When making big-ticket purchases, it’s important that you don’t bite off more than you can chew. Missed payments can significantly hinder your credit and result in the repossession of your vehicle. Understanding the full scope of your purchase can better help determine your budget so that there are fewer surprises. Here are the costs to consider when purchasing a vehicle in Canada:
- Down payment (initial cost)
- Tax (initial cost)
- Licensing and registration fees (initial or recurring cost)
- Dealership fees (initial cost)
- Monthly car payments or Cost of vehicle (initial or recurring cost)
- Maintenance (recurring cost)
- Insurance (recurring cost)
- Gas (recurring cost)
- Parking (potential expenses)
- Traffic tickets (potential expenses)
- Car accidents (potential expenses)
- Car modifications (potential expenses)
Down Payment
A down payment is the initial sum of money you put towards your loan when purchasing a new or used vehicle. The more money you put down during the transaction, the lower the financed amount on the vehicle is. This can be beneficial in the long-term for the following reasons:
- Reducing your loan: the more money you put down, the less money you have to borrow. This means that you’ll be saving on interest charges for borrowing less money.
- Lower monthly payments: the smaller your loan, the quicker it is to pay off. Having smaller monthly payments also means that you have extra budget for unexpected expenses.
- Lower interest charges: saving on interest charges, in the long run, is a great way to keep more money in your pocket. This is because lenders will provide you with a lower interest rate on a smaller loan amount as it is less of a risk.
- Shorter loan term: having more money in your vehicle leads to lower monthly charges. This means that a shorter loan term may be possible. By having a shorter loan term, you are saving on the monthly interest rate, thus getting out of debt faster.
- Getting approved if you have bad credit: in certain situations having a 10% down payment can offset bad or no credit. This is because the lender takes less of a risk on the investment. If the dealership rejects you for having bad credit, re-establishing your credit and getting an affordable vehicle can be done with Cheap Cars Canada.
Keep in mind that a down payment can be offset by trading-in your existing vehicle. The amount of your trade-in will be determined by the vehicles initial price, market conditions, the popularity of the vehicle and more. Make sure to visit websites such as Kelly Blue Book and Edmunds before agreeing to the evaluation.
In many cases, customers choose the 0 down option. This is because there are a few drawbacks to putting money towards a car loan. These are:
- Won’t lower your interest rate: while you may be saving on the amount of interest charged when having a down payment, the interest rate will remain the same.
- Reduces your savings: if you weren’t planning for a down payment, you may be compromising the saving you have built in case of emergency.
Finally, if you’re purchasing a vehicle out of immediate need, you may not have the time to save up for a down payment. This is an important cost to consider prior to stepping foot into the dealership as it will affect your recurring expenses until the vehicle is paid for.
Tax
As taxes vary in each province, we’ve compiled a chart based on the guidelines provided by Canada Revenue Agency. Both new and used cars require a tax to be paid upon purchase. This is a cost that’s seldomly advertised and will increase the vehicle’s purchase price and monthly payments. The types of taxes in Canada include:
- Goods and Services Tax (GST): this is an indirect federal sales tax applied to purchases in some Canadian provinces. The customer pays GST tax and the seller forwards it to the government.
- Provincial Sales Tax (PST): this is a form of a sales tax which is applied to purchases in some Canadian provinces. This tax can come as either a “value-added tax” or as a “cascading tax.” The value-added tax is calculated based on the item being bought without considering GST. Cascading taxes calculate the value of the products after GST has been applied.
- Harmonized Sales Tax (HST): this is a consumption tax where both the federal sales tax (GST) and provincial sales tax (PST) are combined into one sales tax.
- Quebec Sales Tax (QST): this is the Quebec sales tax collected, along with GTS, on purchases within the province.
Licensing and registration fees
Licensing and registration fees are placed upon vehicles to prove that the vehicle is registered and belongs to its owner. If you are buying a vehicle from the dealership, this process is usually completed by the sales representative. When purchasing a used vehicle outside of a dealership, the government has to be made aware. Make sure to find out the regulation and payment requirements in your province by clicking the links below:
- Alberta
- British Columbia
- Manitoba
- New Brunswick
- Newfoundland & Labrador
- Northwest Territories
- Nova Scotia
- Nunavut
- Ontario
- Prince Edward Island
- Quebec
- Saskatchewan
- Yukon
In Ontario, it is required by law to have a vehicle permit, license plate and licence plate sticker. The cost breakdown as of July 2018 for a passenger vehicle is as follows:
- Vehicle permit: $32
- License plate: $59
- Licence plate sticker: $60 (Northern Ontario) or $120 (Southern Ontario) this is also a recurring cost.
Dealership Fees
Dealership fees or administration fees pertain to the dealer’s cost for processing paperwork such as financial documentation, licensing and transactions. These fees are negotiable and can be up for discussion with the sales representative. If you are not able to recoup your money, asking for free add-ons such as winter tires or gifts is a great alternative.
In Ontario, non-negotiable dealership fees must be included in the vehicles advertised price. If you do not understand the dealership fee breakdown in your province make sure to ask for clarification to understand which fees can be negotiated. The most common fees include:
- Freight: the charge for transporting the vehicle from the factory to the dealership. This fee is determined by the manufacturer and NOT the dealership.
- Pre-delivery inspection: this fee is determined by the manufacturer and charged for getting the vehicle ready for the road. This fee includes gas, checking coolant, engine oil, lights, windows, air conditioning and more.
- Other government taxes: this may include air tax, tire tax and regulatory fees.
Monthly Car Payments or Cost of Vehicle
In 2017, the average monthly car payment in Canada exceeded $450. Since owning a vehicle can be a recurring expense, and often a long-term commitment, knowing how much you can spend should be a priority. Determining your budget can be done by either deciding:
- How much you can afford to spend on the vehicle overall
- How much you can afford to spend on a monthly basis
This exercise will help determine the length of your payment period and whether you have the funds to buy a vehicle outright or need to take out a loan. Whatever your decision, a vehicle should not cost more than 35% of your annual income. If you are paying more, it’s time to scale back and reevaluate your options. Keep in mind that surprise expenses may arise, and savings are important to stay on track of your financial situation. If you are unsure about choosing a used or new vehicle or buying versus leasing, you can read our blog tackling the topics here.
Maintenance
Regular car maintenance is an important cost to consider to keep your car running smoothly and efficiently. While the average Canadian spends $750 a year on a new car, for the first five years, upkeep can become more and more expensive as your vehicle ages. Let’s take a look at common repairs to factor into your budget:
Tires
Living in Canada often means switching tires between the hot and cold months. As most new cars come with all-season tires, an initial set of new winter tires can cost anywhere between $800 and $1,500 (according to driving.ca). Changing them between the seasons runs approximately $60-$125/per tire, plus tax, for mounting, balancing and installation. Finally, it is recommended to rotate your tires after 10,000km, which adds an additional cost of $20 plus tax to your budget.
Oil & Filter Changes
This is a common maintenance procedure that’s meant to increase the longevity of the vehicle. In Canada, it is recommended to change your oil every 5,000 to 7,5000km and replace your air filter every 20,000km or once a year. The cost of an oil change depends on whether your car takes Synthetic or Conventional motor oil. For most Canadians, an oil & filter change will run in between $50 and $80, plus tax.
Transmission Fluid
Just like engine oil, transmission oil changes are a popular service. By changing the fluid every 50,00km, you ensure that your transmission is lubricated properly and minimizes costly repairs to your vehicle in the future. The average cost of this procedure is about $100, plus tax, for both automatic and manuals transmissions.
While these are just a few of the common maintenance services, it’s an important cost to consider when budgeting for a car. Other common services according to Canadian Tire include a coolant flush, power steering flush and a brake fluid flush.
Insurance
Insurance cost can significantly increase your monthly expenses, this is why it’s recommended to inquire about the cost prior to purchasing the vehicle. Not only is insurance dependant on your vehicle and driving record, your address also matters. Let’s take a look at some factors affecting your insurance quote:
- Year: newer cars cost more because they are more costly to repair.
- Make: the car company manufacturer also affects the cost. A foreign car is often more expensive to insure as parts may be more difficult to obtain.
- Model: the more expensive the model, the more expensive it is to insure. This is because if a repair is needed, the parts are pricey to get.
- Safety Features: airbags are an important feature for both the driver and the insurance company. The safety of your vehicle will determine how much of a risk it is to insure. Better safety features allow for less risk.
- Age: every insurance company has a formula for calculating a rate based on age. Young drivers are deemed to be inexperienced and high-risk, thus often paying higher rates. Twenty-five seems to be the age most insurance companies favour, providing preferred rates to young adult customers.
- Driving Record: since insurance companies can’t judge your ability to drive, a driving record is their only viable source of information. Accidents and traffic violations are also taken into consideration.
- Credit Score: insurance companies take this into account to determine your insurance rate. The better the score the better the rate. If you need to improve your credit score, you can learn how to do so here.
- Location: living in an area with a high claims ratio or high theft will affect your rates to go up. Rural areas with a high volume of deer accidents can also increase your rate.
Other factors that may be taken into account are the number of drivers on the plan, home ownership, education and insurance company factors such as payment plans and provincial laws.
Image via. LowestRates.ca
Gas
With Canadians spending thousands of dollars at the pump every year, gas is a hefty cost to consider for your budget. Unless you’re driving an electric vehicle, gas is an expense that can’t be ignored. With the price of gas rising in most Canadian cities, it’s important to budget an approximate monthly consumption. Vehicles with larger gas tanks, such as trucks and minivans, will cost considerably more than smaller hatchbacks and sedan.
Knowing how much you’ll be spending on gas on a weekly basis can help determine if the vehicle you’re looking to purchase is within your price range. Here is how you can calculate the amount of gas you’ll be spending:
- What distance will you be travelling each week? Let’s say 500km.
- Find out the fuel economy on the vehicle you’re looking to purchase. Let’s say 7L/100km.
- To calculate the amount of fuel you’ll be using, divide your distance by 100 (this is because we want to know how much fuel we use every 100km). The equation becomes: 500/100 = 5.
- Multiply this by the fuel economy of your vehicle: 5 * 7 = 35. Now you know that you will use 35L of fuel per week.
To find out the cost of your trip:
- Determine the price of fuel at the moment. Let’s say $1.26/L.
- To find out the total price, multiply the amount of fuel you will use per week by the price: 35L * $1.26/L = $44.10
Now you know that you will be spending an approximate $44 a week on your vehicle. This comes out to approximately $176 a month or $2,112 a year. If this addition skyrockets the cost of your vehicle to over 35% of your annual income, you may want to rethink your vehicle option.
Potential Expenses
Parking, traffic tickets, car accidents and car modifications are potential expenses that may arise from owning a vehicle. It is recommended to have at least $1,000 saved for any surprises that may arise. This is because the amount covers most vehicle damages. Speeding and parking tickets can also cost hundreds of dollars, and can negatively impact your insurance rates.
To find a vehicle option that works with your budget, consider Cheap Cars Canada. Since 2008, we have been helping people with no credit or bad credit secure manageable automotive loans. With the largest network of dealerships across Canada and thousands of vehicles to choose from, we are transforming the way Canadians buy their vehicles.
1