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Five Costly Car Financing Traps That Keep Canadians Trapped in Debt

Finance · Major Banks · bnn_bloomberg · 2026-08-24

Financial expert Christopher Liew outlines five common auto loan mistakes that inflate costs and trap Canadian consumers in long-term debt cycles.

What Happened

The Perils of Monthly Payment Focus: Many consumers fall into the trap of prioritizing a low monthly payment, which often leads to extended loan terms of 84 or 96 months. This strategy significantly increases the total interest paid over the life of the loan, often resulting in buyers paying for a vehicle long after it has depreciated in value.

Negative Equity and Loan Rolling: Rolling an existing loan balance into a new vehicle purchase creates a dangerous cycle of negative equity. When a loan balance exceeds the car's market value, owners face severe financial risk if the vehicle is stolen or written off, as insurance payouts will not cover the outstanding debt.

Dealer Financing and Hidden Costs: Dealership finance offices often function as profit centers that may steer buyers toward loans that offer the dealer higher commissions. Consumers are advised to secure pre-approval from banks or credit unions to establish a competitive benchmark before entering the showroom to avoid predatory lending practices.

Strategic Loan Management: Borrowers should avoid financing unnecessary add-ons like extended warranties or paint protection, which inflate the principal and compound interest costs. Regularly reviewing loan terms for prepayment options or refinancing opportunities can help consumers reduce their interest burden and shorten the duration of their debt.

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