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How much is the average car payment in Canada?
Looking to purchase a new vehicle? Find out how much you can expect to spend every month to cover your car payments.
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Canadians will typically spend between $300 and $600 on car payments every month, depending on a number of factors. These numbers also go up every year, as vehicles become marginally more expensive and interest rates increase. Find out how much the average car payment is in Canada and how much you can expect to pay for your car loan, and what variables tend to influence your overall cost.
What is the monthly average car payment?
It’s difficult to say how much you’ll pay every month for a new vehicle in Canada. The average price of a new vehicle in 2020 is $40,055 while the average cost of a used vehicle is $18,980, according to the Auto Trader price index. The amount you’ll pay for your loan, no matter how much you owe, will depend on a number of factors.
Factors that affect your loan payment
- Down payment. Experts recommend making a down payment of around 10% to 20% to reduce your monthly payments. This will shorten your term and save you money on interest in the long run.
- Loan amount. The amount you borrow will affect how much your monthly payments cost. The larger your loan principal, the more your monthly payment will be and the more interest you’ll have to pay.
- Interest rate. Interest rates are determined by your lender based on a percentage of the amount you borrow. You’ll usually get a lower interest rate if you have a good to excellent credit score. You’ll typically pay more if your score is below 650.
- Loan term. The term of your loan is how long you have to pay it back. The longer the term, the smaller your monthly payment but the more interest you’ll owe in the long run. The shorter the loan term, the more you pay towards your principal and the less you pay in interest.
- New or used. New cars tend to have lower interest rates than used vehicles. The average customer can expect to pay anywhere between 4.5% and 6% interest on a vehicle, while those with poor credit may need to pay rates as high as 30%. Read more about new vs used cars in our guide.
What does the average car payment look like in Canada?
The table below breaks down how much you might have to pay for a new or used vehicle in 2020. It factors in several variables that affect how much you’ll pay for your loan.
New cars | Used cars | |
|---|---|---|
Loan amount | $40,055 | $18,980 |
Interest rate | 4.27% | 8.95% |
Loan term | 60 months | 60 months |
Down payment | $10,000 | $5,000 |
Monthly payment | $629.61 | $327.54 |
Total interest paid | $3,814.53 | $3,855.29 |
Credit score | Good | Good |
As you can see, the interest rate plays a huge role in how much you’ll pay for your loan. It’s also important to note that used cars typically come with much higher interest rates, so you should keep this in mind when searching for a new vehicle. That said, used cars also cost less so your monthly payments will be smaller even if you end up paying more interest.
What is the average interest rate for a car loan?
The average buyer can expect to pay anywhere between 4.5% to 6% interest on their car loan, depending on whether the car is new or used and whether the interest rate is fixed or variable.
The following example shows the amount of interest you could end up paying for a brand new $40,055 car assuming a loan term of 7 years and no down payment.
Credit rating | Credit score | Interest rate (hypothetical) | Monthly interest average | Total interest |
|---|---|---|---|---|
Excellent | 760-900 | 3.49% | $69.28 | $5,819.12 |
Very good | 725-759 | 3.99% | $79.64 | $6,689.43 |
| Good | 660-724 | 4.5% | $90.32 | $7,586.55 |
Fair | 560-659 | 10% | $212.57 | $17,855.89 |
| Poor | 300-559 | 15% | $334.58 | $28,104.51 |
Based on this analysis, a person with poor credit might have to pay over $20,000 more in interest over the course of their loan than a person with excellent credit. This is why it makes sense to build up your credit score before you sign on to a car loan.
How does my term length affect my loan payments?
Your term length will vary depending on how much you can afford to pay per month, as well as how long you’d like to pay off your loan. The average term length is between 3 and 5 years. That said, term lengths are extending more often to 7+ years, which means you’ll pay more interest over the course of your loan.
In the example below, we’ll look at how much your monthly payments will be for the same loan amount based on the length of your term. We’ll also look at how much you’ll pay in interest over the course of your loan.
Loan amount | Loan term | Interest rate | Monthly payment | Total interest |
|---|---|---|---|---|
$40,055 | 3 years | 4.27% | $1,341.76 | $3,041.29 |
$40,055 | 5 years | 4.27% | $839.10 | $5.083.71 |
$40,055 | 7 years | 4.27% | $624.32 | $7,180.79 |
As you can see, the cost of your monthly payments will go up as your term length goes down. That said, you’ll pay less interest over the course of your loan with a shorter term.
Compare your car loan options
Bottom line
The amount of money you spend on your vehicle will depend on a number of different factors. As a rule of thumb, you should try to get the shortest term and the lowest possible interest rate. You can also consider buying a less expensive car, making a larger down payment and improving your credit score as ways to help lower the overall cost of your vehicle.
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