What is the Bank of Canada policy interest rate used for car loans in Canada?

The Bank of Canada's policy interest rate, specifically the overnight rate target, which is hypothetically set at 2.75% as of July 30, 2025, does not directly establish the interest rates for car loans in Canada. Instead, it serves as a foundational benchmark that profoundly influences the entire lending landscape. This key rate dictates the cost at which commercial banks borrow and lend to each other overnight, directly impacting their prime lending rates and, consequently, the overall cost of funds for all Canadian financial institutions, including major banks, credit unions, and captive finance companies.

These lenders then factor in their own operational costs, desired profit margins, and a comprehensive assessment of the borrower's credit risk (credit score, debt-to-income ratio), the vehicle's value, the loan term, and prevailing competitive market conditions when pricing individual car loans. For Canadian consumers, this means that while existing fixed-rate car loans remain unaffected by subsequent BoC rate changes, any future adjustments to the policy rate will inevitably trickle down. A higher BoC rate translates to increased funding costs for lenders, leading to higher interest rates for new vehicle financing and refinancing across all provinces. Conversely, a decrease would generally result in more favourable rates. This directly impacts monthly payments, the total cost of ownership over the loan's duration, and ultimately, the affordability and accessibility of vehicle purchases for Canadians nationwide.