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How to buy a car in Canada
Compare financing and follow these seven steps to learn the best way to buy a car in Canada.
Buying a car in Canada can be a relatively pain-free process if you know where to start. Learn more about how to buy a car in Canada – including where you can get financing and what steps you’ll need to follow to finalize your purchase.
How to buy a car in Canada in seven steps
The best way to buy a car in Canada is to follow this step-by-step process:
1. Calculate how much you can afford
Before you begin your search, calculate how much you can afford to spend on your car. Ideally, the amount you spend on a car should be determined these three factors:
- Down payment. Think about how much you can afford to put down upfront on your new car. Keep in mind that the more you can spend on a down payment, the less you’ll pay in interest and the lower your monthly payments will be.
- Monthly payments. Make a budget to find out how much you can afford to pay for your car each month. Many experts agree that you should avoid spending more than 10% of your take-home pay on your monthly payment.
- Other car ownership expenses. You’ll want to consider other costs that come with car ownership, such as insurance, gas, maintenance and registration fees. A good rule of thumb is to spend less than 15% of your annual income on all vehicle-related expenses combined.
2. Narrow down your options
The best way to buy a car in Canada is to narrow down your options in advance. Think about the following features to get a clear picture of what you want in a vehicle:
- Price. Set a budget and stick to it. This will help sort out which cars you can truly afford and which are out of your price range.
- Vehicle type. Think about what type of vehicle will suit your needs – whether that’s a compact car, SUV, pick-up truck or minivan.
- Condition. Figure out if you want to buy a new car with lower kilometres and a warranty or a used car with fewer upfront benefits but a lower price tag.
- Fuel type: Consider the length of your commute and decide whether you’re looking for a gas-powered vehicle or a hybrid/electric car.
- Manufacturer: Decide on which car brand you want to buy. If you’re not sure, find out which car brands have a solid reputation before you hit the dealership.
- Mileage: Figure out how much mileage you’re willing to live with when buying a used car. Remember that higher mileage may mean more repairs while lower mileage vehicles will typically cost more upfront.
- Extra features. Decide which premium features you want in advance. These can include Bluetooth, a sunroof and back-up cameras.
3. Shop around for the best price
When you’ve settled on the type of vehicle you want, the best way to buy a car in Canada is to compare prices across multiple sellers. You should also know what the base price (also called the Manufacturer Suggested Retail Price, or MSRP) of the car is on the manufacturers website and what it’s selling for on reputable sites like Canadian Black Book, Auto Trader Canada, and Kijiji Autos.
Doing this kind of research can also help you decide whether to purchase your car directly from a dealership or from a private seller.
4. Find car financing
If you’ve figured out how to buy a car but aren’t sure how to finance your purchase, you have the following options.
- Car loan. You can take out a car loan to buy a car, and some lenders may even give you lower interest rates when you secure your loan with the vehicle you purchase.
- Home equity loan. If you’ve built up enough equity in your home, you could use that money to finance your car. Just be aware that your house will be used as collateral to secure your loan.
- Unsecured personal loan. If you have good credit, you may be able to buy your car with an unsecured personal loan. This means you won’t need to use your new vehicle as collateral to secure your loan.
- Dealership financing. You may be able to apply for financing directly from the dealership if you want an easy and convenient loan. Just be aware that you could end up paying more in interest and fees if you don’t compare your options.
Compare your car loan options
Check out reputable car loan providers in the table below and compare providers side-by-side by checking the compare box under each provider you’re interested in.
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Finder Score for car loans
To make comparing even easier, we came up with the Finder Score. Interest rates, fees and features across 20+ car loans are all weighted and scaled to produce a score out of 10. The higher the score the better the loan—simple.
5. Test drive your vehicle and get an inspection
Before buying a car in Canada, you may want to get it inspected by a licensed mechanic. It’s also a good idea to test drive a vehicle before you buy it to find out if there are any noticeable defects. Some dealerships will offer an inspection or a 30-day warranty on the vehicles they sell. Private sellers can be a little bit more hit or miss when buying a car.
6. Negotiate
If you’re wondering how to buy a car, one of the key steps in the process is negotiating the best deal. Look at the price of similar vehicles with similar mileage to get an idea of how much you should be paying for your vehicle. You can find this information by searching on sites such as the Canadian Black Book and autoTrader.ca.
- Dealerships. With dealerships, you can ask them to price match or see what their lowest price would be on the vehicle you’re interested in. Most dealers are interested in moving stock and many may give you a lower price to expedite a sale.
- Private sellers. For private sellers, you may want to reference ads for similar cars with lower price tags when sending out inquiries. You might also be able to lock in a cheap sale if you promise to buy the car outright with cash on the same day.
In both cases, it helps to apply for car loan pre-approval with a lender so that you know how much money you have to spend before you start shopping.
5 tips for negotiating with a car dealer
7. Read and sign the contract
Read through your purchase agreement carefully before you sign on the dotted line. Unless you pay for your car outright, you’ll usually have a financing agreement to sign as well. Double-check that you understand all of your rights and responsibilities before you complete your transaction, and know what red flags to look out for. If you have any questions, ask your dealer to explain the terms of your agreement before buying a car.
Fees when buying a car in Canada
You may have to cover the following expenses and fees when buying a car in Canada.
- Sales tax. You’ll usually pay GST and HST on your vehicle if you’re buying from a dealership or through a private sale.
- Documentation fees. These fees only apply to dealership vehicles and they usually cover administrative fees to file your contract.
- Insurance and registration fees. You’ll need to pay insurance and registration fees when buying a car in Canada. You’ll also have to pay a monthly premium to maintain your insurance.
- Rates from 0% - 35%
- Borrow $5,000 - $50,000
- Loan terms from 12-96 months
- Get matched with offers
- Rates from 3.90% - 29.90%
- Borrow $500 - $75,000
- Loan terms from 12 - 96 months
- Pre-qualify within minutes
Representative example: Emily buys a new car
Emily lives in Ontario and has been saving up for a new Toyota Corolla. She finds one at a nearby dealership for $25,800 (including 13% HST) and makes a 20% down payment. This means she needs to borrow $20,640 from her bank. She gets approved for a $20,640 loan with a 5.99% interest rate. This is what her loan will look like:
| Cost of new car | $25,800.00 |
| Loan type | Auto loan |
| Loan amount | $20,640 |
| Interest rate (APR) | 5.99% |
| Loan term | 6 years |
| Payment | $342 per month |
| Total loan cost | $24,594 |
This summary shows that while Emily borrows $20,640 to pay for her car, she’ll need to repay over $24,500 by the end of her term. It’s important to factor interest rates and fees into your total loan amount to get a proper estimate of how much you’ll owe.
*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.
Benefits of buying a car
- Easier to get around. You won’t have to plan your day around public transit or car-share schedules.
- Saves time. It takes only a few minutes to zip out for groceries or get to the office if you’re in a rush.
- Travel long distances. You can take an impromptu trip or work and study further from home as the commute will be manageable.
- Financing helps build credit. You may be able to use your car loan to build your credit score if you make your payments on time.
What to watch out for
- Paying too much. Avoid paying too much for your car by searching for online price estimates for the vehicle you’re interested in before you buy.
- High interest rates. Compare lenders to avoid paying too much on interest when you take out financing for your new car.
- History of accidents. Request a CARFAX report and get an inspection before buying a car to make sure it hasn’t been in any accidents.
- Extra expenses. Assess the fees when buying a car in Canada and think about extra costs such as insurance, maintenance and gas.
When is the best time to buy a car in Canada?
The best time to buy a car is generally within the last few months of the year – in October, November and December. This is true whether you’re buying a new or used car. Year-end sales can save you a bunch of money on extras and the actual cost of the car. It’s common to see interest-free deals then too. Especially in December, most dealerships are getting ready for next year’s models and need to free up space on the lot. To do this, dealers will cut prices, even if it means making a smaller profit.
The best time to buy a car within the month
Knowing the best time of the year to buy a car can help you save money. But being even more strategic about when you visit the dealership can help you save even more. Here are some of the best times of the month to buy a car.
The end of the month or quarter
The end of each month or quarter is one of the best times to buy a car because, depending on the dealership, salespeople often need to reach a target goal. That makes negotiating a better price easier as salespeople want you to sign on the dotted line to help them meet their sales targets. Sometimes, dealerships offer salespeople bonuses if they meet certain targets by the end of the month or quarter, so you might be able to score a better deal if you shop during those times.
The best day to buy a car: Monday or Tuesday
When it comes to finding the best time to buy a car in order to lock in a good deal, the day of the week can even make a difference. Saturdays and Sundays are salespeople’s busiest days, not making it an ideal environment for negotiating. Mondays and Tuesdays tend to be slower, allowing you more time to play hardball and see how low you can get the price.
The end of the business day
The best time to buy a car can literally come down to the time of day when you visit the dealership. If you know the exact car you want and go shortly before the end of the business day to buy it, you may be in a stronger negotiating position. Salespeople have worked a long shift and are likely looking forward to getting off work. They may be more eager to work with you to close the deal quickly. However, don’t expect this strategy to work if you don’t know exactly what you want. Being indecisive will undermine the salesperson’s perception that he or she can close the deal quickly and go home.
The best holidays and events to buy a car
If you can wait for these holidays or events throughout the year, you could save big on your next car purchase.
New Year’s Eve or Day
The end of the calendar year is one of the best times to buy a car. On top of offering blowout sales, dealerships may be trying to meet an annual sales target. This means salespeople are more willing to negotiate with you to get the vehicle off the lot. You may also be able to cash in on these deals during Boxing Day sales leading up to New Years.
May long weekend sales
Many dealerships cut prices and offer low interest deals to kick-off summer. If you can wait until the May long weekend, you’ll be sure to find a competitive deal on a number of different makes and models. It’s also a good time to purchase a mid-sized SUV because May falls in between the periods when these models are most popular — winter and the beginning of the school year.
Black Friday sales
This is one of the best times to buy a car. It’s close enough to the end of the year for dealers to start making their big sales push and it’s the beginning of the holiday season — expect sales and incentives to buy. With many people looking for bigger vehicles to get them through winter, you’ll find the best deals on midsize and compact models.
Just after new models are released
When new cars are released, buyers often run out to get the latest and greatest. After this initial sales rush is over, upgraded models start arriving and can cost the same price as the original model. Because of this, you can negotiate a lower price for the original model.
What kinds of discounts can I expect?
Once you know the best time to buy a car, it’s important to know what sort of discounts and deals you should be on the look out for.
- Cash-back rebates. Cash back typically applies to the purchase price of the specific car you’re looking to buy, and not all models offer the same deal. You’ll have to research rebates separately, but it’s a good way to lower the overall cost of your next car.
- Financing incentives. If you have excellent credit, you may qualify for interest rates between 0% to 5%. These rates are often advertised to get people through the door, so unless you know you have the credit, don’t expect to receive this good of a deal.
- Special buyer discounts. Are you a student or a recent college grad? A member of the Canadian military or RCMP? Is this your first time buying a car? Have you recently bought or leased another vehicle from the same manufacturer? There’s a strong chance you’ll be able to get a discount from the dealer or manufacturer.
- Leasing programs. Many manufacturers encourage buyers to lease by advertising low monthly payments. These can be beneficial for people who want to have the newest car with the latest perks and safety features every few years, and if you catch a dealer at the right time, you may be able to negotiate the price down even lower.
Keep in mind that many of the special discounts listed here are for new car buyers. This shouldn’t stop you from shopping for a used car and negotiating a good deal, but most rebates will only be given to buyers looking to purchase new.
How else can I save?
Knowing when is the best time to buy a car isn’t the only way you can save on your next purchase. You might also want to:
- Consider a used car. Used cars are typically cheaper than new cars and come with the added benefit of depreciating less over time.
- Consider a Certified Pre-owned Vehicle. Want a new car? Certified Pre-Owned programs allow you to buy a used car that has been thoroughly checked over and polished by manufacturer-trained mechanics to make sure the vehicle is both high quality and reliable. Certain manufacturers also have warranty options specifically for Certified Pre-Owned Vehicles that come into effect as soon as the new car warranty has expired.
- Trade in your car. If you already have a car, trading in your old vehicle can knock hundreds or thousands of dollars off your new car price. Be sure to take care of your vehicle and clean it up before taking it into the dealership for a valuation so that you can get the best possible price.
- Consider a mid-level or basic model. While high-end models might come with more features, consider whether you’re willing to pay for upgrades that aren’t essential for your driving experience or won’t affect it that much.
- Shop around. Comparing cars from different types of sellers and financing options from different types of lenders can help you save on the total cost of your car. If you choose to get pre-approved for a car loan, you’ll know what kinds of rates and terms you’re eligible for and can potentially used a good offer from one dealer or lender to negotiate a better offer from another.
Bottom line
Getting your next set of wheels is easy if you know where and how to buy a car in Canada. Find out the best way to buy a car in seven simple steps, and compare lenders to find a financing option that suits your needs.
Frequently asked questions about how to buy a car in Canada
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