John Turley-Ewart is a contributing columnist for The Globe and Mail, a regulatory compliance consultant and a Canadian banking historian.
What has a typical price tag of $63,000 in Canada but can cost a lot more, almost immediately loses about 25 per cent of its value after it’s bought, leaves some owners upside down and can tip others over the financial edge and into bankruptcy?
This should be one of the main questions on Ontario’s new mandatory financial literacy test for high-school students. It should really be on every financial literacy program quiz in B.C., Saskatchewan, Quebec and Nova Scotia, where similar programs for students exist. Why? Because many adults cannot answer the question or simply don’t want to.
The answer is a new car, which costs about 70 per cent more today than in 2019 – a roughly 45-per-cent increase above inflation over the same period. But even a used car, with an average cost of about $37,000, can present similar risks. Both are now “financialized” products, meaning the financing drives the largest profit margins and compounds consumer debt. It isn’t sustainable.
Car payments are now mortgage-like obligations for many Canadians, the monthly cut of take-home pay that the 2023 Statistics Canada survey of household spending shows overtaking the cost of food as the second largest expense for families after shelter.
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Ratehub, a Canadian fintech company, estimates that the all-in cost of a new car (financing, gas, insurance, maintenance, parking et cetera) runs $1,504 a month (based on April 2026 data). That’s about $144,000 over eight years.
If borrowed money is paying for the purchase, the cost isn’t the sticker price, but rather the interest and the principal paid over the term of the loan. And that interest is front-loaded, meaning the borrower is paying most of the interest and little of the principal through the early years of the loan.
Simple back-of-a-napkin calculations tell the tale. Unlike home purchases, buying a new car doesn’t require a deposit. Car dealerships are not tutors for consumers with low financial literacy: They sell cars to whoever qualifies for a loan, most of which are adjudicated using credit scores and risk modelling rather than the financial common sense a human touch can sometimes offer.
Borrowing $63,000 for a term of 96 months (yes, you can secure car loans with eight-year terms) at a typical rate of 8 per cent generates interest of about $22,500 over the loan term. Four years in, the borrower will have paid 72 per cent of the interest, leaving a balance that exceeds $36,000. The monthly payment is just shy of $900, a sharp increase over typical payments of just six years past, when they were less than $700.
While Canadians often keep new cars for nine years, the rise in automobile production in the wake of the COVID-19 supply shock has precipitated more buyers to trade in vehicles within four years of purchase when they still have a car loan with years of payments to be made.
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These are the consumers that car dealers refer to as being upside down, because they have negative equity in the car. They have paid most of the interest but much less principal, and the value of the vehicle is less than the loan balance.
What to do? The troubling practice for many is to roll the outstanding balance (about $7,600 on average) into the new vehicle loan. The buyer is then paying interest on the new car and the old ghost car – a perfect set-up for compounding the negative equity outcome at the next go-round in four or five years time.
Add in rising mortgage costs, food inflation and the general increased cost of living, and the sum can be overextension and a one-way highway to insolvency if a job loss occurs.
This isn’t just a Canadian issue. In the United States, the number of borrowers trading in cars with negative equity is about 30 per cent, according to the Wall Street Journal. The estimate in Canada is about 20 per cent.
The affordability crisis has its roots in many failed government policies. Yet, there are times when Canadians themselves need to look in the mirror. High-school financial literacy programs should help future generations do just that before peeling out of a lot with a carload of crippling debt.