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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?
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:
Amount | Interest | Term(Months) | ||
![]() | $500 - $50,000 | Up to 46.96% | 12 - 84 | Learn More |
![]() | $500 - $35,000 | $29.99% – 46.96% | 9 - 60 | Learn more |
![]() | $500 – $10,000 | 12.99% – 39.99% | 9 - 36 | Learn more |
![]() | $5,000 - $40,000 | Varies | 12 - 72 | Learn more |
![]() | $7500 - $59,995 | 3.95% + | 12 -96 | Learn more |
![]() | $5,000 - $45,000 | 4.90 % - 29.95% | 36 - 72 | Learn more |
![]() | Varies | 11.9% + | 12 - 84 | Learn more |
![]() | Up to $50,000 | Varies | 12 - 84 | Learn more |
![]() | Up to $50,000 | 8.99% + | 12 - 72 | Learn more |
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:
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.
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.
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.
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.
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.
Buying a car? Learn how to properly budget for a car.
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.
A survey conducted by the Bank of Montreal in 2014 shows the following statistics:
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.
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.
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 Price | Monthly Payment Over 3 Years | Monthly 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 |
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.
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.
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.
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:
Learn how to negotiate a car price.
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.
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Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
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