How to Finance a Car with a Policy Loan in Canada

A house is financed once or twice in a lifetime. A car comes back. Every five or six years a household that drives needs another one, and each time the dealer's finance office or a lender offers to spread the price over 60, 72 or 84 months. The interest on that loan leaves the family for good. Then the next car starts the cycle again. Over a working life, that is not one interest bill. It can be ten of them.

That repetition is why Nelson Nash used the car to teach his idea. Finance one car from capital you built, pay it back as a lender would demand, and you can do it again for the next car. The financing approach known as The Infinite Banking Concept®, originated by R. Nelson Nash, rests on that habit.

Below you will see how the idea works in Canada today, with real figures. The two case studies use illustrations of a specially designed, high-cash-value, participating whole life insurance policy from a Canadian mutual life insurance company, The Equitable Life Insurance Company of Canada ("Equitable"). They also use its policy loan rate announced on 14 May 2026. Equitable has no shareholders; its participating policyholders own it. The illustrations show one design for one person, and only their guaranteed column is promised.

Two facts come first. Canadian Wealth Creation Centre Inc. (CWCC), the firm behind this site, is paid by insurer commissions when a policy is bought, Equitable among them, so weigh what follows with that in mind. And the tax rules here are described in general terms from the sources listed; your accountant applies them to your facts. Neither CWCC nor its author is affiliated with Infinite Banking Concepts, LLC or the Nelson Nash Institute. CWCC is not a bank, and a policy is not a bank account.

What did Nelson Nash teach about paying for cars?

Nash taught that the car is where an ordinary family can begin financing its own purchases. Build capital first in a dividend-paying whole life policy, buy the car from that pool, then pay the policy back as a finance company would demand. He compared five ways to pay for cars and favoured the last.

Nelson Nash turned to cars in Part III of his book, Becoming Your Own Banker®, in Lessons 1 to 4. His reason was practical: a car needs a pool of capital within reach of an ordinary household willing to wait a few years.

His example is American and decades old. A financing package of $10,550 at 8.5% over 48 months comes to about $260 a month, and the car is replaced every four years across 44 years. Then he lists five methods:

• Method A: lease the car.
• Method B: finance it through a lender or a finance company.
• Method C: save up and pay cash.
• Method D: build capital first in bank certificates, buy from that pool and pay it back.
• Method E: build capital first in dividend-paying whole life insurance, buy from that pool and pay it back.

Three lessons from those pages matter more than any of his numbers.

The first is to capitalize before you use. Nash's saver puts $5,000 a year into the policy for seven years before buying a single car. The early years of a policy are slow, as the Canadian figures below show. Our page on capitalization before use goes further.

The second is to buy the car you would have bought anyway. A bigger pool is no reason to buy a more expensive one.

The third is to pay the policy back as you would pay a lender. Nash was firm about it. A household that takes a policy loan and treats repayment as optional shrinks the very pool it meant to build.

Nash wrote in another country, under other tax rules, with another era's interest rates. His ideas travel well. His figures do not, so everything below uses Canadian sources and a Canadian insurer. The Infinite Banking hub gathers the rest of the method Nelson Nash described.

Did the twin sisters buy their cars with a policy loan?

No, not in Nash's own telling. In Lesson 3 the insurance sister pays for her car with dividends from her policy, and Nash says plainly that she is not making a policy loan. She then pays premiums equal to the finance payments she would otherwise have made. The policy-loan version came later, and it carries a loan's rules.

In the story of the twin sisters, two sisters set aside the same money, one in bank certificates and one in a policy, and buy the same cars. It is easy to retell it as a story about policy loans. On Nash's page, the insurance sister's car money comes from dividends.

The difference matters for three reasons. Dividends are declared each year by the insurer's board and are not guaranteed, so a plan that depends on them to buy cars depends on a figure no one can promise. Taking dividends in cash, instead of leaving them to buy paid-up additions, changes the policy's future values and has its own tax treatment, which your accountant reviews. And a dividend withdrawn is gone from the policy, while a loan leaves the cash value in place as security and creates a debt instead.

The loan version is the one followed here: borrow from the insurer against the cash value, pay the dealer, then repay the insurer at least as fast as a lender would have required. It comes with one discipline that is easy to forget. Showing the gross cash value while ignoring the loan is wrong. What you own is the net policy value: the cash value minus the loan and any unpaid interest. Every figure below that matters is shown both ways.

How does a policy loan buy a car in Canada, step by step?

You confirm the loan value, ask the insurer for a loan quotation and the policy's adjusted cost basis, request the loan, pay the seller, then repay the insurer on a fixed monthly schedule. With Equitable, the maximum is 90% of the available cash value, the rate announced on 14 May 2026 is 6.50%, and repayments go to principal.

1. Check the loan value. Equitable's policy loan guide, dated January 2020, sets the maximum loan at 90% of the available cash value, meaning the guaranteed cash value plus the cash value of paid-up additions, less anything already owed. Equitable may set a lower limit. The guide is an older administrative document, and your contract governs.
2. Ask in writing for a loan quotation, with the amount available and the current rate, and a statement of the policy's adjusted cost basis.
3. Request the loan. Equitable advances the money and you pay the seller. The car is yours. The policy loan is secured by the cash value, so the vehicle is not pledged to the insurer.
4. Set the repayment. Pick a monthly amount at least equal to what a lender would have charged for the same car over the same term, and automate it.
5. Deal with the interest at least once a year, either by paying it at the anniversary or by keeping payments high enough to clear it within the term.
6. Review the loan statement at each anniversary, and more often if the margin is narrow.

The rate comes from Equitable's dividend scale announcement of 14 May 2026, for the year from 1 July 2026 to 30 June 2027. It reads: "The interest rate for most policy loans will remain at 6.50%." The announcement adds that this applies to new and existing loans and to automatic premium loans, and that older policies may have different rates. Equitable sets the rate and may change it, for new loans and for loans already outstanding.

The same announcement gives a dividend scale interest rate of 6.40%. That figure helps set the dividend scale and is not what the policy earns, so subtracting it from 6.50% says nothing about the loan's cost.

Equitable's policy loan guide sets out how the loan behaves. Interest accrues daily from the date of the loan. Each repayment is applied entirely to principal. At each policy anniversary, interest that has not been paid is added to the loan, and interest is charged on the new total from then on. The guide also says that "a policy loan does not affect the values in the policy while the policy is in effect"; the loan reduces what is paid at surrender or at death. And if the loan plus accrued interest exceeds the available cash value, the policy lapses and the coverage ends.

So keep the full rules of a policy loan in view. The insurer is the lender, at a rate it sets and may change, and the insurer receives the interest. The cash value is the security. A loan is a disposition under s. 148(9) of the Income Tax Act, so the part above the policy's adjusted cost basis can be taxable income, as our page on when a policy loan becomes taxable explains. An unpaid loan, with its unpaid interest, reduces the death benefit. And a lapse with a loan outstanding can create tax, to the extent the proceeds for tax purposes exceed the adjusted cost basis, even if little cash reaches you.

What does "6.5% simple interest" mean on an Equitable policy loan?

Within each policy year, the interest is simple: it accrues daily on the principal outstanding and is not charged on interest. Interest left unpaid at the anniversary is added to the loan, and from then on it bears interest too. A household that pays the interest at least once a year keeps the loan simple in practice.

You may hear an Equitable loan described as "6.5% simple interest." The phrase is accurate inside each policy year and incomplete across years.

Illustrative example. A $40,000 policy loan at an assumed 6.5% a year, using the rules in Equitable's guide.

• Interest accrues at about $7.12 a day on $40,000.
• If nothing is repaid during the first year, $2,600 of interest has accrued at the anniversary.
• If you pay that $2,600, the loan stays at $40,000 and the second year starts fresh.
• If you leave it unpaid, Equitable adds it to the loan. The second year's interest is then charged on $42,600, about $2,769.
• If instead you pay $785.65 a month toward the loan, each payment goes to principal and the interest accrues on a falling balance. About $2,319 of interest accrues in the first year.

Inside the year, interest does not earn interest. At the anniversary, unpaid interest becomes principal. A household that pays its interest every year keeps the loan simple from start to finish. One that leaves interest unpaid for years carries a compounding debt against its policy, and its margin before lapse narrows each year.

One practical point for business owners: a 2017 CRA technical interpretation described deductible policy-loan interest that is added to the loan as a further policy loan, and so a disposition. That interpretation may not reflect the CRA's current position. It is one more reason to pay the interest in cash each year when the interest is deductible.

Case study 1: what does the "$500" plan really cost, and when can it buy a car?

The plan is called "$500" because the required premium is $500 a month. The real monthly amount paid in is $2,181.04, because the illustration adds $1,681.04 a month under Equitable's Excelerator Deposit Option. On the current dividend scale, the cash value at the end of year 3 is $72,822, enough on paper for a first car.

The label misleads, so here are the facts. Illustration A, dated 28 August 2025, is for a man aged 35, non-smoker, living in Quebec. It combines base whole life coverage of $322,532 with a 20-year renewable and convertible term rider of $322,000 to age 55. Dividends buy paid-up additions, and premiums are payable to age 100. The required premium is $500.00 a month ($479.01 for the base policy and $20.99 for the term rider). On top of it, the Excelerator Deposit Option adds $1,681.04 a month, which buys paid-up additions. Equitable charges an 8% administration fee, which includes premium tax, on each payment under that option.

So the household pays $2,181.04 a month, or $26,172.48 a year, for 20 years, then $25,920.60 a year once the term rider ends.

Read the third column with care. It is the guaranteed cash value of the base policy only. Paid-up additions already bought, with option payments or with dividends, carry their own guaranteed cash value once purchased; future dividends do not. The total cash value in the last column includes both, on the current scale, which is not guaranteed.

Now the first car. At the end of year 3, the illustrated cash value is $72,822, and 90% of it is $65,540. A $40,000 car, an assumption, fits within that limit. After the loan, the net policy value is $32,822. On a dividend scale 1% lower, the year 3 cash value is $71,478 and the net value after the loan is $31,478.

On paper, it works. Nash would still ask you to wait. By the end of year 3, $78,517 has been paid in, and the cash value does not pass the total paid in until year 6 ($160,701 against $157,035). A $40,000 loan at year 3 is 55% of the cash value: room, but less than a later purchase would leave.

On the current scale, the illustrated cash value works out to an internal rate of return of about 2.9% a year on what was paid in by year 10. By year 20 it is about 4.2%, and by year 30 about 4.6%. That treats each year's payments as made at the start of the year. Between years 25 and 30, the cash value grows at about 5.2% a year on what was already there plus that period's payments. Those are illustrated, non-guaranteed figures. They explain why capitalization comes first: the policy's early years carry its acquisition costs and the cost of insurance, and its later years do the heavy lifting.

What do thirty years of cars look like on Illustration A?

On the current dividend scale, six cars bought every five years from year 3 cost about $51,952 of interest paid to Equitable, against about $55,647 to a lender at 6.66%, each repaid over 60 months. The saving is modest. The real differences are control, no credit application and capital left in place.

Illustrative example. The assumptions are ours, and none of them is a forecast.

• The first car costs $40,000 at the end of year 3. Each later car costs 2% a year more, rounded to the nearest $100.
• Each car is paid with a policy loan at 6.5%, assumed to stay at that rate for 30 years.
• Each loan is repaid with 60 monthly payments equal to a 60-month lender's payment at 6.66%, the Bank of Canada's weighted average rate on auto loans from chartered banks for July 2026. That is an average across loans, not a quote.
• Repayments go to principal and unpaid interest is added at each anniversary, as Equitable's guide describes.
• The cash values are Equitable's illustrated values on the current scale and on a scale 1% lower.

Over 30 years the interest difference is about $3,695. The rates are close: 6.5% to the insurer against a 6.66% average to a lender, and individual lenders quote above and below an average. The interest saving alone does not justify buying a policy.

What does differ? No credit application stands between you and the car. The repayment schedule is yours, so it can bend in a hard month, a freedom that is easy to abuse. And the capital behind each loan stays in the policy. Equitable's guide says the loan does not change the policy's values while the policy is in effect, so the cash value column keeps building as illustrated while each car is repaid.

The car payments come on top of the $2,181.04 a month going into the policy. From year 3 to year 8, the household sends $2,966.69 a month to the policy and the loan together. That takes real surplus.

At the end of year 30, the year 28 loan is still being repaid. After 24 of its 60 payments, about $41,526 is still owed. The illustrated cash value is $1,706,696, so the net policy value is about $1,665,170. The total death benefit illustrated for that year is $3,107,990, reduced by the same loan to about $3,066,464. If the last loan is repaid on schedule, by year 33, nothing is owed at all.

What happens to the plan if the dividend scale drops?

The cars still fit. On Illustration A at a scale 1% lower, every loan in the ledger stays well inside the 90% limit, and the year 30 cash value is $1,420,567 instead of $1,706,696. Dividends are not guaranteed. A lower scale means lower values, and the illustration shows how much lower.

Equitable's illustration includes two reduced scales:

At the minus 1% scale, the net policy value at year 30, after the same $41,526 loan, would be about $1,379,041. The cars and the interest stay the same, if the rate stays at 6.5%. What changes is the capital behind the loans and what is left at 65.

The gap widens over time because dividends buy paid-up additions, which earn dividends of their own, so a lower scale slows the compounding at every step. Our page on what happens if the dividend scale decreases explains the mechanism.

There is a second risk the reduced scales do not show: the loan rate. Equitable sets it and may change it. A household that plans its car payments around 6.5% should also ask what its plan looks like at 8%, and whether it could carry the higher interest without leaving it unpaid.

Case study 2: how does a self-employed owner buy a work vehicle on the "$1,000" plan?

Illustration B doubles everything: $1,000 a month of required premium and $4,449.11 a month paid in. Around year 5 its illustrated cash value is $265,473. A self-employed owner can borrow $60,000 for a work vehicle, repay it like a 60-month loan, and deduct part of the interest if the rules are met.

Illustration A's twin, Illustration B, is dated the same day for the same person: a man aged 35, non-smoker, in Quebec. Base coverage is $661,374, with a $661,000 term rider to age 55. The required premium is $1,000 a month. The Excelerator Deposit Option adds $3,449.11 a month, for a total of $4,449.11 a month, or $53,389.32 a year, for 20 years, and then $52,956.12 a year.

At the end of year 5, the household has paid in $266,946.60. The illustrated cash value is $265,473 on the current scale, $257,953 at a scale 1% lower and $250,645 at 2% lower. The guaranteed cash value of the base policy is $39,682. As with Illustration A, paid-up additions already bought carry their own guaranteed values, and future dividends do not. On the current scale, 90% of the cash value is $238,926.

Illustrative example. You are self-employed and you need a vehicle for your work. The assumptions:

• The vehicle costs $60,000 before sales tax. You take a $60,000 policy loan from Equitable at 6.5% and pay the sales tax from your business account.
• You repay $1,178.47 a month for 60 months, the payment a lender would charge on $60,000 at 6.66% over 60 months.
• You use the vehicle 75% for business, by kilometres, and you keep a logbook to prove it.

The same payment to a lender at 6.66% would cost about $10,708 of interest. After the loan, the net policy value at year 5 is about $205,473 on the current scale and $197,953 at minus 1%. The loan is about 23% of the cash value, a comfortable margin.

What tax rules apply to a work vehicle bought with a policy loan?

The interest can be deductible for the business-use share when the money is used to earn business income, as verified on Form T2210. For a passenger vehicle, 2026 federal limits cap interest at $350 a month and Class 10.1 capital cost at $39,000 before tax. Some pickups and vans escape those limits. A personal car's interest is not deductible.

Under paragraph 20(1)(c) of the Income Tax Act, interest is deductible only when the borrowed money is used to earn income from a business or property. A family car fails the test, so Case study 1's interest is a personal cost. A vehicle used in your business can pass it, for the business-use share.

The vehicle's category matters next. The CRA's page on types of vehicle (modified 31 August 2026) defines a passenger vehicle as one designed or adapted primarily to carry people, seating a driver and no more than eight passengers. It says that some pickups are passenger vehicles and some are not. A pickup seating one to three people, used more than 50% to carry goods or equipment in the year it is acquired, is a motor vehicle. An extended-cab pickup seating four to nine is a motor vehicle only if it is used 90% or more to carry goods, equipment or passengers. Vans follow similar tests.

If your vehicle is a passenger vehicle, the federal limits apply. The Department of Finance Canada's release of 14 January 2026 sets them for 2026:

Apply that to the example. The first month's interest on $60,000 at 6.5% is $325, under the $350 cap. At that rate, a loan above about $64,615 would start with more than $350 of interest a month, and the excess would not be deductible. The first year's interest of $3,478.70, at 75% business use, gives about $2,609 of deductible interest. Your accountant applies the cap and the business-use share on the CRA's Chart A of motor vehicle expenses, and decides the capital cost allowance.

Three records make the claim work. Equitable verifies the interest on Form T2210, Verification of Policy Loan Interest by the Insurer. The T2210 proves the interest; it does not prove business use. Your logbook does that, and the CRA's motor vehicle pages describe the full and the simplified logbook. Keep a clean trail from the loan to the purchase. Quebec residents also file with Revenu Québec, whose rules and forms your accountant applies.

Every policy loan, personal or business, raises one more question. A policy loan is a disposition under s. 148(9), and the part above the adjusted cost basis immediately before the loan is income. The basis is a tax figure, separate from the cash value and from the premiums paid. Neither illustration shows it, and we will not guess it. Ask Equitable for a written statement of the adjusted cost basis before you borrow. A loan within the basis still lowers it. Repayments restore it, and if part of an earlier loan was taxed, repaying it can give a deduction under paragraph 60(s), up to the amount previously included, in the year you repay.

How do cash, a lender's loan, a lease, a 0% offer and a policy loan compare?

Each route charges for the money differently and leaves your capital in a different place. Compare them with the same car, term and monthly budget. A genuine 0% dealer offer can cost less than a policy loan, and taking it while your policy keeps building can be a sound choice.

The 0% row deserves care. A genuine 0% offer may come instead of a cash discount, so ask the dealer in writing for the price with the offer and the price without it. If the prices are the same, taking the 0% and leaving the policy alone costs less than any loan at 6.5%. If the discount you give up is larger than the interest a policy loan would cost, the policy loan can cost less. Nothing in Nash's method obliges you to use the policy when a cheaper route is on the table.

The FCAC's page on financial risks when buying a car (modified 14 October 2025) treats terms of 72 months or more as long-term loans. It defines negative equity as owing more than the car is worth, and estimates that a new car may be worth 25% less after one year. A policy loan does not slow that loss. Repaying over 60 months keeps the debt short.

Opportunity cost cuts both ways: cash spent stops earning, and money borrowed from the insurer costs interest. Use the same budget for every route over the same period, as our pages on paying for a vehicle and opportunity cost show.

What goes wrong when a policy pays for the car?

The failures are behavioural and structural: borrowing too early, a design with poor early cash value, loans never repaid, gross values shown without the loan, unfair comparisons and ignored 0% offers. Each one turns a sound habit into a debt against the family's capital.

• Borrowing too soon. A loan taken before the policy has built real cash value leaves little margin, and a few years of unpaid interest can close it.
• A design with low early cash value, which cannot lend much early. Early cash value comes from the design, such as paid-up additions, and from how much is paid in.
• Never repaying. "The death benefit will cover it" means a smaller death benefit, compounding interest and a risk of lapse.
• Showing gross values. A cash value of $500,000 with a $60,000 loan is a net policy value of $440,000 before unpaid interest. Every review should start from the net figure.
• Comparing a plan that pays in $2,181.04 a month with a cash buyer who saves nothing. Compare equal budgets.
• Ignoring a genuine 0% offer, or a large cash discount.
• Buying more car because the pool is there.
• Forgetting the costs. A specially designed, high-cash-value, participating whole life insurance policy still carries acquisition costs and the cost of insurance, and Equitable charges 8% on each payment under the Excelerator Deposit Option. Our page on the real costs sets them out.
• Planning on a fixed loan rate. The insurer may change it.
• Checking only once a year when the margin is narrow.

Behind every item on that list sit the same loan rules. The insurer is the lender, at a rate it sets and may change, and it receives the interest. The cash value is the security. A loan above the adjusted cost basis can be taxable, an unpaid loan reduces the death benefit, and a lapse with a loan outstanding can create tax. Paying interest to the insurer is a real cost; the policy's growth does not erase it. Our page on what happens to the interest you pay the insurer explains why. Equitable's own guide says loan interest flows into the participating account, and that all participating policies receive dividends that include loan interest earnings, with or without a loan.

Who does this not suit?

It does not suit a household without steady surplus income, a household that needs a car within two or three years and has no policy yet, or anyone who treats repayment as optional. It does not suit someone with no lasting need for life insurance, or someone carrying expensive debt and no emergency reserve.

Be honest with yourself about each of these conditions.

• You could not keep the premium and the option payments going for years, through a hard year, without strain.
• You need a car soon and the policy would not yet have the cash value to lend.
• You would find it hard to repay a loan that no one forces you to repay on schedule.
• You have no lasting reason to want life insurance: no one depends on your income, no estate need, no legacy in mind.
• You carry credit card balances or other expensive debt, or you have no emergency reserve.
• A genuine 0% offer or a large cash discount is available, and the policy would only add cost.

If one of these fits, financing cars through a policy is not your next step, and that is a sound conclusion. Our page on how long before the system can finance a purchase helps with the timing.

What should you ask Equitable and your accountant before you borrow?

Ask Equitable for a loan quotation, the current rate, the policy's adjusted cost basis and an in-force illustration showing the loan and its repayment. Ask your accountant whether any interest is deductible, how the loan affects your tax, and what records to keep. Ask the representative how they are paid.

Questions for Equitable:

1. What is the maximum loan available today, and how is the available cash value calculated on my policy?
2. What is the current loan rate on my policy, and is it the rate announced on 14 May 2026 or an older rate?
3. What is the adjusted cost basis today, and what will it be after this loan?
4. Can you prepare an in-force illustration showing this loan and my planned repayments, at the current scale and at a lower one?
5. What happens if I miss a payment, and when would unpaid interest be added?
6. At what loan balance would the policy lapse, at today's values?
7. Will you complete Form T2210, and any Quebec form, if the interest is used for business?

Questions for your accountant:

1. Is any of the interest deductible, given how the vehicle will be used?
2. Is my vehicle a passenger vehicle or a motor vehicle under the CRA's definitions?
3. How do the $350 a month interest limit and the $39,000 ceiling apply to my purchase?
4. What logbook should I keep, and what records will you need?
5. What is the tax result if the loan exceeds the adjusted cost basis, now or later?
6. For Quebec, what does Revenu Québec require?

Questions for the representative:

1. How are you paid on this policy, by whom, and how much?
2. How was the policy designed for early cash value, and what did that cost?

Our page on the guaranteed column and the illustrated column explains how to read what Equitable sends. If you would like to work through these questions with your own figures, you can ask for a first conversation. The decision stays yours.

How should you read the figures here?

The figures come in three kinds. Equitable's published rate and rules are dated. The illustrated values are Equitable's illustrations of 28 August 2025, and only their guaranteed column is promised. Everything in a labelled illustrative example is our assumption, with the arithmetic checked by a script.

The 6.50% loan rate is Equitable's announcement of 14 May 2026, for the year from 1 July 2026 to 30 June 2027. It may change. The 90% limit, daily interest, repayments to principal and the lapse rule come from Equitable's policy loan guide of January 2020, an older document; your contract and a current quotation govern. The 6.66% lender's rate is the Bank of Canada's weighted average for auto loans from chartered banks in July 2026, an average and not an offer. The tax limits come from the Department of Finance Canada release of 14 January 2026, and apply to 2026.

The cash values belong to two illustrations of Equitable's Equimax® Wealth Accumulator plan, for one man aged 35 in Quebec, on one design. Another age, health, province, design or payment gives other numbers. The current dividend scale is not guaranteed, and the reduced scales are tests, not floors. The guaranteed column shown is for the base policy; paid-up additions already purchased carry their own guaranteed values.

The car prices, the 2% yearly increase, the 60-month terms, the 75% business use and the constant 6.5% rate are our assumptions. They show how the cash value, the loan, the repayment, the interest and the net value relate, and predict nothing. Before relying on any figure, open the source, and ask for an illustration prepared for you.