Explain an auto loan APR in Canada?

The Annual Percentage Rate (APR) on an auto loan in Canada represents the true, total annual cost of borrowing, extending beyond just the nominal interest rate. It comprehensively includes the stated interest rate plus certain mandatory fees and charges associated with the loan, such as administrative fees, loan origination fees, and potentially the cost of credit-related insurance if it's a condition of the loan and rolled into the financing. This standardized figure is paramount for consumers as it enables an accurate, apples-to-apples comparison of different financing offers from various lenders, including banks, credit unions, and dealership finance departments, revealing the actual financial burden over the loan's term.

Understanding the APR is critical for Canadian consumers to make informed decisions and avoid being misled by seemingly low interest rates that might obscure significant additional costs. Federally, the Financial Consumer Agency of Canada (FCAC) provides guidance on disclosure, while provincial consumer protection legislation, such as Ontario's Consumer Protection Act or British Columbia's Business Practices and Consumer Protection Act, legally obligates lenders to clearly disclose the total cost of borrowing, including the APR. A significant development effective January 1, 2025, is the amendment to Canada's Criminal Code s.347, which sets a new criminal interest rate threshold at 35% APR. This measure is specifically designed to protect borrowers, particularly those in the subprime market, from predatory lending practices by capping the maximum permissible APR, thereby ensuring greater fairness and transparency in the Canadian auto finance landscape.