How car loan payments work in Canada
A car loan payment is made of two parts: paying back the amount you borrowed, and interest. Early in the loan, more of each payment goes to interest. As the balance drops, more of each payment goes to the loan itself, which is why the balance chart above curves down faster near the end.
The amount you borrow is the vehicle price plus sales tax, minus your down payment and trade-in. If you still owe money on your trade-in, that amount is usually added to the new loan. This is called negative equity, and it raises your payment, so it is worth entering it in the calculator.
What changes your payment the most
- Interest rate. On a $25,000 loan over 72 months, the difference between a 7% and a 15% rate is roughly $100 a month.
- Loan length. Longer terms lower the payment but add interest. Compare 60 and 84 months to see the trade-off.
- Down payment and trade-in. Every dollar you put down is a dollar you don't pay interest on.
- Sales tax. In Ontario, 13% HST adds over $3,000 to a $25,000 vehicle, so leaving it out makes payments look lower than they will be.
About the example interest rates
The credit buttons fill in example rates for used vehicles: Excellent (760+) 6.99%, Good (660 to 759) 9.99%, Fair (560 to 659) 14.99%, Rebuilding (Below 560) 21.99%. They are typical starting points, not offers. Lenders also look at your income, how long you've been at your job, the vehicle's age and your down payment. If you already know your rate, type it in. For current ranges, see car loan interest rates in Canada and how 0% financing deals compare.
Know your budget, then get pre-approved
The "How much car can I afford?" tab works backwards from a payment that fits your budget. Many people aim to keep their car payment, insurance and fuel together under about 15% to 20% of their take-home pay. Once you have a number, a car loan pre-approval tells you the real rate and amount you qualify for, with no impact on your credit score to start.
Frequently asked questions
How do I calculate a car loan payment?
Your payment depends on three things: the amount you borrow, the interest rate and the loan length. The amount borrowed is the vehicle price plus sales tax, minus your down payment and trade-in, plus anything still owed on the trade-in. The calculator spreads that amount and the interest over the number of payments you choose.
What interest rate will I get on a car loan in Canada?
It depends mostly on your credit score, income and the vehicle. As a rough guide for used vehicles, borrowers with excellent credit often see single-digit rates, while borrowers rebuilding their credit can see rates above 20%. The rates in this calculator are examples only. A pre-approval shows the rate you actually qualify for.
Is sales tax included in a car loan?
Usually, yes. When you buy from a dealer, the sales tax is normally added to the price and financed with the loan. In most provinces, tax is charged on the price minus your trade-in value, which is how this calculator works.
Is a longer loan term a good idea?
A longer term lowers each payment but means you pay more interest overall, and you may owe more than the car is worth for longer. Try 60 and 84 months in the calculator to see the difference in total interest.
Should I choose monthly or bi-weekly payments?
Bi-weekly payments line up with many paycheques and add up to 26 payments a year, which pays the loan down slightly faster than 12 monthly payments. The total you pay is similar; pick the schedule that matches when you get paid.
Can I get a car loan with bad credit or no credit?
Often, yes. ShopRides works with lenders who consider bad credit, no credit history, consumer proposals and past bankruptcies. Your rate will usually be higher, so a larger down payment or a co-signer can help lower your payment.
See the rate you actually qualify for
All credit situations considered. No SIN needed to start.
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