Car loans, along with other types of debt, are on an upward trend. Despite rising costs and higher interest rates, Canadians plan to buy cars in 2023.
According to data from the recent Finder: Consumer Sentiment Survey Q1 2023, more than 1 in 10 (12%) of Canadians plan to take out a car loan in the first few months of 2023 — up from 9% in 2022.
A person’s age also appears to impact the decision to use a car loan to purchase a vehicle in 2023. Higher interest rates and rising borrowing costs appear to hinder older generations when it comes to taking on debt to purchase a vehicle.
Based on survey responses, younger Canadians were most likely to use a car loan, while baby boomers were the least likely to use auto financing to buy a car in Q1 2023.
Slightly more Canadians will choose a used over a new car, with 42% looking to purchase a used car in 2023, compared to 37% opting for a new vehicle.
Where we live has an impact on buying new vs used cars. For instance, only 31% of car buyers in British Columbia planned on purchasing a used car, compared to 43% who planned on buying a new car. In Manitoba, more buyers favoured a used car, with 42% opting for a pre-owned vehicle, compared to 34% shopping for a new vehicle.
To purchase their next vehicle, many Canadians will look for some form of financing, such as a car loan, personal loan, line of credit, online financing or a loan through a private lender or obtain funding through a friend or relative. Turns out car buyers in the Northwest Territories, Prince Edward Island and Alberta have the highest intention of getting a car loan (100%, 25% and 16%, respectively).
Buying a new car is a major expense for most people, with Canadians shelling out between $400 and $800 on car payments every month. Unfortunately, rising interest rates, supply-chain issues and global demand have done little to help the price of used and new vehicles over the last few years.
According to the Auto Trader Price Index, the median retail price for a new vehicle was just over $55,000, in Q3 2022 — with new cars experiencing the largest year-over-year price increase (19.8%).
This put pressure on the limited inventory of used vehicles and, as a result, prices for used cars, trucks, SUVs and minivans also increased, with the average sale price reaching just under $37,200 by Q3 2022.
Given that the average car loan interest rate is now 7.21%, buyers can expect monthly car payments to remain quite high, at least in the foreseeable future.
| Car | Loan amount | Average interest rate | Term length | Monthly average car payment |
|---|---|---|---|---|
| New Car | $36,9621 | 7.21% | 48 months | $889 |
| Used Car | $27,2902 | 7.21% | 48 months | $656 |
| New Truck | $55,8323 | 7.21% | 48 months | $1,342 |
| Used Truck | $36,5574 | 7.21% | 48 months | $879 |
1. Based on a $42,452 new car price in Q3 2022 with a 20% down payment
2. Based on a $34,112 used car price in Q3 2022 with a 20% down payment
3. Based on a $69,790 new truck price in Q3 2022 with a 20% down payment
4. Based on a $45,696 used truck price in Q3 2022 with a 20% down payment
The average Canadian paid between $400 to $800 per month for their car payment — a monthly cost that does not reflect the increased cost of borrowing due to rising interest rates in the latter half of 2022.
A decade ago, average interest rates for all types of loans, including car loans, were at historical lows. This made buying vehicles much easier — allowing Canadians to borrow more on their car loans with relatively low repayment costs. However, interest rates for all loans, including car loans, started to climb in the last year or so. Now, car loan rates are almost double compared to five years ago.
At the beginning of 2023, the average interest rate for an auto loan in Canada was 7.21%.
Despite the rise in online shopping, Canadians are still most likely to apply for a loan when they’re at the dealership buying a vehicle.
According to data collected through the Finder: Consumer Sentiment Survey Q2 2022, just under half of Canadians (41%) would “never buy a car online.” Still, sentiment about buying a car online appears to be shifting.
When getting a car loan, most Canadians still find financing through the dealership. According to a 2018 Statista survey, 66% of respondents admitted getting financing through the dealership where they bought their vehicle; another 18% said they took advantage of loan incentives and/or special financing, while 15% obtained a car loan through a bank or traditional lending institution.
The primary reasons for taking out a car loan (multiple responses allowed), based on the Finder: Consumer Sentiment Survey Q2 2022:
As of April 2021, Canada owes roughly $3.59 billion in auto loans, according to Statistics Canada. Since July 2016, Canada has owed on average $2.8 billion per year, hitting a maximum only a year ago, with lenders advancing $4.1 billion in July of 2020, with a low of $1 billion in April that same year.
After hitting almost 1.00% in the first half of 2020, delinquency rates on auto loans in Canada are down at 0.76%, according to the TransUnion Industry Insights Summary. This means that delinquency rates fell 7.21% quarter-on-quarter and a whopping 20.88% year-over-year.
This drop in delinquencies could be explained by some major car companies like Hyundai offering temporary deferrals on car loans, along with some major banks allowing consumers to defer loans for a short time frame, with big banks like TD and BMO including auto loan deferrals as part of their COVID-19 short term relief programs.
An even bigger reason delinquency rates would be down is that the average Canadian’s savings rate jumped from 1.30% of disposable income in 2019 to 14.90% in 2020, leaving far fewer people behind on payments of all kinds.
In recent years, the popularity of the SUV has begun to fall. This could be due to the higher costs associated with this type of vehicle, with most SUVs priced higher and costing more to refuel and repair.
When asked what vehicle they planned to buy, Canadians still favoured the SUV, but the sedan — the cost-effective family car — appeared to be making a comeback.
Finder is a personal finance comparison site with a mission to help Canadians save, invest, spend wisely and grow their wealth. Each month, Finder provides half a million Canadians – and more than five million globally – with independent and trustworthy financial information. Our goal is to help people make better financial decisions by providing objective, comparative insight on thousands of products and services.
As a global fintech website and app, Finder provides consumers free access to smart money content. Whether it's expert insight, product or service comparisons or independent reviews, Finder helps consumers stay on top of their finances while saving time and money.
Finder is available to consumers in Canada, Australia, America and the United Kingdom. Initially launched in 2006 by three Australians – Fred Schebesta, Frank Restuccia and Jeremy Cabral – Finder's global reach now includes thousands of products and services in hundreds of financial categories and provides expert content and independent reviews to more than five million users each month.
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