What Determines Your Monthly Car Loan Payment?


Knowing what your car's monthly payment will be in advance is an important step towards keeping your budget under control and being able to make your monthly payments. Frequently, Canadian's are confused about how a monthly payment is structured and how payments are structured. In this article, we will look at how your monthly car loan payment is determined. Some of these points might be familiar, but others may be new to you.

Your Credit History and Credit Score Definitely Matter

If you have had problems with your credit and consequently have a low credit score, this is something that will impact your monthly payment. A low credit score means that a car loan lender will charge you a higher interest rate. A higher interest rate translates into you having to pay more interest on the money you borrowed. The end result is that you will pay more money to own a given car if you have a low credit score than someone that has a high credit score. For the lender, it is strictly a matter of risk assessment and management.

The Down Payment Factor

When you buy a house, the amount that you put down on that house greatly impacts your monthly payment due to the fact that you are financing less of the purchase price with the lender. This, in turn, lowers your monthly payment. The more you put down the lower your bill. However, buying a car can be a different experience. Why? Car dealerships often will work with consumers and offer them no money down or zero money down car buying options that just aren't available for the purchase of a home.

The Number of Months

A third major factor in determining how much you monthly car payments are is the number of months your car loan will run. Some car loans can go as long as 72 months, for example. Typically, a new car loan will be 60 months, but there is a good deal of variation. Used car loans also vary in length. A mix of these three factors has much to do with determining your final monthly payment.

The Interest Rate

Your interest rate is based on your credit score and the level of risk you present to the lender. If you have a good credit score, you shouldn’t have to worry about high-interest rates. However, if your credit score is low, expect to be charged a high-interest rate. You can use sites like Smarter Loans to see a complete comparison of Canadian lender’s rates. 

Smarter Loans

If you're looking for a massive directory of lenders throughout Canada, Smarter Loans is the first place to look. They connect Canadian borrowers with lending companies for any type of financing! Smarter Loans has access to over 50 different loan providers throughout Canada!

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If you’re considering buying a car, be sure to check out our car loan calculator and estimate what your monthly payments will be! Get pre-approved for a vehicle today by completing our application!

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