Low interest rates for car loans mislead Canadians into purchasing more cars than they can really afford. Although low car prices along with low interest rates seem to be a worthy investment, it hides the financial picture from consumers. According to the depreciation rates, buyers are able to sell their car for more than they owe on it the sooner they repay their loans. On the other hand, a buyer who takes a longer time to pay back their loan would owe more than their car’s worth.

A concept that I learned in COMM 101, called the time value of money, states that the value of a dollar to be received in the future is less than the value of a dollar in your pocket today. With this theory in mind, the sooner consumers pay off their car loan, the better off they are because money earned from selling their car could be spent on investments. However, some buyers are still underwater on the car loan after several years. As a result, it is not the most economical idea for consumers to purchase a car if they are unable to pay it off within a certain time period.