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Financing can be one of the more affordable ways to buy a car, especially a newer model or higher-quality brand. Unfortunately, many drivers can’t afford the associated costs or qualify for a decent car loan, at least one with a reasonable interest rate and repayment plan. If that’s the case for you, it might be time to reevaluate your situation.

Curious to know if car financing is the right solution for your next vehicle and, if so, how much the average car payment could cost you? 

The Car Market in Canada

Over the last few years, Canada has seen a steady climb in car market statistics, with the highest percentages coming out of Ontario and Quebec, which account for more than 60% of the registered consumer vehicles in the country. Being our most populated province, there are currently well over 8 million road motor vehicles in Ontario alone.

Although a vehicle isn’t a necessity for all Canadians, others rely on their cars heavily. In fact, there are many different scenarios where you might want regular access to some kind of a road vehicle, including but not limited to:

  • Transporting groceries, household supplies and other essentials
  • Going to work, school or places where other transportation isn’t possible
  • Taking road trips and vacations in all weather conditions
  • Moving furniture, appliances and other bulky/heavy items
  • Getting around when you have health or mobility issues
  • Driving professionally (transporting clients, materials, goods, etc.)

Best Car Loan Providers in Canada

AmountInterestTerm (Months)
Loans Canada Logo - Bad Credit Loans Canada$500 - $50,000Up to 46.96%12 - 84Learn more
ClutchVaries8.49% +24 - 96Learn more
Canada Drives$500 - $35,00029.99% - 46.96%9 - 60Learn more
SkyCap Financial$500 - $10,00012.99% - 39.99%9 - 36Learn more
Carloans411$5,000 - $40,000Varies12 - 72Learn more
Canada Auto Finance$5,000 - $45,0004.90 % - 29.95%36 - 72Learn more
Eden ParkVaries11.9% +12 - 84Learn more
Splash Auto Finance by RifcoUp to $50,000Varies12 - 84Learn more

What Factors Affect The Cost of a Car Payment?

Before you apply for car financing anywhere in Canada, make sure to get a loan cost estimate from your lender (usually obtained online or over the phone). It might also help to learn about the factors that can cause your payments to fluctuate in cost, such as:

Loan Amount

The more money you’d like to borrow, the more risk your lender is taking on. As such, a larger car loan often results in a longer repayment term and more interest paid overtime. While you can apply for a shorter loan term, your payments and interest rate would be higher. 

Find out if you’re paying too much for your monthly car loan payment

Interest

If you have bad credit, unhealthy finances or a lot of outstanding debts, you could once again be considered a riskier client and may only qualify for a higher rate (and vice versa). Additionally, some lenders charge variable interest rates, which go up and down with the Bank of Canada’s prime borrowing rates.

Check out how much the average car loan interest rate is in Canada.

Loan Term 

The length of your repayment term can also affect how much interest you pay for your car loan. Although a longer-term often has a lower rate and smaller payments, which can be more affordable, you could end up paying far more interest than you would with a shorter-term, even if it had a higher rate.

Fees

During your car loan term, you may also encounter various one-time or recurring fees that your lender charges for administrative purposes, like document processing and loan origination. Plus, you could receive a penalty fee for every late, short, or missed car payment, along with some added interest. 

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Additional Car Related Expenses to Think About

While your monthly car payment is likely the biggest expense associated with owning a vehicle, there are a variety of other expenses you should prepare for.

  • Gas – An SUV, pickup truck or another gas guzzler will cost you far more in the long run than a car with a smaller engine or hybrid-electric power.
  • Maintenance – The more luxurious or rare your car is, the more expensive and difficult it can be to maintain. It can also lose value if you don’t keep it in shape. 
  • Repairs – Some cars are harder and costlier to fix than others. Your mechanic might charge extra if they don’t specialize in working on your specific vehicle or a part is hard to find.
  • Insurance – Many things can lead to high car insurance premiums. For example, if you’re younger than 25, you buy a newer car, or you have a bad driver’s history.
  • Registration – Fees can vary based on your region, what type of license plate your car needs and how heavy it is (cars over 3,000 kg can be pricier to register).   

Buying a car? Learn how to properly budget for a car

What is the Average Car Payment in Canada?   

As you can see, there are many different factors that will affect the cost of your car and, because of that, it can be tough to predict exactly how much you’ll spend in terms of loan payments. Most lenders and auto dealers can only give you a basic price quote and the final cost of your car loan can fluctuate throughout your repayment plan.

Car Payments and Household Debt  

A survey conducted by the Bank of Montreal in 2014 shows the following statistics:

  • In Canada, drivers spend an average of $26,044 on new cars every five years. 
  • Monthly car loan payments, insurance, fuel, and maintenance costs amounted to  $5,250 annually and $437.48 monthly.
  • This makes car payments the 3rd largest household debt that Canadians accumulate, just under housing costs at 32.5% and food costs at 18.82%  
  • 15% of the average household budget is dedicated solely to car costs, 7% more than drivers spend on their savings and investments (8% total). 
  • That’s 9% more than Canadians generally spend paying their other debts, such as credit cards, lines of credit and other loans (6% of the average budget).

Since this survey was completed, most of these statistics will have increased along with Canada’s ever-growing population of drivers. Nonetheless, you can get an idea of what a car loan could cost you overall. In general, Canadians spent $5,250 annually or $437.48 monthly on their car, including the monthly payments, gas, insurance and maintenance. 

Are you having a hard time with your car debt? Learn how to avoid car debt

How Much Canadians Spend On New Cars (By Province)

While some road vehicles are more affordable and many lenders/dealers offer shorter loan terms, it takes most drivers several years to pay off their new car in full. To give you a better idea of how much you might spend financing your own vehicle, here’s a brief example based on the average 3 and 5-year payment term:

Scenario: You’re financing a brand new car with a total sales price of $30,000, an interest rate of 5% and a down payment of $2,000.

Example #1 (3 Year Payment Term)

  • Total Selling Price = $30,000
  • Interest Rate = 5%
  • Down Payment = $2,000
  • Term Length = 3 years (36 months)
  • Monthly Payment = $839.19

Example #2 (5 Year Payment Term)

  • Total Selling Price = $30,000
  • Interest Rate = 5%
  • Down Payment = $2,000 
  • Term Length = 5 years (60 months)
  • Monthly Payment = $528.39

You can also check out this table to see the average monthly payment you could pay if you’re living in a certain province, territory or region of Canada. For the sake of argument, we’ll use the same calculations, as well as BMO’s 2014 auto survey statistics:

Using the average price spent on a new car, we’ve calculated the potential monthly payments Canadians may be paying each month using a interest rate of 5%. 

Average PriceMonthly Payment Over 3 YearsMonthly Payment Over 5 Years
Canada$26,044$780.56$491.48
ATL$24,080$721.70$454.42
QC$22,694$680.16$428.26
ON$25,981$778.67$490.29
Prairies $26,149$783.71$493.46
AB$29,963$898.02$565.44
BC$28,562$856.03$539.00

How Are Canadians Paying For Their Cars?

According to the same BMO report, more Canadians are buying cars than are leasing them, with 83% of survey participants claiming they already own at least one car and 82% saying they would prefer to purchase their vehicle next time around. That means under 20% of drivers are currently (or are thinking about) leasing a car in the future. 

Of Those Drivers Surveyed:

  • 49% said they financed their new car with a loan
  • 11% claimed they used a line of credit

Apparently, Canadian drivers prefer the benefits that come with vehicle ownership. After all, once your car is paid off, it becomes your property, so you can drive it however and wherever you want. Plus, if you keep the car in good shape and maintain its resale value throughout the years, you can use its title as collateral to qualify for a secured loan, resell it or trade it in for a better deal on your next vehicle someday.

Why Some Drivers Choose to Lease Their Cars

On the other hand, leasing allows you to try out a different vehicle every few years. Instead of the responsibility of owning the vehicle, you simply return it to the dealership when your payment term ends. Normally, there will be a set mileage and damage limit that you must stay within to complete your lease with no extra costs. 

Find out what do dealerships do with unsold cars.

That said, many drivers still lean toward ownership because continually leasing cars throughout the years can result in far more interest paid overall. Whenever you get a new lease, you’ll also have to go through the approval process again. If you didn’t make all your payments last time, you might not qualify for decent lease conditions the next time. Additionally, you can never use the car as collateral, resell it or trade it in.

Tips To Help You Save Money On Your Monthly Car Payments

Are you worried about how much it will cost you to finance a new vehicle in Canada? There are a few things you can do to reduce the cost of your upcoming car payments and help you save some money in the long run, such as:

  • Negotiate – If you’re a preferred client or have decent financial health when you apply, your lender or auto dealer may be open to a bit of haggling when it comes to the cost of your loan payments. Some dealerships might even throw in some extra perks if you agree to buy a new car or get a longer payment plan.

Learn how to negotiate a car price

  • Put More Money Down – The larger your down payment is, the more unpaid loan debt you’re covering upfront. As such, you may qualify for a lower interest rate or even zero-interest for the first few months of your loan plan. Vehicle experts typically recommend putting at least 10-20% down for the best outcome.
  • Shorten Your Loan Term – As mentioned, shorter car loan terms come with higher rates. While longer terms have better rates, you’ll pay more interest due to the extra time you’re in debt. For instance, if you’re choosing between a 36 and 84-month plan, the shorter-term can actually be more affordable.
  • Make a Trade-In – If your used car still has value, many dealers will accept it as a trade-in, for a reduced price on a new car. This can help you get a shorter term and qualify for a lower rate. While you may not receive what the car is truly worth, coupling a trade-in with a down payment can lead to even better results. 

Looking For Affordable Car Financing Near You?

Loans Canada can help you find the best lenders, auto dealers, credit products and interest rates in your area. If a car loan for a new car is the solution you’re looking for, there are plenty of affordable ways to finance your next vehicle.   

Bryan Daly avatar on Loans Canada
Bryan Daly

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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