What Happens to my Car Loan when Interest Rates Rise?
There’s plenty of good news for car buyers in Halifax and nearby Provinces. As reputable dealers like Laneway Auto Loans and Sales grant auto loans at fixed rates in Canada, your monthly payments don’t increase in parallel to rising interest rates. Instead, all your fixed loan payments remain unchanged throughout their repayment periods. But (and there’s always a but…) if you decide to renegotiate or renew your fixed-rate auto loan, there’s a chance your monthly payments could be higher, if interest rates have risen since you closed the deal. That’s because interest rate hikes announced by the Bank of Canada are applicable nationwide, generally keeping pace with inflation.
Will my Auto Loan Repayments Go Up if Interest Rates Rise?
As prices soar across the board for services and goods, the purchasing power of the Canadian dollar shrinks, and higher interest rates are imposed to keep the nation’s economy running smoothly. Luckily, vehicle owners still paying off their auto loans are protected against these variations, although budgets may well tighten for homeowners opting for variable-rate mortgages. If your vehicle is already financed through a fixed-rate loan, your monthly repayments won’t change at all. However, if you haven’t yet signed your car loan agreement, there’s a chance it could be more expensive, as the rising-tide impacts of federal rate hikes and indirect effects on auto loans and refinancing rates.
What’s a Prudent Amount to Earmark for My Ride?
Only you know what your family needs and wants. However, there is a general rule that drivers should budget no more than 20% of their gross annual income (or 10% of their take-home pay) for transportation each month. Remember, this family budget category includes parking and registration fees, insurance premiums, fuel, upkeep, and depreciation, in addition to loan repayments. It’s also a smart idea to set aside a few dollars each month to cover those unexpected outlays that always crop up at the worst possible moments: a shot suspension, a leaky radiator, or even the occasional fender-bender.
How Can I Stay Current on My Debt?
If your family finances are taking a hit, due to higher payments on your variable-rate loans, here are six hot tips from Laneway’s financial gurus that will help keep your budget on course through even the most turbulent times:
- Find ways to boost your income quickly (sell or barter your services or wares part-time or online, hold clear-out garage sales, and join cost-cutting schemes like bulk purchase groups);
- Save money each month by canceling unused monthly subscriptions forgotten on direct debit, and review your cable and phone plans;
- Research frugal lifestyles, and pare down your weekly shopping lists to a no-waste minimum;
- Consider consolidating your unsecured debts, with a fair chance of negotiating a better overall interest rate;
- If you can’t negotiate a better rate, then pay off your highest-interest loans as quickly as you can;
- Tuck away as much as you can each month in an emergency fund, to cover installments when your cashflow unexpectedly runs short;