How the calculation works
In most provinces, sales tax applies to the vehicle price minus the trade-in value. That's a major advantage of trading in versus selling your old car privately: on a $10,000 trade-in, you save about $1,300 in tax in Ontario.
Amount financed = (price − trade-in) × (1 + tax) − down payment
Payment = amount × i ÷ (1 − (1 + i)^−n)
Payment = amount × i ÷ (1 − (1 + i)^−n)
A longer loan costs more
Dealers often advertise the biweekly payment on an 84- or 96-month term because it looks low. But the longer the term, the higher the total interest, and the more likely you are to owe more than the car is worth (negative equity) for several years.
Beyond the payment
The real cost of a vehicle also includes registration, insurance, fuel or electricity, maintenance and depreciation. Freight and PDI charges, as well as admin fees, are also taxable and are often added to the advertised price.