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Can You Extend Your Car Loan Term in Canada? Pros & Cons

Can You Extend Your Car Loan Term in Canada? Pros & Cons

Extending an auto loan isn’t something you should do lightly but it can be a viable way to make it more affordable or to help you when times are tough. Extending the loan isn’t your only option though. It may not be the best option either.


Most auto loans are for a set period of time with fixed payments each month. That doesn’t mean you cannot change those conditions. As long as the lender agrees.


Extending a Car Loan in Canada

As we just mentioned, an auto loan is typically for a fixed period with a fixed amount each month. Many loans are flexible to allow for overpayment, early repayment and sometimes, extensions.


Times have been tough over the past 15 years or so and lenders have tried to move with the times. Financial products are much more flexible than before and while there are still lots of terms and conditions, you do have much more freedom.


If you need to extend your auto loan, you should first check your paperwork. If you have the freedom to overpay or settle early, the lender may be flexible enough to allow extensions.


Your next step will be to talk to them and discuss your situation. Explain why you need to extend the loan and explain the situation as much as you can. It will then be up to the lender to decide if an extension is appropriate or not.


Pros & Cons of Extending a Car Loan

Benefits of extended car loans can include:


Lower Monthly Payments: The same amount stretched over longer means a lower amount each month.


Borrow Slightly more: If you have your eye on something normally out of your price range an extended auto loan could make it affordable.


Affordability: If you have debt already and would fail an affordability check on a standard auto loan, this may be an option to access finance.


Downsides of extended car loans can include:


Interest Payments: Some lenders charge more interest on loans over 60 months. Even if they don’t, 84x the interest payment is going to be much more than 48x.

Negative Equity: Due to this increase in interest, you are likely to be automatically in negative equity the moment you sign. Unless you’re putting a sizable down payment, the cost of the loan is automatically more than the car is worth.


Age andDepreciation: Seven years is a long time in motoring. I don’t know many people who have the same car after a couple of years let alone seven. Can you keep a car that long? Click here to learn more about car depreciation.


There are other things you can do instead though.


The Best Alternative: Refinance the Loan

Refinancing is the main way you can change the terms of your loan. If you’re a year or more into the loan, you could refinance. Depending on how much the car is worth and how much you have paid off, there may be scope to get a new, cheaper loan with a lower monthly payment.



This basically means applying for a new loan for a new amount and a new term. As long as your situation and your credit score can support the new loan application, this is your best bet.


To refinance an auto loan, do the following:


  1. Check your credit score to make sure it’s sufficient
  2. Get a settlement figure from your current lender so you know how much you owe
  3. Work out how much your car is worth and how much equity you have in it
  4. Research loans, loan terms, interest rates and work out what works for you
  5. Contact one of our Acton car loan team so we can help


Other Alternatives to Extending a Car Loan

Take a Payment Holiday: If your situation is due to the pandemic, there is assistance to help, including payment holidays. If your situation is nothing to do with the pandemic, payment holidays are still a viable option. Just remember, you’ll still accrue interest during the holiday!


Transfer the Loan: While less than ideal, transferring the loan to a family member who can afford it is also an option. They will need a good credit score and your lender will need to agree but it’s another option to consider.


Sell the Car: If you have another car or could use public transit, selling the car is also an option. It may only be temporary but it could be enough to pay off the loan altogether and give you the breathing space to sort everything out.


Lease Instead: You don’t get to own the car but for a reasonable monthly cost you get to lease one instead. You can always buy the car at the end of the term if you like it.


You have several options at your disposal if you’re having trouble affording your auto loan. Extending is one of those options but it isn’t the only one. Depending on your situation, there may be a cheaper or better option open to you.


Only make a decision once you have explored all options and go from there.


If you need help or advice on anything to do with car loans, contact Car Nation Canada today, we can help!

Categories: Car Financing