Video: The risks of long-term car loans

From: Financial Consumer Agency of Canada

The risks of long-term car loans

For more information about car finance that works for you, visit Financing a car​.

Tran​script  

Lucie Tedesco, Commissioner, Financial Consumer Agency of Canada

If you’re shopping for a car, chances are you will need to finance your purchase.

You may be offered car loans with repayment terms of 6, 7, 8 years or even longer. That’s a stretch from the traditional car loan of five years or less!

Be careful about getting over-extended.

Here is what I mean. Let’s say you have a 7-year loan and, like many, you want to trade in your car after 4 years. You may owe more on your car than it’s worth.

(Loan for: 7 years
Sell after: 4 years)

In that situation, you may be offered the opportunity to add the remaining debt to a new loan. That means a bigger debt, possibly at a higher interest rate.

[Old loan
(3 years’ payments)
+ new loan
= more debt!)
]

So if you don’t want to keep paying for a car you’re no longer driving, be sure you understand the implications of a long-term car loan before you sign on the dotted line.

For more information, visit us at itpaystoknow.gc.ca.​​​​​​​​
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