Amortization: what does it mean in Canadian car loans?

Amortization in Canadian car loans refers to the structured process of paying off your vehicle debt, including both the principal amount borrowed and the accrued interest, over a predetermined period through regular, fixed payments. Each payment is carefully calculated so that over the loan's term - commonly 60, 72, or even 84+ months in the current 2025 market - the entire debt is extinguished. Initially, a larger portion of your payment goes towards interest, gradually shifting to more principal as the loan matures.

This matters significantly to Canadian borrowers because the amortization period directly impacts the total cost of your vehicle and your monthly budget. While a longer amortization period (e.g., 96 months) results in lower monthly payments, it substantially increases the total interest paid over the life of the loan, making the car much more expensive overall. Furthermore, longer terms mean slower equity build-up, increasing the risk of negative equity where you owe more than the car is worth, especially given typical vehicle depreciation. Canadian consumer protection laws, enforced provincially and federally, mandate that lenders provide clear disclosure of the amortization schedule, annual interest rate, and the total cost of borrowing, including all applicable provincial taxes (like PST, GST, or HST added to the vehicle price), enabling you to make an informed financial decision about your purchase.