Car Loan Debt – Help & Advice

Getting on the road is a costly affair with Canadians relying on long term car loans, with high interest rates, to cover the cost of their vehicles. Not being realistic about affordability is the leading cause of car loan debt.


For many, taking on finance to purchase a new car is second nature. Driving is an essential part of day-to-day life and a car loan is often the only way to get on the road.

According to reports, more than half of all new car loans across Canada are financed for 84 months (seven years) or longer. A longer term allows lenders the opportunity to make more money in interest payments, with costs ranging from 0% into high single figures depending on make, model, time of year and duration of the loan

When searching for your next car it’s important to consider how much you can comfortably afford over a set period, because falling behind on payments is when real trouble can begin.

How car debt can affect your life

  1. Personal finances: Longer term payments can often be advertised as a way of getting a more expensive car at an affordable monthly payment, however, the reality is people usually end up buying something they can’t really afford and spending more on interest than they’d like.
  2. Credit rating: Defaulting on one payment naturally has a knock-on effect on other aspects of your finances. If you fall behind on payments for your car your credit rating will be adversely affected, and you’ll struggle to secure future lines of credit.
  3. Relationships: Being faced with mounting pressure to repay debts can be a fraught time and understandably can have a negative impact on your relationships with those closest to you. Being faced with the prospect of potentially losing your vehicle, which can be a lifeline for family and work life, can be stressful and cause arguments between friends and family.
  4. Anxiety: Falling into debt isn’t difficult but it’s impact on your mental health can be far reaching and complex. Statistics show that many people living in debt feel isolated and don’t know where to turn for support. It can be all too easy to hide from debt, however, it’s important to remember it doesn’t take a day off and creditors will continue to chase what they are owed.
  5. Security: Car finance is a secured loan, with the money borrowed linked to the vehicle you’re paying for. Should you fall into arrears with your payments the creditor can take steps to seize the vehicle to reclaim payments.

According to reports, more than half of all new car loans across Canada are financed for 84 months (seven years) or longer

How can I avoid car loan debt?

It’s important to recognise that not all car loans are bad, but you should opt for the deal that isn’t just the most suitable for your current financial situation but your future circumstances too. Here we shine a light on hints to help you from falling into money trouble.

  • Be realistic

Being realistic about your affordability can sometimes be easier said than done when faced with a new car and seemingly manageable finance package, however, it’s vital to avoid falling into debt. Don’t fall for the allure of a high-end car with low payments – only buy what you can afford.

  • Weekly planning

When it comes to handling car finances many people only consider the monthly cost, not the weekly. You need to consider the impact a new car would have a on day-to-day living every week as well as taking maintenance and fuel into account too.

  • The deposit

The bigger the deposit you’re able to put down on a new car, the lower your monthly payments will be. If possible, aim to put down 20%.

  • Time is of the essence

They say time is money and never has the saying been truer when it comes to paying off car finance. Longer payments may come with a lower monthly spend, however, over the course of your agreement you’ll spend more on interest which quickly adds up. Paying over a shorter period will help you save in the long run.

Warning Signs

If debt is manageable it is a natural part of life. However, when repayments become unmanageable and begin to have an impact on everyday life then it’s important to recognise there could be a problem and seek help to address is. There are key warning signs that indicate you’re heading for, or are already in, financial distress.

  • Being secretive about finances – especially if discussing them more openly is usual
  • Feeling anxious, scared and alone, often withdrawing from events with friends and family
  • Having unpaid bills and being afraid to check bank balance
  • A lack of day-do-day essentials at home including food and personal products
  • Having several different credit cards or loans
  • Only being able to make the minimum payment on credit card and loan debt

How can I get help with car debt?

If you find that your car payments begin to become unmanageable and you’re buried in payments, it’s important to seek help as soon as possible.

The first step to finding debt help is often the hardest but one that can help prevent the problem from spiralling out of control.

It’s important to speak to your lender as soon as you begin to feel uneasy about being able to make payments or as soon as you miss your first. Breaking the ice may be daunting but shows the lender that you’re aware of your current financial situation and are keen to resolve the problem as quickly as possible. Whether it’s opting for refinancing or asking for a deferral, your lender can potentially agree to a number of solutions to help prevent you from losing the car.

Alternatively, Money Advice Canada can offer a range of debt relief solutions tailored to your specific needs to take the pressure off handling debts and creditors on your own.

Warning Signs

If car repayments become unmanageable it will begin to have an impact on everyday life

How we can help you with your debt?

You’re on your way to resolving your debt problems, this is what will happen next.

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Fill out the form and arrange a call back with one of our debt advisors.
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We will then run through all of the options available to you and advise you on which is the best option for you
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We will then help you put the debt solution in place that will help you get back on track

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