You have the right to treat yourself and buy the SUV of your dreams. And also to finance it over seven or eight years. You might as well know what you're getting into.
According to JD Power, about 60% of new auto loans are for 84 months (seven years) or longer. So only 5% of auto loans result in payments of $400 or less. On the other hand, 58.7% of payments are between $500 and $1,000.
According to JD Power, the average monthly payment is $880. About 30% of borrowers pay $1,000 or more each month for their beloved car.
Some consumers extend their loan to 96 months or eight years. “For this type of loan, I recently saw an interest rate of 13.89% from financial institutions,” reveals Johanne Le Blanc, budget consultant at Option consommateurs. For a car selling for $30,000, the actual cost is $49,849.92 including interest, with a monthly payment of $519.27. It makes you think.”
However, according to the Autohebdo.net index, the average price of a new vehicle sold in Quebec in 2023 is $64,215. Across Canada, a new car costs $56,264 and an SUV costs $61,285.
Lots of interest expenses
Let's use the Consumer Protection Office (OPC) calculator (opc.gouv.qc.ca/auto): To finance a car worth $50,000 over 84 months, add interest of $24,141.76 Dollar. The cost of a $60,000 car is $28,969.44.
That's almost half the cost of the vehicle!
Over five years, the interest on a $60,000 car reduces to $20,080.20 ($4,238.76 less over four years). For a car worth $50,000, we're talking $16,733.20 (minus $3,532.08 for four years).
“We only look at the price before taxes. Interest, gasoline, repairs and maintenance make the vehicle significantly more expensive, which affects our personal finances,” analyzes Johanne Le Blanc.
Many consumers have no choice but to own a car. “But they need to think about their actual needs before buying. Unfortunately, for many people, cars are about identity and not utility,” she adds.
Ms Le Blanc insists: the longer you extend your loan, the more expensive it becomes. Very expensive.
“With current high tariffs, it makes more sense to buy a compact petrol engine that offers the best value for money and good comfort,” said George Iny, President of the Association for the Protection of Motorists. (APA). ). SUVs use 25% more gas; Purchasing, maintenance and spare parts are more expensive than limousines.”
Ultimately, if you finance for more than six years, you may end up with a loan that exceeds the value of the vehicle. Ouch!
Advice
- Some consumers roll the remaining balance of their current car loan (even if it takes several months to pay off) toward financing their next vehicle (what we call the “balloon”). This is the best way to get into debt and according to the OPC it is illegal (however there is legal ambiguity on the subject).
- To find out the true cost of a car, use the CAA calculator: bit.ly/3pm4R1F
- Some advice from the OPC: bit.ly/3taJu80