Monthly Payments Increasing

Let’s look at the recent increase in car payments and some ways to help you lower the monthly payments on your next vehicle.

Spikes in Car Payments

Monthly car payments vary depending on many factors, such as the initial purchasing price of your vehicle, whether the vehicle is new or used, your loan interest rate, and the length of your loan. The average car payment for Canadians is typically between $400 to $800, with most falling around $500. Most interest rates on car loans are between 4% and 7%.

In 2022, many Canadians experienced an increase in their monthly car payment, with many payments closer to the $700 to $800 range. Interest rates of 6% and 7% have become more common.

Part of this is because the COVID-19 pandemic led to increased prices for new vehicles. Between February 2020 and June 2022, vehicles prices have increased by 33%, partially because of a global microchip shortage, as reported in an article in the Globe and Mail.

How to Lower Your Car Payments

It’s difficult to lower your existing car payment rate, but it’s not impossible. Try these options:

  • Speak to your lender to renegotiate your loan terms or modify your loan.
  • Refinance your car loan by getting a lower interest rate or taking on a longer loan term.
  • Sell or trade in your vehicle for a more affordable one.

It’s much easier to minimize your car payments before you buy a vehicle. To do this, you need to understand down payments and the difference between financing and leasing.

Down Payments on a Car

When you buy a car, you can choose to pay a portion of the price upfront. This is called a down payment. The larger the down payment on a car, the lower the interest rate on your loan. Sometimes, a down payment isn’t necessary, but most lenders require a minimum of 10%. If you’re able to, making a down payment of 20% of the total price is a good target.

Financing vs Leasing a Car

You have three options when buying a new car: paying the full price upfront, financing it through the dealership or bank, or leasing it. Most people choose between the latter two.


If you finance a vehicle, you eventually own it. You do this by taking out a loan and paying it off in monthly instalments over a specified period. At the end of the loan agreement, the car is yours to keep or sell.


Leasing a vehicle means you pay for the vehicle’s depreciation, but you don’t own it during the leasing period. Once the lease ends, you can pay a buy-out amount to own the car or return it to the dealership.

When considering financing vs leasing, leasing is often the much cheaper route. However, not all dealerships offer leasing, and you’ll be at a loss if you have to pay for several repairs on a car you don’t own. You can compare the price of financing and leasing your car with this online calculator offered by the Office of Consumer Affairs.

Other Tips to Avoid Monthly Payment Increases

When paying for a car, try to follow the 20/4/10 rule. This means aim for a 20% down payment on your car, take a loan of four years or less, and other car-related expenses should take up a maximum of 10% of your monthly income. Bad or no credit? You still have options to improve your situation.

Buying a used car will also save you a lot of money on the depreciation that comes with new cars. Always speak with your financial adviser before purchasing a new vehicle. This way, you can explore all of your options to find the best path for your budget.

For more automotive tips and news, check out our blog.