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Canadians residing in Ottawa understand that a vehicle is an absolute necessity to transport throughout the community. Be it travelling to work or visiting friends and family, Ottawa is a city where having a car is the easiest mode of transportation—as public transit can tend to be unreliable. That said, buying a vehicle isn’t exactly the easiest task in the world to accomplish either.

For most Canadians, they lack the funds and savings to purchase a vehicle outright. With other bills and payments to be made, adding vehicle payments can seem far out of reach. If that’s the case, then vehicle financing may be the way to go for you. Financing involves buying a car with credit, and providing monthly payments until the loan is completely covered. If this interests you, then continue reading and learn how vehicle financing works.

How vehicle financing works in Canada

Happy man buy new car

In order to start financing a vehicle in Canada, you'll have to locate a lender willing to extend credit equivalent to the vehicle's cost. This is known as the Principal. Any borrowing establishment, such as your local bank, credit union, auto dealership, or any business capable of loaning you money, qualifies as a lender. The car is used as collateral for the loan, so if you stop paying or default on the loan, the lender has the right to seize the car to settle the outstanding debt. With vehicle financing, there are three core ideas to understand:


The term refers to the total amount of time you will have to pay back your automotive loan. In Canada, automotive periods can vary between 12 to 96 months. There are benefits and drawbacks to both short or long pay periods. In taking the longer term, you'll benefit from only having to make smaller monthly payments, but the downside is that longer terms can result in higher interest rates, so you’ll have to pay more overtime for the vehicle in question. In general, the term most affordable tends to fall in at about the 60-72 month mark, balancing a smaller monthly payment without witnessing higher interest rates.


The principal is the sum you fully paid for the car you're financing, not including interest: i.e. the total amount you've gotten approved for a loan, along with the fees, taxes, and any add-ons that you've bought. The greater the car's price, the bigger the loan's principal will end up being. You'll either have to make greater monthly payments or take on a lengthier term if your principal is larger, thus risking paying higher interest rates.

Interest Rates

Interest rates are the third most essential part of vehicle financing. A larger interest rate means you'll pay more above the principal over time, but a lower interest rate means you'll end up spending less over time. By determining the monthly interest rate based on the principal of the car, and increasing it by the period of your loan, the bill of sale will reveal the Total Cost of Borrowing for the whole time of your loan.

Couple negotiating sale

Interest rates for vehicles both new and used can vary based on the buyer's personal credit history. The new vehicles will often range between 0% to 5.95%, while used vehicle interest rates range from 3.95% up to 29.95%. This is because used vehicles are cheaper than new vehicles, as well as dealers need to recoup their costs after purchasing, renovating, and storing a vehicle. Dealerships also have to cover their costs when it comes to advertising, along with any other overhead fees they may have.

Leasing vs financing?

Financing versus leasing is a long-standing debate with no clear winner—it simply depends on your financial situation. Leasing a vehicle means you’ll have an easier time switching to a newer vehicle, and you won’t have the burden of dealing with a car’s depreciation over time. On the flip side, because you don’t own the car you won’t gain any equity in the car (essentially turning it into a long-term rental). Financing allows you to own the car at the end of the term, so if you’re expecting to hold on to a vehicle for a long time, drive a significant amount, or you tend to take extra special care of your car, then financing a vehicle is often a smart choice.

Financing with Surgenor Auto Credit

Here at Surgenor Auto Credit, we are known for helping our customers get the best vehicle for their circumstances, both in terms of lifestyle and budget. Our credit specialists are committed to working with you to find the best rates, terms, and vehiclestravelingMost to suit your needs, not to mention we will happily provide you with insight on how to improve your credit score.

If you have any further questions, don’t hesitate to contact us and we can help you on your financing journey as soon as possible. You can also keep an eye on our blog, where we regularly share information to demystify the world of automotive financing.