Buying a car is a big investment, one you’ll be paying off for years to come. There are a number of steps that come with the purchase from finding the dealership, the car and the financing. Read our guide below on how to buy a car in Canada and take your time to make sure you’ve made all the right choices before signing the paperwork.
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Start by determining how much you want to pay and the car models you’d like to look at. This makes comparing prices and features easier as you start to narrow down your search and come to a final decision.
Ideally, the amount you spend on a car should be determined by your income and monthly budget. According to auto123.com, the average car loan lasts about 6.4 years, though you’ll save more money by keeping your loan term short.
Find a balance between the length of your loan and your monthly payments. You’ll pay less per month with a longer term, but interest will stack up, increasing the total cost of your car. If you’d like to pay as little as possible, a used car with a short term and a large down payment or trade in will save you the most money. If your budget is more flexible and you can afford larger monthly payments, list your must-have features first and narrow your car search based on these.
Some experts say that you spend no more than 10% of your monthly net income on car payments and that your debt load should be no more than 20% of your yearly net income (excluding mortgages and other housing payments). Another good rule of thumb to go by is not spending more than 10% to 15% of your annual income on your vehicles. This includes payments for all cars you have, insurance and gas.
Let’s face it: the number of models of cars out there can be overwhelming, and that’s before you get into the features. Shopping for a car online first can help you narrow down your options.
Start by determining the basics. How many seats do you need? Will you be driving in the city or in the country? Do you have a trusted car brand or style? These questions help you narrow down your search.
Think about the features you want. The MPG, safety rating and price can play a large role in your final decision. If you’re visiting a dealership, it’s likely you’ll have your choice of color and most newer-model cars come equipped with bluetooth. However, other features like sunroof, navigation systems and automatic start are not standard in every car and could make a difference in your choice.
After you have an idea of what you’re looking for, visit an auto show or car lot to test-drive the vehicle you’re interested in. Not buying from a dealer? You can still benefit from experiencing how driving the car feels before you put down cash.
If you have any doubts and have the time, take a few days to think about it and come back for another test-drive.
Unless you’re buying a car from an individual, you might have some flexibility when it comes to the price of your new car. Do some research and compare what dealerships are asking for. You can often ask for a quote by sending the dealership an email or even over the phone.
Chances are you won’t be able to front the whole cost of the car. Compare car loan providers to make sure you’re getting the best deal you’re eligible for.
Think about what’s important to you: Are you willing to pay a little extra more for speed and convenience or do you want to find the best deal. Also consider the down payment: Larger down payments mean you’ll pay less in the long-run but more upfront.
Generally, car loan providers either give you the funds upfront or work directly with your dealership to get you the financing that you need. If you choose to go with the financing offered a your dealership, you’ll apply for the loan while completing the paperwork.
Before you sign anything, see if the dealer is willing to budge on the price of your car. If you’re trading in your old vehicle, make sure your dealer is giving you your vehicle’s full value by checking out how much the dealer would make by reselling it online.
Make sure that you’re negotiating the full price of the car — not the monthly repayments — and write all important information down so the dealer can’t confuse into signing up for something less-than-favorable. Make sure to ask about fees and add-ons that you don’t need and be prepared to walk out if you can’t get a deal you think is fair.
Some car dealers include unnecessary add-ons that you can either get cheaper elsewhere or flat-out don’t need in the contract. Make sure you understand everything before you sign it and know what red flags to look out for.
If you have any questions, ask your dealer to explain it to you or consult an expert.
Where can I buy a car?
Many people choose to go to a dealership or buy through a private sale, but you have more options to explore.
Where to buy
How it works
What it’s good for
Visit a car lot and shop for your next car
You can examine a large selection of vehicles, test drive a few and get advice from experts on your selection. Since there are both new and used dealerships, you should be able to find a car within your price range.
Pick a model, secure financing and sign your contract from a car-buying website. Your car will be delivered to you.
Find a lightly-used car used for test drives and demos by a car dealership
This might be a good option if you want to buy almost-new car and want to get a good price on a recent make and model. However, the savings can vary and your options are limited. In addition, demo cars might be fitted with extras that you don’t necessarily want but will pay for anyway.
Import a car from overseas
It’s safe to say that this will never be the cheapest option as it involves a range of additional taxes and expenses. However, sometimes it might be the only way to get a vehicle not available in Canada.
This can be one of the most affordable ways of buying a car. In fact, car dealers often buy stock at auctions. The downside is that the quality of auctioned vehicles and the quality of their discounts vary, so research to find what that car is worth and inspect it to get a good price.
To find a good price on the car you want take your time to compare dealerships, private sellers and other options.
There are a few financing options available and can depend on your financial situation. Often, deciding on your financing is just as important as deciding on your car.
You always have the option to dip into your savings and pay for the car without taking out a loan.
You’ll avoid interest charges since you won’t owe money to a lender.
It can be difficult for most people to save up enough money to buy a car, especially a new one from a dealership.
This is when you get a loan from the car dealer. The dealer usually goes to a third party lender and acts as the middleman. Typically, both the dealer and the lender get paid through the interest.
It’s often convenient to get a loan when you buy your car.
Dealer financing might not be the most cost-effective choice. Dealers have an incentive to charge more interest, and you’ll be taking out a loan in a high-pressure sales environment so you won’t be able to compare your options.
A car dealer might offer you a loan on behalf of a bank or lender, but you might want to go directly to the lender and cut out the middleman.
There’s a wide range of options available, and you can consider the loan terms at your own pace rather than at the car dealership.
Make sure your loan matches your vehicle type. Sometimes there are conditions around the types of vehicle you can get.
You can also go through a broker that will find financing for you from one of its affiliated lenders.
A broker can compare suitable options on your behalf to help find something to meet your needs, especially if you don’t have the best credit and need help finding a loan.
Brokers charge additional fees for their services, and you’ll need to check the terms and conditions of their services before you apply.
It helps you know where you stand financially and how much you can borrow. Pre-approval lets you know your price range, and might give you an edge when negotiating with dealers.
The amount you qualify for doesn’t necessarily include all expenses and other taxes, so it’s important to make sure you aren’t caught short when you make you final purchase.
Compare car loans
Representative example: Emily buys a new car
Emily lives in Ontario and recently got a new job in another city, so she decides to buy a car to drive to work. She visits a dealership and picks out a 2020 Toyota Yaris priced at $19,800.00. Emily makes a 20% down payment of $3,960.00 and heads to her local bank to get an auto loan to cover the remaining $15,840.00 + 13% HST on the purchase price.
Because she has a solid credit history, Emily is approved for a $18,414.00 auto loan with competitive terms. Along with the cost of her loan, she also pays approximately $180.00 to register her vehicle with the province of Ontario – this includes the cost of license plates, a sticker and a vehicle permit.
Cost of new car
Auto loan (term loan)
Interest rate (APR)
4.00% origination fee ($736.56)
$295.70 monthly or $136.35 biweekly
Total loan cost
$21,290.40 with monthly payments or $21,270.60 with biweekly payments
*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.
What should I keep in mind when buying a car?
Once you decide on what kind of car you want, its features and the price, consider the price, loan and amount of insurance you’ll pay.
The price. Your price should reflect something you can afford either to pay for upfront, through your trade-in or with monthly payments.
Secured vs. unsecured financing.Secured loans tend to cost less and have lower monthly payments because the lender uses your car as collateral. Unsecured loans can be more expensive, but often allow you to use the money to cover other expenses besides buying the car itself.
Insurance rates. Car insurance premiums are based on lots of factors including the model of your car. Other factors that can affect your rate include your car’s safety features as well as your driving record, age, gender and whether you belong to an alumni group or club that offers discounts. You may also be able to score a discount if you go to driving school or take a defensive driving course.
Its history. Getting a used car? Check its VIN history or have it inspected by a mechanic to make sure you aren’t paying more than your car is worth. A VIN report will show you the car’s maintenance history, record of accidents, any existing claims to the title of the car and loads of other important details.
Before you visit a dealership or contact a private seller, do your research. Resources like the Canadian Black Book (for used cars) and autoTrader.ca (for new and used cars) can help you determine the value any vehicles you’re looking at as well as the prices these vehicles are currently going for. Search for the make, model and year of a car to find its market rate.
Another way to be prepared is to apply for pre-approval online. There are a number of lenders that offer pre-approvals with competitive APRs and terms to bring into a dealership. If the dealer wants your business he or she may try to beat that deal.
What extra costs should I budget for?
The sticker price of the car is the main expense, but not the only one. When deciding whether you should buy a car, make sure you have enough to cover all of the related expenses — both during and after the purchase.
Sales tax. A percentage of the cost of your car. How much sales tax you pay depends on where you live.
Documentation fee. The fee that the dealership charges for filing your contract, which also varies by province or territory.
Extras and modifications: The price you get at the dealer will depend largely on which features and extras are thrown in. This can turn the price thousands of dollars either way. If you don’t care about the modifications, skip them and avoid overpaying for something you won’t use.
Increased insurance premiums: When you add a new car to your policy, you should be prepared to pay more on your insurance each year. Contact your provider before you purchase a car to see how much the make and model might impact your premiums. Learn more about car insurance in our detailed guide.
Registration: For new cars you’ll have to pay a fee to register it. And if you’re buying used, you’ll need to pay a fee for the transfer of registration/ownership. The cost of renewing your registration or registering a new car depends largely on where you live.
Maintenance and fuel: It’s worth planning for operating costs. The cost of fuel and routine car maintenance depends on the type of car and how much you drive.
Car loan repayments: If you’re not careful these might become a major headache. You should know how much the repayments costs before taking on a car loan.
Is there a “cooling-off” period if I change my mind about the sale?
Probably not. A “cooling off” period refers to a window of time in which you can legally change your mind about a purchase and get a refund. While provincial and territorial regulations allow this for some purchases, such as door-to-door heater and furnace rentals, most provinces do NOT allow cooling off periods for new or used car purchases.
However, you may still have some options. For example, according to Community Legal Education Ontario (CLEO), if an Ontario dealer didn’t tell you something important about the car, like its total mileage, you might be allowed to cancel the sales contract if hasn’t been more than 90 days since the deal was made. If the dealer made false or misleading statements about the car, you have 1 year to cancel the contract. Check with the ministry of transportation in your province or territory to find out what regulations apply to you.
If you haven’t yet taken possession of the vehicle, you can try to ask your dealer to cancel the contract and refund your deposit. The dealer may do so at his or her discretion, although some of your deposit might be withheld to cover expenses like administrative and freight costs.
Getting your vehicle inspected
For used car purchases involving either dealers or private sellers, have an independent mechanic thoroughly check vehicles over before you make a purchase. Try to find anything you’ll end up having to fix yourself shortly after buying the car or anything that might indicate the seller has misrepresented the car’s condition.
Some of the important points reviewed may include the following:
The body (exterior):
The car should be checked from all angles, looking for dents and imperfections that you might be able to use to negotiate a lower price. There should be no signs of an old accident or other damage on the car, and the paint should be smooth with no chips. All body panels and doors should be flush, with none jutting outwards or curving inwards in an unusual way.
The inside (interior):
The condition of all the upholstery.
Windows, air conditioning, audio and all other electronics are working.
All the lights are functioning properly.
Floor mats are lifted and the inside of the doors are inspected for any signs of damage or repairs.
The engine: The engine may be tested by letting the car idle for a small amount of time (as permitted by local environmental laws), and then giving the accelerator a quick pump. If a puff of smoke comes out, then there might be a piston or valve stem problem. After the car has stood for a while, the surface of the engine and the underside of the car should be checked for oil drips or residue.
The radiator should be clean and free of oil, and the oil filter caps should be clean as well. A creamy white substance may indicate a cracked cylinder head or leaking gaskets.
Signs of painted-over imperfections, bubbles under the paint and mismatched paint on adjacent body panels.
Tires should also wear down evenly. If they’re not evenly worn, then there may have been a previous accident in which some, but not all, of the tires were replaced, or the car might have other problems.
Glass can be expensive to replace, so chips or cracks in the windows, indicator lights, mirrors and any other areas where glass is involved should be checked.
Rust underneath the car might indicate that there is corrosion or damage.
Trying out a car should involve checking to make sure that:
The gears can be changed smoothly and quickly
The engine power is appropriate for the car
The car tracks are in a straight line and don’t drift
The brakes respond effectively
The electrics, dials and other interfaces are all working properly
The speedometer is working accurately
There are no irregular engine noises
The temperature dials, car engine light and all other indicators are functioning normally
The suspension and transmission are functioning properly
The exhaust emissions are reasonable and in accordance with the law, if applicable
All the headlights, tail-lights and interior lights work
Buying a car is a long process that can be stressful and confusing, but you can make it more simple by knowing what type of car you want beforehand. Check out our comparison of the best car loans to find out how to get the best deal on financing for your next ride.
Frequently asked questions
It depends on your preference. Used cars will be cheaper up front, but since they’ve been driven by another owner, they could cost more in the long run in terms of maintenance. New cars lose value nearly as soon as you drive them off the lot, but you’ll know it’s functioning properly and will be protected by a new car warranty in case of a problem.
Usually at least 10%-20% of a vehicle’s purchase price, but having more will lower the amount you need to borrow. A larger down payment may also help you get approved for financing, because it gives lenders the impression that you can afford a car and will take repaying your car loan seriously. The greater your down payment, the greater your chances of getting approved for financing.
There are car loans for people with every type of credit, but lower interest rates are typically reserved for people with high scores and solid payment histories. If you’re worried about not getting a loan because of past credit problems, consider going through a car loan broker instead or saving up for a large down payment. Paying down debts you currently have and increasing your savings can raise your credit score and make your loan application look less risky to lenders.
When you’re ready to buy a car, most car buying guides recommend budgeting around 10% to 15% of your monthly net income for car costs. This includes your loan payments, gas and a savings fund for repairs and maintenance. Experts recommend spending no more than 20% of your annual net income on debts (not including mortgage payments). By staying within this range, you protect yourself from overspending and making it difficult to afford other expenses like your mortgage or rent and food.
This means that if your net take home pay each year is $42,000, you should be spending no more than $8,400 yearly on debt-related expenses, including the cost of your car loan, and between $350-$525 per month on all your car-related expenses.
If your yearly net income is $70,000, then you should aim to spend a maximum of $14,000 per year on debt-related expenses, and about $583-$875 a month on all your vehicle expenses.
Stacie Hurst is an editor at Finder, specializing in loans, banking products and money transfers. She has a Bachelor of Arts in Psychology and Writing, and she completed one year of law school in the United States before deciding to pursue a career in the publishing industry. When not working, she can usually be found messing around with games, photography or floral arrangements in memory of her former days as a flower shop assistant.
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