Time for a new set of wheels? Maybe, you’re preparing to buy your first car, or your university-aged child has saved up for theirs. Either way, you want to buy a car.
Is it one of those big purchases that can seem daunting, with a LOT of steps? Yes (sorry!)
The reality? Yes, there’s a lot to the process. But if you’re able to take your time and follow each step while keeping your eyes on the prize and your own needs in check, you’ll end up with the perfect car.
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What is the total cost of car ownership?
Before diving into all of the steps of buying a car, it’s important to think about the total cost of owning a car. To be blunt: it can add up.
When starting the process of buying a car, financing (either through your bank or the dealership) is typically top-of-mind. But when you’re figuring out a budget, factor in both fixed and operating costs. As explained by ThinkInsure, fixed costs include:
- Your vehicle’s total purchase price + sales tax
- Financing + interest
- Annual insurance
- Registration/administrative costs
- Depreciation (keep resale value in mind!)
Operating costs are those that fluctuate depending on your driving habits and what vehicle you have. These include routine maintenance, replacement of parts (like tires and wipers), and — of course — fuel or charging costs for an electric vehicle. You might even consider setting up a separate account for regular car care and maintenance. CAA even has a great online Driving Costs Calculator to help you get a better idea of the ongoing costs of car ownership.
The first step before you buy a car? Thorough research
So…what are you looking for?
For some people, their car is simply a way to get from point A to point B. For others — like those who are constantly on the road for work — their car is literally their office. Families with young kids likely have different needs than, say, a single, retired senior or a couple in their 40s that goes camping every weekend.
Think about your daily life. Sure, you might love to drive a big truck or a zippy little sports car. But will it actually be practical day-to-day? If you’re a road trip enthusiast, gas mileage and comfort should be high up on your list. Maybe you’re intrigued by hybrid or electric models — increasingly cheaper and more widely available. Meanwhile, storage is probably a priority if you’re shopping for a family vehicle to shuttle your kids to their endless activities.
What about your parking options? If you have a driveway, you do have more leeway. But if you’re a condo or apartment dweller in a city, you might have to negotiate street parking, narrow spaces, or garages with tight corners. Before looking under the hood or at specific models, it’s important to be mindful of these considerations.
Tip: Before diving in with your research, consider making a list of both must-have features and “nice-to-haves.” It’ll help when it comes down to comparing models!
Models and features
Once you’ve figured out how your new car will fit into your life — and as a result, what you’re looking for — you can better determine more specific details.
Visiting maker sites directly can give you all the details about specific models like mileage, safety features, infotainment features, and engine info. There are, however, sites that offer reviews, best-of lists, and comparison tools that can help you narrow down what will work best for you.
Some of these include:
- Edmunds (an online resource for reviews and information)
- MotorTrend (especially if you’re looking for new model)
- For a Canadian perspective, both the Toronto Star and Globe & Mail have robust automotive sections with reviews and answers to questions (Wheels.ca and Drive, respectively)
- Consumer Reports (known for their rigorous car testing that’s been going on for 85 years)
- J.D. Power (known for their ratings and awards)
- autoTRADER (while it’s primarily a classifieds site, they do feature a reviews and advice section)
How much car can I afford?
It’s a reality for every major purchase you make.
Whether you’re able to come up with a budget that allows for a small degree of wiggle room, or you have to account for every single penny, a budget is going to be a significant piece of the puzzle.
The bottom line: Buy a car you can afford. You can even frame this a little differently, asking yourself ‘how much car can I afford?’ — a question that ties in well with the above points about determining which car will best suit your lifestyle. Just keep in mind that a cheaper car isn’t always the best deal. Keep those long-term operating costs in mind!
Related Reading: The Best Budgeting Apps And Tools For Canadians
Pre-financing options to buy a car
As Philip Reed, autos editor at personal finance site NerdWallet explained to NPR, “The single best advice I can give to people is to get preapproved for a car loan from your bank, a credit union, or an online lender.” Not only will it help you stay within a concrete limit, but you might also be able to use it to leverage a better rate with a dealership.
Most people will either take the loan route or lease/secure financing from a dealership. Some important considerations: if you take out a loan to pay for a car, you’ll end up owning the car once your loan is paid up. Alternatively, if you’ve saved up enough to purchase it outright, it’s yours right away. If you opt to lease from a dealership, you don’t actually own the car, but you’re responsible for its upkeep and maintenance — which is important to factor in when you’re establishing a budget.
Everyone’s financial situation is unique, so talking to your advisor will help you figure out which option is best for you. The critical thing is making sure you:
1. Avoid long-term car loans. Sure, long-term loans typically mean lower monthly payments, but your amortization period ends up much longer. Ultimately, you’re left shouldering higher costs — hello, interest. You also run the risk of potentially owing more than you can sell the car for (if you decide to offload it) since cars depreciate quickly in the first few years — typically in the 15-20% range.
2. Buy based on the total price (including taxes and fees), NOT monthly payments
3. Take note of your interest rate, instead of focusing on payment frequency (bi-monthly, weekly, etc).
Tip: When asking for the total price of a car, take note of any hidden fees (eg. administration fees). Don’t be afraid to ask questions, either! This could be an opportunity to shave money off your monthly bill.
Have you saved up for a down payment? Use our car loan calculator.
Related Reading: How To Check Your Credit Score In Canada
Maximize trade in value
Do you currently have a car? Unless you plan on keeping it, you’ll either have to sell it privately or trade it in before getting your new set of wheels.
Before you either trade or sell, you’ll first need to figure out your car’s value. You can determine the approximate value using an online appraisal tool. Our recommendations are:
A great tip from Edmunds: be sure you’re sitting in your car while using an appraisal tool. You’ll be able to give definitive answers to questions about the car’s features (eg. mirror movement or whether the sunroof works properly), and overall condition. And of course — it should go without saying — be honest!
If any cosmetic fixes are needed or any basic features need replacing (for instance, a deep clean or fixing scratches), now’s the time to do it.
What determines a car’s trade-in value?
According to The Humberview Group, factors that determine trade-in value include:
- The car’s year, make, model, and trim level
- Extra features and options
- How many kilometres are on the odometer
- The vehicle’s overall condition (interior, exterior, engine, powertrain, tires, brakes etc)
- What the local used car marketplace looks like (i.e. the number of the same vehicle in your local area, and what they’re priced at)
Something else to keep in mind, as Carfax explains, is whether or not you have a balance owing on a lease. A phone call to the company that handled the lease or financing should tell you this information.
Ultimately, the best way to maximize the trade-in value of your car is by taking care of it — staying up to date on maintenance, making any repairs as soon as you can, and keeping detailed records of both of these.
If you’re looking for additional details on trade-ins and the answers to more specific questions, The Humberview Group has an extensive guide.
Shop around before you buy a car, to find the right price
When you’re buying something straightforward like a fall coat or a set of sheets, you’re probably going to simply head to a store you like and trust, take a quick look at the selection, pick something, and call it a day.
Buying a car, however, is absolutely an occasion to shop around. Once you’ve settled on the make/model of vehicle you want, visit more than one dealership. Get quotes, but whatever you do, do NOT give too much information — for example, whether or not you have a potential trade-in. Keep it simple, focusing on negotiating and landing on a price. It’s a bit time-consuming, and you’ll definitely need a calendar to keep track of appointments with salespeople and for test drives, but the effort will pay off.
Consider internet shopping
So many of our everyday purchases are made online — especially in the wake of the COVID-19 pandemic. Why not your next car?
Canadians are well-versed in doing their research online before a big purchase, but there are definitely options when it comes to buying a car online. For starters, sites like Clutch, Canada Drives, and autoTRADER.ca have streamlined the process, and others like Kijiji Autos have online purchasing options.
As Carfax VP Shawn Vording explained to Global News, “the best practices still apply: ask for a [car history] report, test drive the vehicle, have it inspected by an independent third party, and, of course — unlike a dealership, which is regulated — never send money in advance of actually purchasing the car or seeing the car.”
Buying a car in a way that works best for you is a priority, but take note: taking the online route is still a largely niche choice in Canada. One survey asked used car buyers in late 2019 if they would like to purchase their next vehicle entirely online. 12% of respondents were ready to do so. And while COVID-related lockdowns and quarantines have led to an even further embrace of online shopping, interest has actually decreased in going online for wheels. A new survey of over 2000 Canadians found that just 8% of car buyers (looking for new or used ones) would buy online. The remaining 92% are still looking for that dealership experience.
Should I buy a new or used car?
Unless you’re looking for the very latest model and/or features, you should absolutely consider a used car. For starters, consider the frequently-cited idea that a brand new car will start to depreciate the minute you drive it off the lot. Not to mention, the fact that used cars with low mileage are often cheaper.
The biggest things to remember when purchasing a used car? First, have a trusted licensed mechanic inspect the car. Second — and this goes for ANY car you’re considering — test drive all cars you are considering. If you’re able to, take your test drive on both urban streets and highways. Even better, try taking it on the route you take to work. Finally, get a Carfax report before committing to the purchase. Their vehicle history reports check for accidents, damage, open recalls, theft, service records, where the car was last registered, and more. Priced at $54.95 with a lien check or $39.95 without, it’s a comparatively small expense upfront to avoid potentially larger problems down the road.
Money-saving tips to buy a car
While you’ve (hopefully) set a budget, it’s always a plus if you can buy a car under your set limit.
Avoid impulse buying
This might happen if you’ve been shopping around for a while, or if you’re just starting and find “the perfect car” right away. When you buy a car on impulse, you run the risk of spending too much or ending up with a car that isn’t necessarily a good fit. Properly taking the time to research the type of car you want and comparing prices will work out better for you in the long run.
If you don’t currently have a car but need one right away, consider signing up for a car-sharing service like ZipCar, Communauto, Turo, or Enterprise CarShare (if available in your area). It might be a bit of a high cost up-front, but it’ll help take some of the pressure off, so you can take your time and find the right car for your needs.
Don’t buy any add-ons at the dealership — including the extended warranty
It’s a scene that’s showed up on many sitcoms. The characters — often a couple — are in a car dealership office. There’s been constant back-and-forth negotiating, with plenty of offers being thrown in by the salesperson. The buyers are tired, and just want to make sure they’re not getting fleeced.
Well, there’s a certain degree of truth to the TV trope.
If you’re at a dealership, you’ll likely get salespeople working hard to sell you everything from extended warranties to extras packaged together to protection plans for tires and paint. It comes down to this: Dealerships are for-profit businesses. The more features and packages — already potentially overpriced — you add on means a higher total price and a longer amortization period.
The extended warranty offer sounds really tempting, though, doesn’t it? Just leave it! You can always buy it later, though it might be a better plan to take what you’d spend on the warranty, and deposit the amount into a car maintenance account.
At the same time, you could try making a deal for future standard maintenance. It’s another revenue stream for dealerships, and they want to make sure you come back to the dealership for this work. Play your cards right, and you may end up with something like free oil changes.
What car insurance coverage do I need?
Sure, you’re excited to get behind the wheel of your new car, especially if it’s a dream car you’ve been coveting for ages. But first thing’s first: you need insurance.
Though the process can come across as rather mundane, making sure you have proper auto insurance isn’t just for peace of mind — it’s the law.
How much is car insurance in Canada?
Average car insurance rates vary from province to province. Typical monthly payments range from $123.33 and $120.41 in British Columbia and Ontario (respectively) to $66.33 and $55.08 in PEI and Quebec.
For those living in BC and Manitoba, car insurance is through government-owned corporations. Insurance is also done through the government in Saskatchewan, but extra coverage can be bought via private companies. The government of Quebec handles minimum limits for bodily injury, while private insurers provide coverage for property damage. In the remaining provinces/territories, auto insurance operates through private companies.
Another thing to keep in mind is that policies/rules/premiums are also prone to frequent changes. (See Driving.ca’s report on changes for 2021.) Just remember: Make sure you meet your own specific needs, within your budget, and don’t take on any coverage you really don’t need. For most people, basic policies are sufficient. After all, if there’s one point we’ve expressed repeatedly, it’s that insurance isn’t about paranoia, it’s about protection.
As we explained in our article on types of insurance, car insurance premiums vary from driver to driver, widely based on:
- How long you’ve been driving
- Your age
- What kind of vehicle you drive
- Where you typically drive (eg. busy city streets vs. open highways, etc)
- What you use your car for (eg. work vs. a standard family vehicle)
- Your driving history
Broadly speaking, no matter which province you live in, there are specific types of coverage that are usually required*:
- Liability coverage: Protection if you are legally liable for causing injury or damaging a person’s property/car while operating a motor vehicle.
- Accident benefits: To replace any lost income or pay for medical expenses not covered by the province
- Uninsured Motorist or Automobile coverage: Protection against uninsured or unidentified drivers; provides benefits to you or your family if you are injured or killed by one of these, and will also help pay for vehicle damage by an uninsured driver.
- In some provinces, additional insurance may be required
If you don’t already have an insurance broker, we’ve outlined the process in our article ‘How To Find And Choose An Insurance Broker.’ Finally, LowestRates.ca put together a list of factors you need to consider when estimating your insurance costs before you buy a car — helpful for budgeting out your new car costs.
*As explained by RBC Insurance
Like insurance, car registration procedures/costs vary across Canada. It’s also the law, so it’s a necessary step before you can finally hit the road.
Carfax has a compiled a comprehensive, province-by-province guide to the steps you must take to finalize a private used car purchase, including the registration process.
As explained by online car retailer Clutch in their extremely useful guide to provincial registration requirements, there are certain items/documents you’ll need to complete registration — no matter where you are in Canada:
- Your driver’s licence
- A Bill of Sale, signed by the buyer and seller
- Transfer of ownership document
- Certificate of title
- Safety inspection number or certificate
- Proof of liability insurance
- Licence plate number
- Other vehicle information, such as the odometer reading and VIN (vehicle identification number)
- Payment of sales tax (varies by province)
- Additional requirement: paying off any unpaid parking tickets or fines
Finally, here’s the government department you register your car for each province:
- Digital Government and Service NL
- Service Nova Scotia
- Service New Brunswick
- Access PEI
- Société de l’assurance automobile du Québec (SAAQ)
- Service Ontario
- Manitoba Public Insurance
- Saskatchewan Government Insurance
- Service Alberta
- Insurance Corporation of British Columbia
- Driver and Vehicle Services of the Northwest Territories
- Yukon Motor Vehicles
- Motor Vehicle Services (part of Nunavut’s Department of Economic Development and Transportation
Overwhelmed? That’s ok! A new car is a big purchase, and there is certainly a lot to remember. We hope this guide will help you go through the process with confidence, and make the best decisions for your unique situation.