Car loan calculator definitions
Before you start filling in the fields on the car payment calculator, take a moment to be sure you’re clear on what each term refers to, as follows.
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Price of New Car: Also referred to as the selling price. This is the vehicle’s total list price with all fees included, other than registration and sales taxes.
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Registration Fees: When you purchase a car in Canada, you must pay to register with the provincial government as the vehicle’s owner before you can legally take ownership. This includes fees for the vehicle permit, license plate and sticker. If you are buying from a dealership, the vehicle registration paperwork will usually be completed by the dealer, with the fees going through the dealer to the appropriate provincial agency. (If you buy a used vehicle, you will need to register it yourself.)
These fees vary depending on your location and type of vehicle. For example, registration fees for a car in Ontario will run somewhere between $150 and $200, including the vehicle permit ($32), license plate and permit ($59) and license plate sticker ($60 for Northern Ontario; $120 for Southern Ontario).
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Sales Tax Rate: The rate of sales tax you pay on your car depends on the province where you make the purchase, and whether the vehicle is new or used. For new car purchases, you generally pay either 5% for the federal goods and services tax (GST) plus your provincial sales tax rate or, in provinces that have the harmonized sales tax, you pay the applicable HST rate. Rules for sales taxes on used cars vary from province to province.
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Trade-In Value: Your dealer may offer you a discount on the purchase of your new car if you trade in your old vehicle. The discount amount depends on the make, model, age, mileage and condition of your old car. (You can get free online estimates on trade-in values from Canadian Black Book.) Our car payment calculator will deduct the trade-in value from the price before calculating the taxes.
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Down Payment:Â The down payment is the amount of money you have on hand that you are willing to pay immediately on the purchase.
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Length of Loan: Also called the term, this is the number of months you will take to pay back the car loan in full. At the end of the term, you will own the car outright. The longer the term, the lower your monthly payments will be, but you’ll pay more overall in total interest costs.
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Interest Rate: This is the rate of interest the dealer or financial institution is charging you annually on the car loan. Borrowers with good credit scores will qualify for the lowest rates, while those with bad credit will pay more.
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Financed Amount: Once you key in all the above values, the auto loan calculator will determine your financed amount, which is the total amount of money you’re borrowing (the total cost minus the trade-in rebate and down payment).
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Monthly Payment:Â The vehicle loan calculator determines your monthly payment based on your financed amount, term and interest rate. If the monthly payment is too high for you, you can increase the length of the term, or shop around to see if another dealer or creditor will offer you a lower interest rate. But again, remember that the first strategy will increase your total interest paid overall.
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Total Interest Paid:Â This calculation shows you exactly how much you are paying the dealer or financial institution in interest charges for the privilege of borrowing the money for your car purchase. This can also be described as total borrowing costs.
How to use the car loan payment calculator
Once you fill in the amounts for all the required fields (marked with an asterisk), click on the Calculate button to find out the Financed Amount, Monthly Payment and Total Interest Paid.
Let’s have a look at how the numbers work out when you use the default settings:
- $25,000 (price of new car) – $5,000 (trade-in discount) = $20,000
- Then add 5% GST (+$1,000) and registration (+$200) = $21,200
- Finally, subtract the down payment (- $5,000) = $16,200, which is the Financed Amount, or total amount you’d be borrowing.
To finance $16,200 over 36 months (or three years) at 5% annual interest would cost you $483.55 per month, and the total interest charges would be $1,279.08.
But what if you can’t afford more than $450 per month? In that case you have the following options:
- Put more money down. If you can save up an extra $1,200 so your total down payment is $6,200, your monthly payments go down to $449.56, even if everything else stays the same.
- Increase the term length. If you finance over 48 months (four years) instead of 36, your monthly payments go down to $373.03. But that lower monthly payment comes at a price: about $430 more in total interest charges ($1,707.36 vs. $1,279.08) over time.
- Negotiate a better price. If you can get the dealer to knock down the price by $1,125 (or give you a greater trade-in discount of that amount) to $23,875, your monthly payment in this scenario will be $450.13.
- Buy a cheaper car. If all else fails, you may just need to choose a less expensive vehicle.
Next steps
Once you’ve used the car finance calculator to figure out what you can and can’t afford, you’re ready to make sure you’ll get the best loan for your means. Head over to one of Canada’s car loan aggregator platforms, such as Car Loans Canada or LoanConnect to see which lenders can meet your needs.
Or, if you want more information about car loans in general, check out the Money.ca article Understanding Canadian Car Loans from A-Z. Before you know it, you’ll be driving away with the savings.
