Auto Loan Payment Calculator

Yahoo Finance reports that the average monthly payment for a new car in Canada was approximately $880 in 2024, with 30% of buyers paying over $1,000, which is why knowing what you're potentially signing up for ahead of time is crucial.

From market trends to credit ratings and interest rates, numerous factors can influence how much your loan amount will be. To learn more about car loan calculators and how your monthly car loan payment is calculated, stick around as we deep dive into these topics below.

Step-by-step: How to use a car loan payment calculator

Using a car loan payment calculator is pretty straightforward and convenient. To estimate your potential costs, here's what you need to do:

1. Enter your auto loan amount

First, you'll need to enter the car purchase price into the correct field of the loan calculator.

2. Input your interest rate

As of 2024, the average interest rate on car loans in Canada was 6.92%. However, your interest rate will vary based on your specific financial circumstances. Regardless, you can use this average as a starting point to get a better idea about how much your auto loan is going to cost you.

3. Choose your car loan term

Next, you'll want to choose your loan term. Most lenders offer car loan terms between 12 and 96 months (1 to 8 years). According to Car Deal Canada, the average loan term for Canadians is between 72 and 84 months.

Remember, the shorter your term, the higher your monthly payment will be. But the total interest paid will be lower. In contrast, the longer your loan term is, the lower your monthly payment amount is, which results in more interest paid over time.

4. Add your trade-in value and down payment amount

Now is when you'll enter the trade-in value of your current vehicle (if applicable) and any additional down payments you'll be making toward the vehicle purchase price. Reducing your loan principle, which is the total amount you borrow, will lower your costs and help you save on interest.

5. Review your results

The loan calculator will then display your approximate monthly car loan payment, total auto loan cost, and how much interest you'll pay over time.

Pro tip:

Making small adjustments to your total loan amount, the interest rate, and your term can significantly influence your calculator results.

Key factors affecting your car loan payments

When considering whether taking out a car loan is the right financial decision for you, it's important to understand the types of factors that will impact how much you'll end up paying throughout your loan:

Interest rate

Interest rates determine how much you pay over the life of your auto loan. For example, a lower interest rate of 5% on a $30,000 vehicle loan will cost significantly less over five years than a higher interest rate of 8%.

As we mentioned, the average interest rate for car loans in Canada is 6.9%. However, the loan interest rate you're quoted by your lender will vary depending on your credit score. Improving your credit score in general can help you secure a lower interest rate, not only for your car purchase, but also for other future loans, as well, which is why it's essential that you maintain a good credit score throughout the years.

Loan term

Your term, which is the length of time you have to pay back the entirety of your loan, plus interest, also impacts how much you'll pay in the end.

Shorter term (24 to 48 Months)

• Pros: Higher monthly payments but lower interest paid over time.
• Cons: Can impact your monthly finances and budget.
• Example: Financing a $30,000 car over 36 months at an interest rate of 6.92% would cost you more money per month than a 72-month term. However, it would save you thousands in interest charges over the lifetime of the loan.

Longer Term (60 to 84 Months)

• Pros: Lower monthly payments will make it more affordable for you month-to-month.
• Cons: You will end up paying more interest over time. This can increase your risk of paying more in the end than the original vehicle value.
• Example: With a 72-month term, your monthly payments will be lower. However, depending on the make and model of vehicle you purchase, it could depreciate faster than you pay off the total cost of your loan.

Payment frequency

Beyond the term of your loan, your payment frequency, which determines whether you pay monthly, bi-weekly, or weekly, will also impact how much interest you pay and how quickly you pay off your loan.

Monthly Payment

You make one payment each month, which equals 12 total payments per year.

Bi-weekly Payment

Bi-weekly payments (every two weeks), calculated to 26 half payments per year, will give you 13 full payments, rather than 12. This can help you pay off your loan quicker and with less interest over time.

Weekly Payment

Weekly payments can help you pay off your loan even quicker. However, it can put more financial strain on your monthly budget. This would equal out to 52 payments per year.

Down payment & trade-in value

Trading in your current vehicle or making a down payment toward your new car can reduce the total amount of money you borrow. For example, a large down payment toward your vehicle price will lower your monthly payments, but can also help you secure a better interest rate.

Additionally, even if you trade in a vehicle with a low market value, the additional money put toward your vehicle price will also work in your favour.

Credit score

According to TransUnion, the percentage of Canadians missing the loan payments for 90 days or more grew to 1.74% in 2024. This means that lenders--whether it be your bank, dealership, credit union, or other creditors are going to be more cautious about who they let borrow money in the future.

Having a good credit history and a credit score over 720 can help you get credit approval quickly at more favourable rates. A poor credit score, on the other hand, could lead to higher rates and more difficulty getting approval.

Car financing vs. car lease: Which one is right for you?

Whether you choose the financing or leasing route will depend on your financial goals and current financial situation. Knowing the different options available to you and how they work can help you make a decision:

Car purchase

When you buy a new car using a loan, you'll eventually own the vehicle outright. While your monthly payment may be higher than your lease payments, once the loan is paid off fully, the car is yours, and no further financial obligations exist.

Pros of buying a new vehicle

• Helps you build equity in the new vehicle over time.
• You have the freedom to customize your vehicle however you like.
• No limits on mileage or penalties for wear and tear from your dealership.

Cons of purchasing a new car

• Higher monthly car loan payment.
• More financial responsibility (maintenance, repairs, etc).
• Vehicle depreciation can reduce resale value over time.

Car lease

According to Canadian Auto Dealer, 23% of vehicle transactions in 2024 were leases. Think of a car lease like renting a car. As part of your lease agreement, you're able to drive a vehicle for a certain amount of time (2 to 5 years). Similar to a loan, you'll make monthly lease payments. However, these costs are generally more affordable.

Once your lease term is over, you'll return your car to the dealership, but you do have the option of purchasing the car outright as well. Leases typically come with certain terms, such as mileage limits and wear and tear guidelines.

Pros of leasing

• Lower monthly costs.
• Drive a new vehicle model every couple of years.
• Lower repair and maintenance costs (covered by warranty).

Cons of leasing

• No equity building, you must return the car to the dealership at the end of your term.
• You may only be able to drive a certain distance each year.
• Strict lease guidelines and potential penalties.

How the loan calculator can help

Using a loan calculator in your decision-making process can help you compare your estimated monthly costs if you choose to buy a car. Although you won't be able to estimate your lease costs during your calculation, knowing how your potential financing payments could compare to leasing can help you decide which option is better your your finances.

Hidden costs to consider when financing a car

When looking at financing options, it's easy to focus on what your month-to-month payment will be. However, several hidden fees will impact the total cost of owning your car. Knowing what these expenses are can help you budget more accurately before moving forward with financing:

Provincial sales taxes & dealership fees

When financing your car, it's important to remember that you'll be paying other fees and taxes on top of the purchase price:

Sales tax

Depending on which province you live in, you'll be subject to a sales tax. These taxes include the provincial and federal tax rates and can add anywhere between a couple of hundred to thousands of dollars onto your final costs. For example, in Ontario, combined federal and provincial sales taxes can add anywhere between 13%-15% to your vehicle price.

Dealership fees

You'll also need to pay dealership fees for the services offered. This can include administration fees, documentation costs, and delivery charges if your vehicle model needs to be shipped from another dealership lot. According to Car Help Canada, these fees can add $299 to $799 to your final bill.

Pro Tip

When buying a car from a dealer, ask them to give you a breakdown of the "out-the-door" costs before signing your contract. These "out-of-door" costs include all fees, taxes, and other expenses that are included in your final purchase price.

Insurance

Auto insurance plans are often more expensive when you finance a vehicle compared to owning it outright. This is because lenders typically require that borrowers purchase full insurance coverage, including comprehensive and collision coverage, to protect their investment.

Although car insurance in Canada is provincially regulated, it's hard to say how much your premium will increase, given that each insurance company considers numerous factors like driving record, age, and other factors when determining rates. Make sure you pay attention to your loan details to ensure you have the right types of auto insurance and coverage minimums in place.

Maintenance and repairs

Part of the responsibility of owning a car is covering the cost of ongoing maintenance tasks and repairs. When you purchase a new vehicle from a dealer, the car comes with a manufacturer's warranty that spans three years. This warranty covers any recalls and repairs due to defects. Once this warranty ends, you'll need to pay for subsequent repairs on your own.

Scheduled maintenance services like oil changes, brake replacements, and tire rotations can add between $500 and $1,000 each year, while major repairs like a transmission replacement or other issues can cost thousands of dollars if your car is not taken care of correctly.

Depreciation

Vehicles are known to depreciate quickly. According to Driversnote, new cars can depreciate between 20% to 30% in the first year. If you borrowed a large sum of money and put a small down payment on your vehicle, you can be at risk of being "upside down" on your loan, which happens when you owe more money on your loan than the resale value of your vehicle.

How to get the best deal on your car loan rate

Securing a low interest rate can help you save anywhere between a couple of hundred and thousands of dollars on your loan. Even a 1-2% difference can significantly impact your monthly car loan payment and borrowing costs. Here's what you can do to ensure you get the best rate possible:

1. Improve your credit score

When it comes to borrowing money, your credit score is one of the most important factors that lenders use to determine your interest rate. Borrowers with high credit scores (720 or higher) qualify for the lowest rates. If your score is lower than 720, improving it before you apply for your loan is key:

• Pay high-interest credit card debt.
• Set up automatic payments on monthly bills to pay them on time.
• Use your credit card for essential purchases only.
• Limit new credit inquiries.

2. Shop around for lenders

Chances are, the interest rate the dealership quotes you isn't the best available. Compare rates from multiple lenders, such as:

• Banks and credit unions.
• Online lenders.

Consider getting pre-credit approval before visiting a dealership, as it will give you more negotiating power.

3. Negotiate your terms

The terms of your loan aren't always set in stone, giving you some room to negotiate:

• Interest rates.
• Your loan term.
• Fees.

Make sure you review your loan details before agreeing to them. In 2024, Canada's automotive finance market generated $15.41 billion and is projected to grow at 8.1% CAGR to 2030, indicating that there are options out there for competitive rates! If you don't feel the rate or terms suit your budget, don't hesitate to walk away and try another lender.

4. Make a larger down payment

Making a larger down payment upfront will reduce the amount of money you need to borrow, which in most cases, can help you secure a lower interest rate. Again, this is where a loan calculator comes in handy, allowing you to test how a lower rate, down payment, or shorter term will impact your monthly loan bill.

Common mistakes to avoid when financing a car

Financing a vehicle is a major financial commitment, and many Canadian buyers tend to make avoidable mistakes that cost them in the long run. Here are some of the most common financing mistakes that occur and how you can steer clear of them:

1. Choosing an overly long loan term

Although a longer loan term can reduce your monthly payment obligations, it can lead to you paying more interest over time. This also puts you at risk of owing more than your vehicle is worth due to depreciation.

For example, if your loan is $35,000 at a 6.92% interest rate over 84 months, you'd be paying $9,000 in interest alone. The goal is to balance monthly affordability while keeping your total interest paid as low as possible.

Don't forget to look at interest over time and not solely your monthly payment.

2. Ignoring early payoff penalties

Some lenders will penalize you if you pay off your loan before the end of your loan term. If you plan on making lump sum payments to pay off your loan ahead of schedule, be sure to ask about prepayment penalties before signing your loan contract.

3. Skipping pre-approvals

Walking into a dealership without a loan pre-approval can limit your negotiating power. It can also lead to being quoted at an unfavourable interest rate. Shopping for pre-approval allows you to compare offers and know what your budget is in advance.

What is a good interest rate for a car loan?

Rates will vary based on your credit score, loan term, and the lender you choose. In late 2024, the average interest rate on car loans in Canada was 6.92%, which is relatively high. Trying to secure a rate lower than this would help you save money in the long run.

Can I refinance an auto loan?

Yes, it is possible to refinance your auto loan. This is especially helpful if you've improved your credit score and overall loan rates have dropped, potentially saving you hundreds to thousands of dollars in interest payments.

Is it better to finance through a dealer or a bank?

It depends on what your current financial situation is and your budget. While banks may offer a better rate, sometimes they have stricter approval requirements. Dealers, on the other hand, are often more convenient and may have promotions available, but you may not secure as favourable a rate. Always remember to shop around and compare rates before deciding.

The bottom line

Understanding how loans and loan calculators work is essential to making smart financial decisions when you're making any large purchase, especially when buying a new vehicle.. BrokerLink's car loan calculator can help you determine your potential monthly payments, explore different financing options, and plan accordingly.

Test drive our user-friendly car loan calculator to ensure you make the best financial decision for your budget!

BrokerLink is also here to help you purchase affordable car insurance once you've purchased your brand-new vehicle! With access to numerous policies from some of Canada's top providers, our team of brokers can help you shop around, compare quotes, and unlock discounts to ensure you keep more money in your pocket!

Get in touch with BrokerLink

If you want to find out more about how auto loan calculators work and how you can use them to calculate your monthly car loan payment, contact BrokerLink today.

We are not only auto insurance experts. We are general auto experts. This means that we can help you decide whether a car loan is right for you. We can also help you choose between buying and leasing a car, as well as explain other important concepts like the difference between title and registration.

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