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How to Calculate a Car Payment Easily in Canada

How to Calculate a Car Payment Easily in Canada

There is a lot that goes into how a car loan payment is calculated and a lot to get to grips with. We are here to help you every step of the way but knowing what you’re getting into and what you’re signing up to is essential.


Our auto loans team outlines the five main influences that helps decide how your car loan payment is calculated, so you can help keep costs manageable.

Those five influences are:


1.   Your credit score


Your credit score has a huge influence over how to calculate a car payment. The higher the score, the lower the risk you are perceived to be, which results in a lower interest rate.


Conversely, the lower your score, the higher the risk you are seen to be, so the higher the rate.


Get your credit score into a good place and your loan rates will be lower the next time you apply. Click here for a comprehensive guide to rebuilding your credit.


2.   Down payment


The more you put down, the better. A down payment not only lowers the amount you need to borrow, which reduces the overall cost, it also lowers your risk, which can lower the rate you pay.


Lenders know people who put their own money down are less likely to default as they loser their own money as well as the car. This lowers the risk and therefore, the interest rate you’re charged.


3.   Length of the loan


The length of the car loan you get also influences how expensive it will be. While longer loans tend to have lower interest rates, you’re paying that rate for more months, so will be paying more over the term.


Distribution of car loan term lengths


It’s vital that you look at the total cost of borrowing as well as the monthly payments. That way, you know exactly how much the loan will be.


4.   Age of the car


The age of the car you’re buying also feeds into the total cost of the loan. New cars attract lower rates because they usually mean borrowing more for longer. There is also a higher chance of recouping any losses if you default.


Used cars can attract higher rates as the resale value will be lower. Even though the loan is likely lower too, it is regarded as a higher risk than a new car.


5.   Debt to income ratio


Technically, your debt to income ratio feeds into your credit score but is its own factor in how expensive your loan might be. The higher your debt to income, the higher the chance of defaulting or falling behind on the loan. This attracts higher interest.


The lower your debt to income, the lower the risk, so usually lower the interest rate.


There are many factors that decide how expensive a car loan might be but these five are typically the most influential. Mitigate these as much as possible and you’ll get the most competitive loan available.


The best way to calculate a car payment is to use a car loan calculator. We have one - click here to give it a shot!


If you're ready for a car loan in Southern Ontario, we'd love to help with that! simply fill in the form below to get started.

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