06 Mar

7 Surprising Details That Affect Your Monthly Car Loan Payment


Most people understand the basics of how car payments work. They also know of the simple factors that affect a loan’s cost, like interest rates or the length of the repayment period.

But there are many other factors involved in determining your monthly car loan payment. Understanding these can help you avoid getting stuck with a payment that’s too high and can help keep your credit score healthy.

In this article, I’ll be doing a deeper dive on the surprising things that can affect your monthly car loan payment. I’ll also be looking at how that payment is structured and the factors that influence it. Finally, I’ll provide you with some tips to help you manage your finances and secure a better rate.

Let’s get started.

1. Credit history

Your credit history is exactly what it sounds like: a record of your borrowing history. It has information about every financial arrangement you’ve ever entered into, from small affairs like cell phone and internet contracts to larger ones like mortgages. This record plays an important role in determining how high a lender sets your auto loan repayment amount.

Car loan lenders will sift through your credit history and look for signs that you might not hold up your end of the bargain. Specifically, they’ll look for evidence that you’ve got a habit of missing payment dates, if you’ve been subject to any repossession orders, or if you’ve ever declared bankruptcy.

Generally, having one of these red flags in your credit history will result in a higher monthly payment amount. 

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2. Credit score

Your credit score will be a big influence in your car loan payment.

This is a measurement lenders use to determine how much of a financial risk you are. In Canada, credit scores usually take the form of a numerical value between 300 and 900, with a ‘good’ score setting somewhere around 650. That said, around 20% of Canadians have a score below this.

It goes without saying that your credit score will be a big influence on how favourable your overall auto loan terms are, and ultimately, your payment amount. Higher credit scores provide access to more favourable interest rates and better repayment terms from auto finance lenders.

If you’re interested in improving your credit score, there are a few simple tips you can follow:

  • Consider consolidating problem debts into a one consolidation loan
  • Budget to pay off high outstanding credit balances quickly
  • Limit the number of new credit accounts that you open

If you want to find out more, this resource gives you some great advice about rebuilding your credit score.

3. Down payment

The amount of money that you put down has a significant impact on the overall cost of your monthly loan amount.

The down payment protects the lender in cases where you default or walk away from the loan. Offering a higher down payment can lower your monthly car loan repayment. A smaller down payment, meanwhile, will result in higher monthly costs.

The reason the deposit affects the overall price of the auto loan is similar to other types of financing – buying a house, for instance. If you put down a higher deposit, you’ll end up paying a lower monthly mortgage payment. That’s because you’re effectively borrowing less from the lender. In simple terms that means the more you put down, the lower your bill.

Pros of a higher down payment

  • You’re borrowing less from the lender, so you’ll receive a lower monthly repayment.
  • You’ll end up paying less interest overall

Cons of a higher down payment

  • You have to find a larger amount of money to pay
  • It takes a while to benefit from the savings

4. Duration of contract

The car loan payment term will reduce monthly payments when longer, however anything after 5 years you need to consider that repair costs will be a real possibility.

You probably knew this already, but the length of your auto loan plays a key part in determining your monthly payment amount.

You’ll pay back less each month with a longer repayment term, but you’ll end up paying more money over the life of the loan.

Most agreements run for around 72-months, but you can get one that’s longer or shorter, depending on your budgetary requirements.

5. Interest rate

Interest is a fixed-rate fee paid to a lender on a regular basis that allows you to delay repayment of a debt. How much interest you pay is closely tied to your credit score. In other words, they’re a reflection of how much of a financial risk you pose to vendors.

If you have a good credit score, you’re likely to end up with a lower interest rate. If you have a bad credit score, on the other hand, you can say hello to higher interest rates.

Your interest rate is personal to you and varies widely from person to person. That’s why it’s essential that you receive the right support when it comes to navigating them.

A good auto loan provider will be able to provide you with advice to help you find the best interest rate. We sift through thousands of auto loans to find a product that’s tailored to your needs, for instance.

(If you’re hungry for more details, we’ve explored the hidden factors that can influence your interest rate in another article)

6. Your income

Your income can directly impact your monthly car loan payment.

Your household income plays a surprising role in determining your auto loan repayment rates. That’s because (you guessed it) it’s used by lenders as an indication of how much of a risk you are to lend to.

Lenders will consider you less of a direct risk when your income is high and your debts are low. You’ll benefit from lower monthly car loan repayments, as a result.

7. Your debt

If you have high levels of personal debt, it’s likely that you’re going to face higher monthly repayment costs on your loan, as lenders consider whether they trust you to repay what you owe on time.

Canadians owe over $2 trillion in debt, so it’s a pretty widespread problem. Thankfully, there are ways to manage your debt commitments and clear your balances so you can secure a better loan term.

If you’re looking to get out of debt, the Canadian Government has some useful advice for you.

Here are some simple ways to reduce your debt levels:

  • Go through credit counselling to help you develop good financial habits
  • Consolidate smaller loans into one, big loan.
  • Stop creating new debt and close new credit accounts you’ve created


As you’ve probably gathered, the cost of your monthly car loan repayment is dependent on how much of al risk lenders assume you to be. Factors like your credit history, credit score, down payment, duration of contract, interest rate, income and your level of debt can all affect how much you’ll have to pay each month.

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If you’re looking for a monthly repayment you can afford, fill out our application form today!

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