Exploring your options

Buying a vehicle without breaking your budget

Get the vehicle you want and keep your finances on track

Along with rent and mortgage payments, the cost of owning a vehicle can dominate the average Canadian household’s budget. Depending on the price of the vehicle, how it’s paid for (financing, lease or cash) and its fuel consumption, owning a vehicle can cost hundreds of dollars each month – perhaps even more.

But in a country known for its wide-open spaces, many Canadians simply don’t have a choice but to own a vehicle. Not to mention Canadians’ long-running obsession with driving and the important place of the automotive industry in Canada’s history. The car has been a key part of Canadian culture for at least a century and that’s unlikely to change any day soon.

Many Canadians need a car but don’t have thousands of dollars lying around to buy one. So, how can you buy a vehicle without blowing away your budget and eating up money that could be used to save for the future?

The bottom line is that many Canadians need a car but don’t have tens of thousands of dollars lying around to buy one.

1. Take your time

The most important tip for saving money on a vehicle purchase is to simply take your time. Rather than rush out to the closest automotive dealer, do your research: go online and study the vehicles you think match your budget and appeal to your needs.

Typically, there are at least a half-dozen options for any type of vehicle, from compact cars to pick-up trucks and sport-utility vehicles. Find out which ones receive high safety and performance ratings from reliable automotive experts before looking at the vehicles available in your area. Some services, such as AutoTrader’s app, will even show you how a vehicle’s listed price compares to other, similar vehicles for sale in a selected region.

2. Decide if you want to lease or finance

Ideally, you’ll have enough cash to buy the vehicle you want outright. However, safe and reliable vehicles can be expensive, and not everyone has access to large amounts of cash. If you don’t have the cash on hand to buy the vehicle you want, you’ll have to choose between financing or leasing your vehicle.

With financing, you pay the vehicle off over time, with the goal of eventually owning it outright. The automotive dealer selling the car should be able to work with you to secure a loan.

With leasing, the idea is that you’ll make monthly payments for a set period of time – usually a few years – before relinquishing the vehicle to the dealer or buying it outright. Because the end goal isn’t always owning the vehicle, lease payments tend to be lower, though you may not have anything to show for it in the end. Keep in mind that leases often come with limits on what you can do to the vehicle (such as upgrading its engine or other components) and how many kilometres you can put on it.

In either case, the key is to get the lowest interest rate possible, helping you minimize the amount of money spent on interest.

3. Don’t forget taxes and fees

Automotive dealers rarely include the cost of taxes and fees when advertising their vehicles, so keep in mind that, together, these costs can add thousands to the overall price of the vehicle you intend to buy. Just adding these fees to the total cost can drastically change what your monthly payments will look like.

4. Call your insurance company

Paying down a car loan is just one part of owning a vehicle. Another significant expenditure comes through automotive insurance, which, depending on the vehicle in question and your driving history, could cost hundreds of dollars each month1.

To prepare yourself for this cost, call your insurance company ahead of time to get an estimate. Keep in mind that many insurance companies allow you to pay on a monthly, semi-annual or even annual basis.

5. Consider the cost of repairs

Owning a vehicle often involves paying off a loan, making insurance payments and a third expense: keeping the car in good physical shape and safe to drive. On that note, it’s important to consider that some vehicles are far more expensive to maintain than others.

Generally speaking, the closer you are to where the vehicle and its parts are made, the cheaper it will be to maintain (though there may be exceptions to the rule).

6. Consider getting a warranty

If you decide to buy a vehicle that’s more expensive to maintain, think about acquiring a warranty capable of covering the cost of repairs. If you’re buying a used vehicle, you may be able to extend the existing warranty or purchase a new warranty through the dealer.

Admittedly, warranties are a gamble of sorts: you’re essentially hedging that you’ll need to repair the vehicle and that those repairs will be higher than the cost of the warranty. But having a warranty on a vehicle, especially one that’s expensive to maintain, can help you avoid surprise repairs costing thousands of dollars.

7. Consider electric

Today, the electric vehicle is becoming both more available and more capable of traveling long distances before requiring a battery recharge. It’s also worth noting that the federal and provincial governments offer incentive plans that can take literally thousands of dollars off the cost of a new electric vehicle, essentially making cars that might have appeared out of your price range far more affordable. And that’s not even considering your ability to, as an electric vehicle owner, avoid the cost of buying gas.

Keep in mind that government programs can change and don’t apply equally to every vehicle. For example, rebates can actually be higher for more affordable vehicles than luxury electric models. Be sure to do your research and get all the details up front when negotiating the purchase of an electric vehicle.

8. Look at used

One of the most effective ways to significantly reduce the amount of money you spend on a vehicle is to buy it used instead of new. That’s hardly a surprise. The trick is to buy a vehicle when its value has declined but its condition remains close to new.

In most cases this will mean buying a vehicle that is one or two years old. At this point the vehicle’s value will have declined substantially – perhaps by up to one-third of its initial price – while it remains in near-new condition. You may also be able to take over the vehicle’s original warranty at no cost, something that could save you thousands of dollars if an expensive repair becomes necessary.

1Other factors will include your age, gender and where you live. Even your marital status could affect how much you pay for automotive insurance.

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The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.