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How to calculate your car loan payments

The right car loan for you will have payments that works with your budget. Learn how to calculate car loan payments and how to find the best loan for you.

Updated April 1, 2022
6 min. read

Thinking about buying a new car? It’s an exciting process, but it also comes with important decisions, like whether to buy a new or used vehicle, what make and model to get and whether you should splurge on that sunroof. But the most important question of all is how you’re going to pay for your new car.

Buying a car is a major purchase. According to the CBC, the average cost of a new car is just over $33,000 — not exactly pocket change. And many car buyers don’t have that much cash on hand, which makes a car loan a great financing option.

But before you sign on the dotted line, you’ll want to figure out the cost of your car loan payments. The terms of your loan, like your down payment, interest, and payment schedule, will have a big impact on how much your regular car payments will be.

Ready to get started? First, you’ll need to know a few common car loan terms and definitions so you can plug them into our car loan payment calculator. Here’s everything you need to know to calculate your car loan payments:

The price of your new car

This is the total price you’ll pay for your new car, with any extra fees included. Keep in mind that this might be different from the original advertised price or the manufacturer’s suggested retail price (MSRP).

This number is especially important because it’s the starting point that will help determine how big your car loan will be. The lower you can get the price, whether through negotiations or a larger down payment, the lower your loan will be and the more you’ll save on interest.

Your down payment

Your car down payment is the amount you pay upfront for your new vehicle. You typically pay this directly to the dealer, and it comes from your own savings. Many car dealers have a minimum down payment that you must meet, but it’s smart to pay more if you can. That’s because the larger your down payment, the less you’ll have to borrow and the lower your car loan payments will be. A large down payment can even help you get a lower interest rate by showing your lender that you’re financially responsible.

The trade-in value of your old car

If you already have a car, the value of your old vehicle can help offset some of the cost of your new one. For instance, your dealer might offer a discount if you trade in your old car to them. The value of your previous car will depend on a variety of factors, including:

  • the make of your car

  • the model

  • your mileage

Check with the Black Book Trade-in Estimator to make sure you’re getting a fair price. When calculating your car loan, you’ll want to deduct the market value of your current car from the total loan amount you need.

Vehicle sales tax

The sales tax on your new car will depend on the province where you buy it. If you buy a new car, you generally pay either 5% of the federal goods and services tax (GST) plus your provincial sales tax. Or, if your province has the harmonized sales tax, you pay the applicable HST rate.

The rules for sales tax on used cars are different and vary by province.

If you buy your car from a dealership, they’ll apply the GST/HST tax. If you purchase it directly from a person, the GST/HST generally doesn’t apply, but you may have to pay the provincial motor vehicle tax when you register your new car.

 

“The terms of your loan, will have a big impact on how much your regular car payments will be.”

Payment frequency

How often will you be making payments on your loan? Many lenders offer flexible options, including monthly, semi-monthly, bi-weekly or weekly payment options. The option you pick can impact your payment amount — more frequent payments tend to be lower, but you’ll make more of them. Choose the schedule that works best for you.

Loan term

This is the total life of your loan, or how long it will take you to pay it off in full. A longer term generally means lower monthly payments, but it can also mean that you’ll pay more interest in the long run. For example, say you’re borrowing $25,000 at a 5.0% interest rate. A 36-month term would end up costing you $26,974 with interest, while an 84-month term comes to $29,974 — a $3,000 difference.

Interest rate

This is the amount of interest your lender charges on your car loan. The rate you get depends on your credit score — a good credit score should get you a lower interest rate. If you’ve been preapproved or prequalified for an auto loan, your lender should tell you your exact rate.

Once you’ve gotten all your numbers together, plug them into our handy car loan payment calculator. This will give you an estimate of your regular payment amount, so you can see if your loan will work with your budget. You can also try experimenting with different down payments and payment schedules to see how it will impact your payment amount.

Other costs to consider


While your car payments will make up the bulk of the cost of having a car, there are other expenses to consider. Here are some other car-related costs to add to your budget:

Registration fees: When you buy a car in Canada, you have to register as the new owner with your provincial government. That includes paying a fee for the permit, license plate, and sticker. The dealer often handles this part, but if you’re buying a used car you’ll need to register yourself. The actual amount of fees will vary depending on your province and vehicle. For instance, fees in Ontario typically run somewhere between $150 and $200.

Insurance: Insurance is a major, ongoing cost associated with owning a car. The amount you’ll pay will depend on the type of car you buy, your driving record, your age and where you live. It’s a good idea to get some quotes ahead of time so you have an understanding of what you might pay.

Parking: Will you need to get a parking permit? Or do you have access to free parking? Add up any costs ahead of time and include it in your overall car budget.

Gas: The price of fuel can fluctuate significantly over time and even between provinces. It’s important to plan for shifts in gas prices, especially if you often use your car to drive long distances or if your vehicle isn’t very fuel efficient.

Maintenance and repairs: All vehicles will need a tune up or repair at some point. The amount of maintenance your car will need depends on a lot of factors — how much mileage it has, the conditions you’re driving in, and more. Be prepared to budget more for an older used car than a newer model.
Buying a car is a major purchase, and understanding all the costs is an important first step. Now that you understand all the terms and expenses, you’ll be better prepared to find a car loan that will get you the vehicle you want and work with your budget.

Buying a car is a major purchase, and understanding all the costs is an important first step. Now that you understand all the terms and expenses, you’ll be better prepared to find a car loan that will get you the vehicle you want and work with your budget.

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