A newcomer's guide to buying a car in Canada

When you first arrive in Canada, it won’t take you long to notice that it’s hard to live life without a car. Even if you live in a particularly walkable environment, you may still need a vehicle to access certain services, commute to school or work, and take kids to their activities.

Buying a car in Canada might look a bit different than the process in your home country. Here are the basics of what you need to know when buying a car in Canada.

Choose the right car

The first step to buying a car is figuring out what kind of car you need. The biggest consideration in choosing a car is the decision of whether to buy used or new, which isn’t always straightforward.

Save money by buying used

Recent data from Autotrader shows the average selling price of a new car in Canada is $67,817. That’s well over double the median income for recent immigrants. The most popular SUV in Canada, the Toyota Rav4, starts at $36,212 before taxes – that works out to over $40,000 in most provinces.

Also read: What is the total cost of owning a car?

Used cars are more affordable than new cars, but a shortage of new vehicles has kept prices higher than they’ve been in the past. Depending on the make and model, a five-year-old used car will cost about half of what the same car would cost new. 

You will likely be able to get a better deal on a used car by buying privately from an individual rather than through a dealership. If you choose to purchase a car this way, be alert for common scams. Check with your province’s ministry of transportation for guidelines on how to safely buy a used car to protect yourself.

Whether you buy used or new, you should know that car prices are negotiable in Canada. Unlike many purchases where haggling is forbidden, car sellers expect to negotiate with customers to reach a suitable price. Think of the sticker price of a car as a starting point and ask for a better deal.

Avoid leasing

An alternative to purchasing a new car in Canada is leasing one. Many people like to lease their car because they can easily upgrade to a newer model every few years.

There are a few downsides to leasing a new car, however. The first is that leases are nearly impossible to get out of. If you decide you want a different car or can’t afford it anymore, your options will be limited.

Another downside to leasing is that there are often extra fees that you may not expect. Most leases limit the number of kilometres you can drive and charge hefty fees if you go over. You can also expect to be charged to repair any damage to the car when you return it, which could end up costing you thousands of dollars.

The biggest downside, however, is that leasing a car is almost always more expensive in the long run than financing a purchase. While lease payments may be comparable to loan payments, the entire amount is an expense. At least when you purchase a car, you’ll build some equity that you can use toward your next purchase.

Consider the warranty and maintenance costs for older vehicles

Most new cars in Canada come with a warranty of three to eight years, during which the dealership will repair any mechanical failures for free. To maintain the warranty, you’ll need to stick to the manufacturer's maintenance schedule which will call for regular oil changes, inspections, and other routine work that may or may not be necessary. 

Whereas a used car costs less to purchase, it will likely be more expensive to maintain. In many parts of Canada where winters are cold and roads are salted for traction, cars wear down quickly and begin to fail by the time they’re about 10 years old. Experts recommend setting aside at least $100 per month to pay for repairs to your car as it ages.

Also read: 10 tips for safe winter driving

Decide how you’ll pay for your car

When you buy a car in Canada you have a few options as to how to cover the cost. You can pay the full amount in cash, or borrow the money and pay off the loan over a period of up to eight years. These options both apply whether you purchase or lease a vehicle.

The easiest way to get financing to buy a car is through the dealership. Many dealers offer incentives to buy new cars in the form of lower financing costs. Well-qualified borrowers can get a much better interest rate on a loan for a new car than for a used car. Dealerships also offer longer terms on new car loans (up to eight years), which can help reduce the amount of your monthly payment to the point where the cost of a new car appears equal to the cost of a used one. 

If you’re new to Canada and haven’t established your credit score and history, it may be difficult to get financing for a new car. Many used car dealers offer special financing for people with limited credit history, but with strict terms that may be difficult to meet. For example, you may be asked to make a down payment of as much as 50% and pay a high-interest rate that would compare more closely with a credit card than a traditional auto loan. 

An alternative to dealer financing is to arrange an auto loan directly with a bank. It’s a bit more difficult to arrange a loan this way, but you may be able to get a loan with better terms. And there’s a lot of upside to knowing exactly how much you can spend before you set out to make a purchase.

Protect your car with the proper auto insurance

Every province and territory in Canada requires you to have a minimum amount of car insurance before you get behind the wheel. The penalties for driving without insurance are severe – in Ontario, you can be fined up to $25,000, lose your license for a year, and have your car impounded for up to three months.

Besides the potential for fines and headaches, insurance is valuable protection for you and your vehicle. In Canada, car insurance covers a few major categories:

• Third-party liability insurance covers you in the event you’re at fault for killing or injuring another person, or damaging property. Most provinces require you to carry at least $200,000 in coverage, but experts recommend a minimum of $1 million to ensure your policy can cover your costs.
• Direct compensation-property damage insurance covers repairs to your vehicle in the event you’re in a collision that isn’t your fault. This coverage is mandatory in most provinces – but not all – and allows you to work directly with your own insurance company rather than having to chase the other driver for compensation after a crash. 
• Accident benefits insurance covers your expenses after being injured in a car accident. Accident benefits can include income replacement for lost wages, medical expenses, child care, and other injury-related costs. This coverage is mandatory in most provinces.
• Collision insurance covers damage to your car in the event you get into a collision-related accident – be it with another vehicle or a stationary object on the road. It's optional in most provinces across Canada.
• Comprehensive insurance covers damage to your car when you’re not driving it. This (usually) optional insurance covers your vehicle against fire, theft, vandalism and other nuisances like broken glass.

To simplify all this, Canadian car insurance companies offer “All Perils” coverage that combines all the coverages you need for your car into a single product. Choosing all perils coverage also entitles you to the cost of replacing or repairing your car after an at-fault accident. This kind of coverage may be required by the lender if you finance your car.

Some provinces have public car insurance systems where there’s a single insurer you’re required to use. In other provinces, private car insurance companies can compete for your business – this is the case with the Ontario auto insurance and Alberta auto insurance systems. Be sure to compare car insurance quotes online to make sure you’re getting the best deal. 

Consider the additional costs

In addition to your car payment, maintenance and insurance, you’ll probably discover there are a few other expenses involved in owning a car in Canada. Be prepared to pay for the cost of:

• Fuel. The average cost of gas in Canada is just shy of $1.50 per litre as of February, 2024. Based on a typical car and 20,000 kilometres driven per year, you’ll likely pay in the neighbourhood of $200 per month for fuel.
• Licensing and registration. Each province has its own vehicle registration program, the cost of which is up to $200 per year. In most provinces, you’ll pay a fee to register your car when you buy it and renew your registration every year.
• Parking. Depending on where you live, parking can be expensive. If you live downtown in a big city, prepare to pay up to $400 per month for parking.

Between interest, depreciation, maintenance, gas, insurance, and other expenses, it costs an average of approximately $1,387 per month to own a car in Canada.

The bottom line

Buying your first car in Canada can give you a lot of freedom and open up opportunities you can’t access with public transportation. Take your time to research the process thoroughly and make smart financial decisions like choosing a gently used car and shopping around for insurance quotes, and you can drive away confident that you’re setting yourself up for financial success. 

Also read

• Leasing vs. financing a car in Canada – what it means for insurance
• The best-selling cars in Canada
• The average cost of car insurance by age in Ontario