Carfinco shares gained $2.76 to close at $11.35 on the Toronto Stock Exchange.
Banco Santander said Tuesday the deal will give it an entry into the Canadian market, where it expects good potential growth.
The Spanish bank will pay $11.25 for each share of Carfinco.
The sub-prime car loan company also said it will pay a special dividend to shareholders when the deal closes. The amount was not announced, but the company said it will not exceed 10 cents per share.
"We look forward to becoming a division of Santander, one of the top banks in the world, and recognize the benefits their wealth of knowledge, experience and relationships in the auto finance industry will bring to the Canadian market," Carfinco CEO Tracy Graf said in a statement Tuesday.
In addition to court and regulatory approvals, the deal requires support by two-thirds of the votes cast by Carfinco shareholders and a majority of the votes cast by Carfinco shareholders excluding management and the principals of Patica, a consultant to the company.
Also under the deal, Carfinco will sell its U.S. car loan subsidiary Persian Acceptance Corp.
Carfinco's directors and executive officers, who collectively own or control a 12.9 per cent stake in the company have agreed to support the deal.
A shareholder meeting is expected to be held on or before Nov. 3.
Banco Santander is the largest financial group in Spain and Latin America. It also has significant operations in the United Kingdom, Portugal, Germany, Poland and the northeast United States.
"We are excited to sign this agreement with Carfinco, which allows us to enter a market with good growth potential such as Canada, where we hope to reach agreements with other car manufacturers like those we have signed in other countries, said Juan Rodriguez Inciarte, senior executive vice-president and head of strategy at Santander.