What's The Best Car Loan Length in Canada? How to Know

Today we’re tackling one of the most common questions we come across. What's the best length for a car loan? It’s a tough question to answer specifically as everyone’s situation is different, but we can offer some guidance.

Our auto loans team explains the pros and cons of longer auto loans and what you need to look out for when shopping for a loan.

What's the Average Car Loan Length?

According to Experian, the average length of a new car loan is 72 months. That’s 7 years. That’s a long time to have the same loan and drive the same car!

The average used car loan is around 62 months, which isn’t much better.

Yet the rising cost of cars and the relatively stagnant wage market means we have little choice if we want to drive the cars we want.

The Best Car Loan Length

The short answer is, the best car loan length is one that is as short as you can afford to make it without putting yourself into financial difficulty.

That’s a universal truth but more important for those at the lower end of the financial scale.

The longer the loan, the more you’ll pay in interest. The shorter the loan, the higher your monthly payments but the less you’ll pay in interest.

The more money you can put towards the amount you borrow (the principal), the better.

Interest is dead money to you as it’s just profit for the lender. It doesn’t count towards the asset, it’s keeping the lender in business so you need to minimize it as much as possible.

How to Minimize the Length of a Car Loan

There are a couple of things you can do to minimize the length of an auto loan. Some are sensible and can be done without compromising the purchase while others may need a little compromise.

• Put More Money Down A larger down payment means borrowing less, which can mean a shorter auto loan. The more you can afford to put down, the lower the potential interest rate too, which is another saving.

• Build Your Credit: The higher your score the lower the interest rate so boosting your score ahead of time can get you lower interest. The less interest you pay each month, the more of the principal you can pay.

• Buy a Used Car While auto loans for used cars aren’t much shorter than new cars, they are shorter. Nearly new cars are also cheaper and there are often more deals to be done. Both of these can save money, allowing you to shorten the loan.

• Lease Instead of Buy: Leases are cheaper than auto loans because you’re not paying for the asset, just rental. You don’t own anything at the end but you do pay less each month.

You are free to choose the amount, type, and length of loan you want and we’ll help you find a great deal. However, we strongly recommend thinking carefully about how much you borrow and for how long. This will determine the best car loan length for you.

We want you to be happy with your car and your auto loan and will do everything we can to help with that.

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