How this is worked out
Payments use the standard amortization formula:
M = P · r(1+r)ⁿ ÷ ((1+r)ⁿ − 1)
with P the amount borrowed, r the annual rate divided by twelve and n the number of monthly payments. Interest accrues on the outstanding balance and the remainder of each payment reduces the principal.
One Canadian wrinkle worth naming: mortgages here compound semi-annually by law, but car and personal loans do not — they compound monthly, the same as everywhere else. This calculator uses monthly compounding, which is correct for consumer loans and would be wrong for a mortgage. The mortgage calculator handles that separately.
Any set-up or registration fee is added to the total cost of borrowing rather than to the payment. The refinance comparison runs the formula twice and adds the switching cost, then reports the break-even month and the lifetime difference.
A worked example
- Amount borrowed
- $30,000
- Rate / term
- 8.5% over 5 years
- Monthly payment
- $615.50
- Total interest
- $6,929.76
- Set-up fee
- $0
- Total cost of borrowing
- $6,929.76
- Total repaid
- $36,929.76
Eighty-four month car loans and the negative equity problem
Canada has among the longest average auto loan terms in the developed world. Eighty-four months is routine and ninety-six is available. The reason is the same everywhere: a longer term makes an expensive car appear affordable on a monthly basis.
The consequence is negative equity. A new car loses a substantial share of its value in the first two or three years while an eighty-four month loan has barely reduced the principal. If the car is written off, or you want to change it, you owe more than it is worth and the shortfall gets rolled into the next loan — which is how people end up financing two cars at once.
On $30,000 at 8.5%, five years costs $6,930 in interest and seven years costs $9,908. The payment falls from $616 to $475. That $141 a month is what the extra $2,978 buys.
The cost of borrowing must be disclosed, and it is not the interest rate
Federal and provincial cost of credit disclosure rules require lenders to state the APR, which folds mandatory fees into a single comparable figure, along with the total cost of borrowing in dollars. That dollar figure is the most useful number on the disclosure statement and the one most people skip past.
For federally regulated lenders the rules sit under the Bank Act; for provincially regulated lenders and most auto dealers they sit in provincial consumer protection legislation. Either way you are entitled to see the APR and the total before signing.
If you have the APR, enter it in the rate field and leave the fee at zero. If you have the interest rate and a separate fee, enter both. Doing both double-counts the fee.
Open versus closed, and whether you can pay it off early
An open loan can be repaid in full at any time with no penalty. A closed loan cannot, or can only with a charge. Personal loans from the major banks are usually open; some dealer-arranged financing is closed, and a minority still uses precomputed interest where early payoff saves much less than the remaining schedule implies.
Ask directly whether the loan is open or closed, and whether extra payments go to principal. Get the answer before signing rather than after, because it is the difference between an extra $100 a month being worth roughly $1,200 in avoided interest and being worth almost nothing.
On the worked example, an extra $100 a month clears the loan ten months early and saves $1,208.
Refinancing a car loan in Canada
It is less common here than in the US and the market is thinner, but credit unions do it and the case is strongest in the first two years while the balance is still large. A meaningful improvement in your credit score since the original purchase is the usual trigger.
Check three things: whether the existing loan is open, whether the new lender charges a registration or set-up fee, and whether the new term is longer than what remains on the old one. The comparison above will flag the last of these plainly — if the payment falls but the total rises, you are refinancing a term extension, not a rate.
Assumptions and sources
- Amortization formula
- Standard annuity formula applied monthly, which is correct for Canadian consumer loans. Verified in tools/test/finance.mjs.
- Monthly vs semi-annual compounding
- The semi-annual compounding requirement applies to mortgages under the Interest Act, not to consumer loans. checked 2026-08
- Cost of borrowing disclosure
- Federal cost of borrowing regulations under the Bank Act, and equivalent provincial consumer protection legislation, require APR and total cost disclosure. checked 2026-08
- Rate
- You enter your own figure. Rates depend on credit score, term, lender type and whether the loan is secured.