It’s no secret that owning a car is expensive. Some people prefer to go without one for that very reason.
But how much does it actually cost to own a car?
Well, in addition to the purchase price, there's also the expense of insurance, gas, maintenance and repairs, parking, and licencing fees. And these costs will vary depending on which province you live in.
If you’re wondering about car ownership costs in Canada and how much you might have to spend to get behind the wheel, here’s what you need to know.
Buying a new car
How much does the average new car cost?
The average cost of a car depends on several factors, including:
- Vehicle type
- Down payment amount
- Terms of your loan (duration and interest rate)
In December 2020, the average price of a new car surpassed $40,000, and according to CBC, the cost of new vehicles increased by 5% in the past year — the most significant jump since 2016. The leading cause is a shortage of semiconductors, which are the computer chips used in cars that control everything from engine timing and cabin temperature to infotainment systems.
Because of COVID-19, car manufacturers had to close down their plants and dial back the number of new cars they produce, leading to another factor driving up the price of new vehicles — low inventory. Coupled with high demand from commuters who don't want to take public transport due to the pandemic, it’s likely that prices will continue to go up.
Unless you can pay cash for your new vehicle, you’ll need to apply for some form of financing. The car dealership may require a down payment or a cosigner to improve your chances of approval.
You can either finance your vehicle via the dealership — meaning you own the vehicle and make regular payments to the lender — or you can lease your car, where you effectively “rent” the vehicle for a determined length of time (anywhere from two to five years) and make regular payments until it’s time to return it.
If you take out a car loan, your monthly payments will be determined by the size of the loan, the interest rate, and the length of the term. The amount you pay each month will be lower if you take out a loan with a longer repayment term. But keep in mind that you'll wind up paying more interest if you do this.
As an example, let’s take the 2021 Toyota Corolla LE CVT. We used a car payment calculator to determine the monthly financing costs for this vehicle, which has an MSRP of $21,150. Financing rates vary from dealership to dealership. For argument’s sake, let’s go with an interest rate of 2.5%, put down the recommended 10% down payment ($2,115), and choose a five-year financing term (60 months). This means our monthly car payment works out to $386.62.
Every province and territory has its own set of rules regarding the minimum quantity of insurance drivers must purchase to legally operate a vehicle. However, if you're financing or leasing your car, your lender may require you to get more coverage (like collision coverage and comprehensive coverage). That's because they want to safeguard the underlying value of the vehicle if you have an accident and your car is totalled.
Generally speaking, a new car will almost always be more expensive to insure simply because it is worth more right now.
Insurance companies consider many factors, including your age, commute, address, and driving record, to determine the cost of your premiums. Insurers also consider the make, model, horsepower rating, year of manufacture and safety features of your car. So choose wisely.
According to Insurance Bureau of Canada data from 2019, car insurance premiums in British Columbia, Alberta, and Ontario cost between $1,300 and $2,000 per year.
We looked at data from our car insurance quoter to find out what it would cost to insure this car as a 31-year-old male driver in Toronto. Our total monthly payment, including both financing and insurance costs, works out to be $599.37.
Rates are expected to continue increasing, which is why it's essential to shop around for the lowest rate and focus on premium-affecting factors that are within your control, such as your driving behaviour. Ultimately, whether your car is new or used, the higher the risk you are, the more you'll pay in insurance.
Your monthly gas expenditures will be determined by your vehicle's fuel efficiency, an estimate of the number of kilometres you travel each year, and an estimate of gas prices.
Gas prices in Canada continue to climb as the country reopens and people begin to travel more. According to Statistics Canada, the average cost of regular unleaded fuel in Vancouver rose to $1.55 per litre in May 2021 compared to $1.13 in April 2020.
Luckily there are tools online you can use to find the most fuel-efficient car. For instance, with Natural Resources Canada's tool, you can examine the fuel consumption data of various models to choose a more fuel-efficient vehicle. You can also save money by using apps like Gas Buddy to help you find the cheapest gas near you.
Maintenance and repairs
Another ongoing cost of owning a car is maintenance.
A new car typically comes with a warranty. Check to see what's covered and how much you'll save if something goes wrong during the warranty period. When purchasing the car, you may be able to buy an extended warranty. This is an additional investment up front, but it will save you money in the long run on repairs and upkeep.
However, you’ll still need to set aside money for scheduled and unscheduled maintenance costs. As a personal finance rule, you should also have enough money saved for any unexpected car-related expenses.
According to CAA, routine scheduled maintenance can cost anywhere between $500 and $700 per year. This does not include tire replacement or winter tire purchases, which can cost up to $1,500 for popular vehicles.
While winter tires are recommended across Canada, they are only required in Quebec and British Columbia. Even though you don't have to buy new winter tires every year, you should consider the cost of tires and the cost of having them switched from season to season. The good news for Ontario drivers? Having winter tires can get you a discount on your car insurance.
Lastly, we can't talk about total ownership costs for new cars without talking about depreciation. The moment you drive a new car off the lot, it begins to depreciate in value. Average estimates for the first year might be as high as 23.5%, depending on the region and the vehicle model. This is why many people decide to buy used instead.
Buying a used car
What is the average cost of a used car?
Unfortunately, the used car market is facing supply issues, which is driving up how much it does cost to own a used car. Fewer new cars to sell means fewer trade-in opportunities and, as a result, the supply of used vehicles has slowed to a crawl. However, generally speaking, used vehicles are less expensive to purchase than new vehicles. The fact that they don't lose their worth as quickly as new cars is possibly their biggest selling feature.
You can buy a used car from a dealership, but this isn’t the only option. You can also buy used automobiles privately through websites like Kijiji and Facebook Marketplace. If you’re buying used you may not have to make monthly payments on the vehicle if it’s significantly cheaper and you can buy it outright.
Insurance costs tend to be much cheaper for used cars, especially if their parts are less technologically advanced. (This makes them less expensive to replace.) A 2006 Toyota Corolla CE 4DR, for example, placed sixth on our list of the cheapest cars to insure in 2021. In total, it costs 25.94% less to insure than the national average premium.
Something else to keep in mind is that frequently stolen cars are considered a higher risk to insure, whereas vehicles with a low theft rating have cheaper insurance rates. Keep an eye on IBC’s annual Top 10 Stolen Vehicles list to get a sense of which vehicles might yield higher rates due to how frequently they’re stolen.
Gas prices are no different if you’re driving a new versus used car.
One thing to keep in mind about gas, though, is that prices typically rise as the summer approaches due to increased driving activity. In addition, summer blends are more expensive to produce than winter ones, which results in higher gas prices at the pumps from May through September. Apart from increased demand and seasonal changes, a few other things influence the cost of gas, such as weather conditions, geopolitical conflict, the status of oil and gas reserves, refining capacity, and the value of the U.S. dollar.
You also have to consider whether your car requires premium or supreme gas, which costs more than regular gas. For instance, in May 2021, premium unleaded gasoline at self-service filling stations cost Vancouver drivers $1.77 per litre compared to $1.35 per litre in the same month last year.
You can use the same tools we mentioned in the new car section above to find the most fuel-efficient vehicle.
Maintenance and repairs
One of the downsides of purchasing a used car is that the maintenance costs can be much higher due to increased wear and tear. Chips, scratches, and rust repairs are examples of bodywork not caused by an accident that you may need to pay for out of pocket. These are modest fixes, but they can pile up over time, especially if the car has been around for several years.
Don’t forget to factor in getting regular car washes, either. Keeping your car clean can increase its overall life span, especially if you live in a place where salt is used to prevent ice from forming on the roads. Corrosion and rust can be dangerous to your car's health, therefore you should wash and inspect the underbelly of your vehicle often.
In some provinces, a car that is more than 10 years old must first pass an inspection before receiving new insurance. This is something that can be done at any repair shop for a few hundred dollars.
Other costs that come with owning a car
Whether your car is new or used, you need to factor in other costs, such as:
- Licencing fees. If you’re a new driver, you will need to get your licence to drive legally in Canada. These costs vary depending on the province you live in. While it’s a small one-time expense, don’t forget to include it in your overall budget.
- Administrative fees. Depending on your location, there may be some administrative fees included in your overall car ownership costs. For example, to drive legally in Ontario, your car must have a valid licence plate sticker year-round and be insured. The price for that sticker varies based on where you live. For instance, in southern Ontario, renewing a licence plate sticker for a year costs $120, but in northern Ontario, it only costs $60.
- Parking fees. You may have a laneway or garage if you own a home, but if not, you may need to park on the street. In large cities, street parking is sometimes the only option. For instance, in Toronto, parking will cost you $113.94 per six months for your first residential on-street parking permit if you do not have access to on-site parking.
Where you park can also affect the cost of your car insurance. For instance, an insurance provider would compare the risks associated with parking your car on the street (damage, theft) to parking it in a laneway or garage and adjust your premiums accordingly. If you have access to private parking, you might be eligible for a discount so ask your insurance broker about it.
So, how much does it cost to buy a car? As you can see, it really depends. If you’re in the market for a vehicle, whether it's brand new or used, it's imperative that you add up the total cost of car ownership as it relates to your lifestyle before purchasing. A little research and smart shopping can save you hundreds, if not thousands, of dollars.
Methodology for determining insurance rate
- 2021 Toyota Corolla (financed)
- Street parking
- Drives 5km to and from work daily (10,000 km annually)
- Winter tires
- Personal use
- Lives in the M6H 1X1 postal code of Toronto, Ont.
- Collision and comprehensive coverage
- 31-year-old male, single, employed
- G licence
- Has been with current insurance company for three years
- Listed on an insurance policy since 2006
- Did not opt for any discounts related to telematics or bundling.
About the author
Zandile is a freelance personal finance writer. She previously worked as the Personal Finance Writer at LowestRates.ca and before that, the Content Editor for Real Estate Management Industry News. As a self-proclaimed budget warrior, Zandile dedicates most of her time to advocating for financial wellness.