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How Much Should Your Monthly Car Repayments Be?

You need a car to get around. Having one that’s paid for can be a joy, as long as it works without too many problems. Eventually, though, you might be facing a situation where you need a car loan in Ottawa because having something newer is necessary.

It’s never easy to figure out just how much you should be paying for a car each month. Obviously, everyone would like to pay next to nothing, but that’s just not realistic. Some cars would be a dream to drive every day, but the reality of paying for them would be financially crushing. Somewhere in the middle of those two scenarios you need to figure out your own comfort level for a monthly car payment.

Knowing what you can spend keeps car shopping realistic

If you ask people for advice, you’ll get all kinds of interesting answers. Even financial experts disagree on how much anyone should spend on a car, with all kinds of conflicting theories. It’s apparent that there’s no strict rule when it comes to monthly car payments, but that doesn’t mean you should just spend whatever.

Know Your Expenses

Sadly, many people really have no idea what their household expenses are for the average month. They might know how much they pay for their housing and perhaps a few other items, but they might grossly underestimate what they spend.

The first step in figuring out what your monthly payments for a car loan in Ottawa should be is to actually know your budget. That means looking up what you pay for every subscription service, groceries on average, and whatever else you’re paying regularly. It’s easier if you make a list and keep it updated with due dates for different bills.

Sure, this step isn’t fun at all. For most it’s quite stressful to think about how much you make each month versus what you spend. You might suddenly realize that it’s time to make some serious changes to your lifestyle, because certain financial habits are obviously detrimental. But knowing this information is absolutely vital before you make an important financial decision. Neglecting your monthly budget and then buying a car is like flying into a snowstorm completely blind. The result could be an absolute disaster.

Take your time with this step and be thorough. If this activity is too stressful, you can spread it out over a few days’ time. Just don’t skip certain items because it’s too much to think about.

Follow the Lender

What many shoppers do is ask a potential lender how much they should spend on a car loan in Ottawa. Lenders calculate that anyway, because they want to avoid lending too much money to an applicant. They look at your larger fixed expenses like your house as well as your income, then use a set percentage of your income to calculate the maximum they feel comfortable with you paying each month.

That monthly percentage varies from one lender to the next. While this is a method people use, it honestly isn’t a very good one. Some lenders are a little more liberal with budgets than others. Ultimately, you’re responsible for your finances, which is why you need to figure out for yourself how much you should spend each month on car payments.

15 Percent Rule

Many experts in the finance and automotive industries agree that by today’s standards you should stick to the 15 percent rule for a car loan in Ottawa or anywhere else. That means your monthly payment should be no more than 15 percent of your net pay every month (that means after taxes and everything else is taken out). That figure drops to just 10 percent if you’re leasing.

This strategy is one of frugalities. It’s easy to get in over your head on a car payment, especially if you have emergencies that come up in life, which they do eventually. Being able to accommodate sudden unexpected expenses while maintaining your car payments is critical to building positive credit. Even just one late or missed payment can have lasting effects on your credit file for some time. Having a built-in cushion in your monthly budget means you can eliminate unnecessary items and take care of all the necessities in times of high financial demands.

Under this rule, other car-related expenses shouldn’t add up to more than an additional 7 percent of your monthly income.

10 Percent Rule

If you really want to tighten the belt on your finances, you could follow the 10 percent rule. As the name implies, you spend 10 percent or less of your monthly take-home income on a car loan in Ottawa. The thought is that with other related costs, you’ll be spending below 15 percent of your income on transportation each month.

The problem with this rule is if your income isn’t very high you might feel like you can’t afford anything. It’s a great rule for people with big paychecks, but others might think it’s too extreme. Remember, there’s no right way to budget for a monthly car payment, so what you choose depends on your goals and preferences.

Don’t Forget Other Car-Related Costs

Every month you’ll be spending your hard-earned money on more than just installment payments for your car loan in Ottawa. Too often, we completely forget about the other costs associated with buying a new car, mostly because we get wrapped up in the financing details too much.

Remember the following items, otherwise you could blow your budget and be left with not enough to cover all your needs from month to month.


Everyone’s insurance situation is different, so there’s no way to give a single rule for you to follow. Before you purchase a car, you should contact your insurance provider to see if that new ride will increase or decrease your monthly insurance payment.

Insurance companies look at plenty of factors when calculating what you pay. Of course, your driving record and other personal factors like creditworthiness are taken into account. Then there’s the car itself, like how much power it has versus the curb weight, the cost of replacement parts and repairs, and how likely you or one of your passengers are to be seriously hurt or killed in a crash when using the car.

This is why you should see how different car models impact your payments before you commit to something. While a certain car might seem really cool, you might be shocked at how much your insurance payments jump if you were to get it, making you think twice about that option.


Some cars are just more efficient than others, so this is another thing you need to consider. If you’re constantly stopping at the pump to refuel, that’s not just an inconvenience. Fuel costs can really add up, so think twice before getting a cool car that drinks the stuff like there’s no tomorrow.

Don’t forget fuel is a car expense

You can find fuel efficiency information on most cars at the dealership. That info is also published online, so there’s really no excuse to not know about it. Keep in mind that those estimates are created using driving conditions you probably won’t duplicate. That means you might experience lower or higher efficiency than the estimates. They still provide a gauge of what sort of fuel costs you can expect. This has a direct impact on your monthly car costs, since without fuel you won’t be going anywhere.


While new cars usually don’t have many problems, you still need to be thinking about the cost of maintenance. Even the most reliable cars require regular maintenance, so neglecting this when calculating monthly car costs is a mistake.

There are wearable items on any car which you must replace periodically. This includes tires, brake pads, and wiper blades. Cars need oil changes regularly plus other fluids must be swapped out periodically.

Do your research about maintenance and common repairs for any vehicle you want to purchase. Estimate the kind of distance you’ll travel each year and what items will need to be addressed, plus what that will end up costing. Too often, car shoppers neglect to do this key activity. They get a new car and it runs great, but a couple of years into the loan there are some maintenance items which are expensive enough that it becomes a choice between making the loan payment or taking care of the car. If you plan ahead this won’t be a problem you face.

Staying On Budget

While it’s one thing to figure out how much your monthly car repayment should be, it might be even more of a challenge to find a car which suits your needs and fits your budget. Too often, shoppers are sent into shock by how expensive cars have become, making them feel like there’s no way to get the vehicle they actually want.

It can be difficult to stick to a budget when car shopping Before you give up all hope, consider any of the following options.

Be Realistic About Needs

Sure, everyone wants a flashy, big SUV or truck, but do you really need one? How many people are you usually transporting? Stick with enough seats to accommodate everyone and leave it at that. This might mean you can’t drive all your friends around, but they can always meet up with you at any destination.

While it’s easy to become fascinated with the latest and greatest features in cars, remember that things like Bluetooth connectivity and a huge infotainment screen are necessities, they’re luxuries. If you’re feeling pinched financially, it’s time to stop feeling attached to those items for a car.

Look At Different Trims

One way to deflate the cost of a car is to look at the lower trim levels. Dealership showrooms almost always show the most loaded trims available, often with optional packages installed. Sure, those cars are great, but that can significantly inflate the purchase price and in turn your monthly budget. After being realistic about your needs for a car, you might realize a lower trim level makes the monthly payments for a car loan in Ottawa far more reasonable.

Consider Other Brands

You might absolutely love a certain car brand, but each model that you would consider from the brand might be more expensive than what you would get from competing brands. If that purchase price from the brand you love is squeezing your budget, it’s time to take an honest look at the alternatives.

Remember that the badge on your car is just a symbol. Most cars sold today are quite reliable, far outdoing what was available just 20 years ago. Also, you need to realize that buying a certain car brand to impress people can be a costly decision. Many of the flashy brands which everyone associates with success and affluence come with high maintenance costs, which means you’ll be spending even more every month on your car. Stick to something reasonable that fits into your monthly budget all around.

Improve Your Credit

If you have time before making a car purchase, improving your credit score is a way to make your money go further. The interest rate on a loan is calculated by lenders looking at your credit file. The more negative items they find, the more likely you’ll be paying a high interest rate. With the same purchase price, the interest rate can make the monthly payment amount increase or decrease by a considerable amount.

Don’t Just Focus On Monthly Payment

While it’s wise to know how much you can afford each month for a car payment, you need to focus on more than just that number. While the monthly payment might be affordable, a car might overall be overpriced, so you need to do your research and negotiate that amount aggressively. After all, the overall purchase price will impact your monthly payment amount, so don’t neglect that important aspect of the car purchasing process.