An auto loan calculator determines the monthly payment on a vehicle loan based on the principal, interest rate, and term. The standard formula is a fixed-payment amortisation: monthly payment = P × r / (1 − (1 + r)−n), where P is the loan amount, r is the monthly interest rate, and n is the number of payments.
Canada’s Cost of Borrowing Regulations (SOR/2001-101) require lenders to disclose the annual percentage rate (APR), total interest cost, and total amount to be repaid before the borrower signs. This disclosure applies to federally regulated financial institutions; provincially regulated lenders follow equivalent provincial consumer protection rules.
How Auto Loan Math Works
The monthly payment formula produces a constant payment that covers accrued interest and reduces principal each month. Early payments are mostly interest; later payments are mostly principal. This is standard amortisation used by every Canadian lender for fixed-rate vehicle loans.
Example: A $35,000 loan at 7.9% APR over 60 months has a monthly rate of 0.658%. Monthly payment = $35,000 × 0.00658 / (1 − (1.00658)−60) = approximately $707. Total interest paid over five years is approximately $7,420.
2025 Canadian Auto Loan Rate Context
The Bank of Canada policy rate changes influence auto loan rates with a lag. New vehicle loans from chartered banks and credit unions for well-qualified borrowers in 2025 typically start near 6% to 7% APR for 48- to 60-month terms. Dealership captive financing (manufacturer-backed) may offer promotional rates as low as 0% to 2.9% on select models, but these rates are often offset by reduced negotiating room on the purchase price.
Used vehicle loans carry higher rates than new because residual value declines faster and lenders bear greater collateral risk. A used vehicle loan for a borrower with a 680 credit score might attract 9% to 12% APR, compared to 6% to 8% for the same borrower purchasing new.
Total Cost of Borrowing
Term length dramatically affects total interest cost. Using a $30,000 loan at 8% APR:
| Term | Monthly Payment | Total Interest |
|---|---|---|
| 48 months | $732 | $5,141 |
| 60 months | $608 | $6,499 |
| 72 months | $527 | $7,906 |
| 84 months | $468 | $9,310 |
Extending the term from 48 to 84 months saves $264 per month but adds $4,169 in total interest on the same $30,000 borrowed.
Taxes and Fees Added to the Vehicle Price
Provincial sales tax applies to the full purchase price. Ontario charges 13% HST. British Columbia applies 12% PST on private sales and 7% PST on dealer sales (zero-rated for GST separately). Quebec applies QST at 9.975% on the purchase price including GST. Alberta charges only 5% GST (no PST).
Dealers in most provinces charge administrative or documentation fees of $200 to $700. Registration and licensing fees are paid to the province and range from $100 to $300. These costs are typically financed into the loan or paid upfront.
Negative Equity and Longer Terms
A new vehicle typically loses 15% to 25% of its value in the first year and 40% to 50% over five years. With a long-term loan (72 or 84 months), the outstanding balance can exceed the vehicle’s market value for two to three years. The Financial Consumer Agency of Canada (FCAC) flags this as a key risk of extended auto loan terms: if the vehicle is written off or traded in during that window, the borrower may owe more than they receive.
Tax Deductibility
Auto loan interest is not deductible for personal use vehicles. Employees who use a personal vehicle for employment duties may deduct a portion of interest under ITA s.8(1)(j), subject to Form T2200 from the employer and a CCA Class 10 or 10.1 capital cost limit ($38,000 for 2025 for Class 10.1 vehicles). Self-employed individuals deduct the business-use share of interest as a business expense under ITA s.18(1)(a), provided the vehicle is used to earn business income.
The prescribed interest rate limit for the employee deduction is the lesser of the actual interest paid and the amount prescribed by regulation (2% per month on the outstanding balance as of 2024 per ITA s.67.2).
Source
Cost of Borrowing Regulations (SOR/2001-101); FCAC Auto Loan information; ITA s.8(1)(j), s.18(1)(a), s.67.2; CRA T4044 Employment Expenses guide.
Frequently asked questions
- How is a Canadian auto loan payment calculated?
- Monthly payment = P × r / (1 - (1+r)^-n), where P is the loan principal (vehicle price minus down payment), r is the monthly interest rate (annual rate divided by 12), and n is the number of monthly payments. Canada requires lenders to disclose the annual percentage rate (APR) under the Cost of Borrowing Regulations.
- What is the average auto loan interest rate in Canada?
- As of 2025, new vehicle loans from dealership financing typically range from 5% to 11% APR depending on the lender, term, and borrower credit profile. Credit union and bank rates for well-qualified borrowers can be lower. Used vehicle loans carry higher rates, often 7% to 16% APR.
- What is the maximum auto loan term available in Canada?
- Most Canadian lenders offer terms up to 84 months (7 years) for new vehicles. Some lenders extend to 96 months (8 years), though longer terms significantly increase total interest paid. The Financial Consumer Agency of Canada (FCAC) notes that longer terms mean you may owe more than the vehicle is worth for several years.
- Should I make a larger down payment on a car in Canada?
- A larger down payment reduces the loan principal, lowering both the monthly payment and total interest paid. There is no minimum down payment requirement for auto loans, but 20% or more reduces the risk of owing more than the vehicle's market value, particularly for new cars that depreciate quickly.
- Can I deduct auto loan interest in Canada?
- Interest on a personal vehicle loan is not deductible. If a vehicle is used for employment or business purposes, a portion of interest may be deductible under ITA s.8(1)(j) for employees (requiring Form T2200) or as a business expense for self-employed individuals under ITA s.18(1)(a). The deductible percentage is the business-use portion.
- What credit score is needed for a car loan in Canada?
- Canadian lenders generally offer the best rates to borrowers with credit scores above 720. Scores from 660 to 719 qualify for standard rates. Scores below 660 may still qualify but at higher interest rates. Subprime auto lenders serve borrowers below 600 at substantially higher rates.
- Is it better to lease or buy a car in Canada?
- Leasing results in lower monthly payments but no equity at term end. Buying (with a loan) builds equity and allows unlimited kilometres. The total cost comparison depends on the residual value, lease-end fees, and how long you plan to keep the vehicle. The FCAC provides a lease vs. buy comparison tool at canada.ca.
- Are there fees on top of the auto loan in Canada?
- Additional costs include dealer administrative fees (typically $200 to $700 in Ontario), provincial sales tax on the purchase price (HST in Ontario at 13%, PST elsewhere), licensing and registration fees ($100 to $300 depending on province), and PPSA registration fees of approximately $8 to $15 where applicable.
- What happens if I miss a car payment in Canada?
- Missing a payment triggers late fees and a negative mark on your credit report after 30 days. After extended non-payment, the lender may repossess the vehicle. Provincial rules govern repossession. In most provinces, if the repossession sale does not cover the outstanding loan balance, the lender can sue for the deficiency.
- Can I pay off my auto loan early in Canada?
- Most Canadian auto loans can be prepaid without penalty, but confirm your loan agreement. Some dealership financing contracts include a prepayment penalty or require interest to accrue for a minimum period. Open loans allow full repayment at any time.