FCAC treats 72 months or more as a long-term loan and shows that, at 5% on $25,000, an 84-month term costs $4,681 in interest against $1,974 over 36 months.
- The payment hides the APR. In Ontario (O. Reg. 17/05, s. 61) and BC (BPCPA, s. 60(2)), an ad that states a payment or rate for fixed credit must also disclose the APR and the term. If an ad gives you only a weekly payment, find the APR and term before anything else.
- Add-ons ride along. Warranties and protection products folded into a $0-down loan raise the amount financed and the interest on it.
- A deposit may not come back. FCAC warns that a dealer may keep some or all of your deposit if you decide not to buy.
Ads that promise approval for everyone deserve extra scepticism. No lawful car loan can carry an APR above 35%, the criminal rate since January 1, 2025 (Criminal Code, s. 347). FCAC also reminds buyers that a dealer does not have to offer you its cheapest interest rate, so get a quote from your bank or credit union before you sit down at the dealership.
How do you save a car down payment on a realistic timeline?
Pick a target, divide it by the weeks you have, and automate it on payday. For a $25,000 car, 10% is $2,500, which takes about $96 a week for six months or $48 a week for a year.
| Target | In 26 weeks | In 52 weeks |
|---|---|---|
| $2,500 (10%) | $96.15 a week | $48.08 a week |
| $5,000 (20%) | $192.31 a week | $96.15 a week |
- Use a separate account. A high-interest savings account or a TFSA that you do not see every day is harder to dip into.
- Automate it. Schedule the transfer for the morning after payday so the money moves before you spend it.
- Bank windfalls. A tax refund, GST/HST credit or overtime cheque can cover a large share of a 10% target in one deposit.
- Sell what you will not need. If you are replacing a car privately instead of trading it in, its sale price goes straight to the down payment (though you give up the trade-in tax saving).
- Keep the old car a few months longer if it is safe; every month of saving is a month of interest you will not pay later.
- Do not drain your emergency fund. A down payment that leaves you with nothing for the first repair is how a car loan goes wrong; see our guide to building an emergency fund in Canada.
The loans themselves are getting bigger. Equifax Canada reports the average new auto loan reached $36,979 in the second quarter of 2026, up from $34,713 a year earlier (published August 24, 2026). A down payment is the one part of that number you control. For rate context see our car loan rates tracker; if you are rebuilding after a filing, see car loans during a consumer proposal, and if your income is self-employed, self-employed car loans. Our car loans hub compares BC, Alberta and Ontario, and Canada’s credit score ranges explains where you sit.
Frequently asked questions
What is the minimum down payment for a car loan in Canada?
There is no legal minimum that we found in BC, Alberta or Ontario; each lender sets its own. With bad credit, lenders commonly look for 10% to 20% of the price, according to Canada Drives and Loans Canada, and some approve less.
Can I get a zero down car loan with bad credit in Canada?
Yes, some lenders offer zero-down loans to borrowers with bad credit, according to Canada Drives, but you pay interest on the full price plus any financed tax and fees and you start with negative equity. On a $25,000 car at 14.99% APR over 72 months, $0 down costs $2,610 more in interest than $5,000 down.
Is it better to put 10% or 20% down on a car?
20% gives you more protection against negative equity and saves more interest, and Loans Canada suggests it as a target, especially on a new car. If 20% would empty your emergency savings, 10% plus a shorter term is usually the safer balance.
Does a down payment lower my car loan interest rate?
It can, but that depends on the lender; Canada Drives says 10% to 20% down can lower your rate. Even when the rate stays the same, a smaller loan means less total interest: about $522 less per $1,000 down on a $25,000 loan at 14.99% APR over 72 months.
Does a trade-in reduce the sales tax on a car?
Yes, at a dealer in all three provinces: GST/HST is charged on the price minus the trade-in allowance (CRA), and in BC the trade-in also reduces the taxable price for PST, though the PST rate tier is set on the price before the trade. A cash down payment does not reduce the tax.
What should I do if I owe more than my car is worth?
FCAC’s advice is to avoid trading it in while you have negative equity, because the shortfall gets rolled into your next loan. If you can, keep the car and pay the loan down, or add extra payments; consumer car loans in Ontario (CPA 2002, s. 76), BC (BPCPA, s. 74) and Alberta (Consumer Protection Act, s. 68) can be prepaid in full without penalty.
Sources
- Loans Canada, How much should a down payment for a car be? (October 4, 2024)
- Canada Drives, Minimum requirements to get approved for a car loan with bad credit
- Canada Drives, How to get a car loan with 0 down and bad credit
- Loans Canada, Average car loan interest rate in Canada (July 10, 2026, estimates)
- Financial Consumer Agency of Canada, Financial risks when buying a car (October 14, 2025)
- Financial Consumer Agency of Canada, Shop around for car financing (October 14, 2025)
- Financial Consumer Agency of Canada, Car financing options (October 14, 2025)
- Canada Revenue Agency, GST/HST rates by province
- Canada Revenue Agency, GST/HST in special cases: trade-ins (June 18, 2026)
- Justice Laws, Excise Tax Act, s. 153
- BC Ministry of Finance, PST Bulletin 116, Motor vehicle dealers and leasing companies (revised April 2026)
- Equifax Canada, Q2 2026 Market Pulse release (August 24, 2026)
- Government of Ontario, O. Reg. 17/05 under the Consumer Protection Act, 2002, s. 61
- BC Laws, Business Practices and Consumer Protection Act, ss. 60 and 74
- Justice Laws, Criminal Code, s. 347
- Government of Ontario, Consumer Protection Act, 2002, s. 76
- Alberta King’s Printer, Consumer Protection Act, s. 68