When should you replace an old car?

Keeping a car past its prime can be expensive and dangerous.

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Replacing your old car could mean a new monthly bill and higher insurance premiums, but picking the right car can cut those costs down.

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  • Max. Loan Amount: $55,000
  • Interest Rate: 3.99% to 29.90%
  • Loan Term: 12-84 months
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Factors to consider when upgrading your car

At some point, the cost of owning and maintaining an older car might outweigh its value. It’s nice to pay off your car and no longer have car payments, but having to rely on a car that’s increasingly unreliable can be stressful and expensive.

Trading out your old beater for a new or new-to-you car might sound pricey, but it’s not always more expensive after the initial upfront cost. Consider some of these cost factors before making the decision to upgrade your ride or not.

Newer cars have more safety equipment and optional features

Statistically, newer vehicles are safer. They benefit from modern advancements in body design, autonomous safety technology and driving aids. Plus, an aging car’s crash safety could be weakened by rust. If your car is rusty, you could have a 20% higher risk of dying in a crash.

Cars for sale today carry plenty of equipment and technology that was either optional or unavailable in the past. It’s not uncommon for cars today to come with smartphone connectivity, onboard navigation systems, 360 degree cameras, high-quality video and audio systems, steering wheel controls, fuel-efficient engines and advanced safety features like anti-theft devices and Automatic Emergency Brakes (AEB).

While some of these features are basically just bells and whistles, others have become critical for keeping the roads safe.

The Canadian Transportation Safety Board estimates that around 160,000 car accidents occur in Canada every year, killing over 300 pedestrians and injuring hundreds more.

In response to statistics like this, automakers in both Canada and the U.S. are now required by law to include reverse/backup cameras in every car they manufacture.

Simply put, driving cars with newer safety features can help reduce injuries and even save lives.

According to Transport Canada, there were on average 2,806 deaths related to motor vehicle accidents between 2003-2007. Over the next 5 years, the average number of deaths each year lowered to 2,196, lowering even more to about 1,884 per year between 2013-2017.

As technology has improved and standard features in vehicles have advanced, motor vehicle-related deaths seem to have correspondingly decreased (although other factors contribute to this improvement as well). On average, fatalities have gone down by almost 1,000 per year over the last 15 years.

And while a newer car might cost more to insure, having advanced safety features can sometimes get you a discounted rate.

Repair costs can get expensive with older cars

New cars benefit from a manufacturer’s warranty, and they’ll usually have fewer recalls than older cars.

But as a car ages, it will begin to degrade. Things will start going wrong, rust will set in and you’ll find yourself chatting a lot more frequently with the mechanics at your local garage.

Gas mileage is better on newer cars

Gas is the second largest expense that car owners have to shell out money for, but many new cars are designed to slash your fuel bill. This is because of engines that need less fuel to run, automatic systems designed to reduce energy used by braking and accelerating and eco-friendly options like electric cars and hybrid vehicles.

You might notice that, with an older car, the gas mileage decreases over time if the car isn’t properly maintained.

If you’re considering a newer car and want to maximize your fuel use, hybrids and electrics are cheaper than ever, even for used vehicles.

Outstanding finance can get complicated

If you haven’t paid off your current car, things can get a little tricky. You need to make sure that selling your old car or trading it in will cover the remainder of your loan. Otherwise you’ll be on the hook to pay off the outstanding balance to your lender while also managing financing for your new car.

When looking at newer car financing options, remember to consider the following points:

  • Origination fees. Some dealerships charge an “origination” fee for processing your application and setting up the loan. This may be in the form of a small percentage of the loan amount (usually between 1% and 5%) or a dollar amount.
  • Early repayment fees. Make sure you won’t be charged a penalty for making extra payments on your car loan or for paying off your car loan early, should you want to. If your lender does charge these fees, make sure the terms of the loan fit within your repayment plans and your budget.
  • Fixed or variable interest rates. Loans with fixed interest rates stay the same throughout the term of the loan, while loans with variable interest rates fluctuate with the prime lending rate set by the Bank of Canada and other major Canadian banks.
    If the prime rate goes down, your variable interest rate will go down too and you may end up paying less for a time than you would with a fixed interest rate. But if the prime rate goes up, you could end up paying more. Choosing whether to go with a fixed or variable interest rate loan can be difficult, but a lot comes down to your risk tolerance and whether you believe the interest rate is likely to change in your favour.

Insurance costs could go up for a car upgrade

New cars with the same level of insurance can sometimes be cheaper to insure than older models that are more likely to break down and need repair. However, getting a new car usually means you’ll be upping the scope of your coverage.

Lenders may require you to have full-coverage insurance that exceeds minimum provincial requirements in order to decrease the likelihood that damage to your vehicle will leave you unable to repay your loan.

This could result in hundreds or possibly thousands of dollars more per year (depending on where you live) if you previously only had the minimum required insurance.

Insurance rates can vary greatly depending on the make and model of the car you’re switching to. If you’re upgrading from a $5,000 used minivan to a $50,000 luxury SUV, your insurance rates will likely go up. But if you’re upgrading from a used sedan to an almost new sedan, you won’t see your premium jump as dramatically.

There are ways to score a discount on your car insurance rate. Discount amounts vary and not all insurers offer the same discounts, so you will need to check with your insurer to find out if you’re eligible to save any money. You might be able to get discounts for the following:

  • Passing a driver’s education course. You could save up to 10% if you pass a driver training course, such as a licensing preperation course or a course teaching you how to drive in hazardous/dangerous conditions. Such courses can be especially helpful if you’re a young driver (under 25 years old) or if you live in a province that’s known for charging higher insurance rates (like Ontario).
  • Using winter tires (snow tires). Putting winter tires on your car can save you up to 5%, thanks to the effect that Canadian winters have on insurance companies’ anxiety over driving conditions.
  • Taking precautions against theft. Installing an anti-theft device can save you on average 1% – 2% (possibly up to 5% on the comprehensive portion of your insurance).

Man teaching a teenage boy how to drive Image: Westend61/Getty Images

Compare new car loans

Name Product Min. Loan Amount Interest Rate Fees Loan Term Min. Credit Score
Car Loans Canada
$7,500
3.99% to 29.90%
Varies by lender, loan type and province
12-84 months
300
Search thousands of vehicles online, including $0 down options, from dealers across the country and get matched with affordable financing options. Auto loans are also available to those with bad credit, consumer proposals and bankruptcies to help rebuild credit.
CarsFast Car Loans
$500
4.90% to 29.90%
Varies by lender, loan type and province
12 months - 8 years
300
Browse thousands of vehicles from dealers across Canada and get matched with financing that meets your needs. Apply online to purchase a new or used vehicle and get the vehicle delivered to your door.
LoanConnect Car Loans
$500
1.90% to 46.96%
Varies by lender, loan type and province
6-60 months
550
Get access to 25+ lenders through LoanConnect's brokerage. Receive pre-approval in as fast as 60 seconds and get your funds in as little as 24 hours.
Carloans411 Car Loans
$500
1.90% to 19.99%
Varies
Up to 84 months
300
Get connected with suitable lenders through CarLoans411. Finance your next car, van or truck with loans available in amounts from $500 to $35,000. Check eligibility for this loan through LoanConnect.
Auto Arriba Car Loans
$3,500
8.99% to 29.50%
Contract fee of $499.00
6-84 months
N/A
Auto Arriba offers car loans starting at $3,500 up to $100,000, with as little as a 30 minute loan turnaround time. On a limited number of approved loans, Auto Arriba is currently offering a rebate of the amount of your first scheduled payment 30 days after it has been processed up to a maximum of $500.
Fairstone Secured Personal Loan
$5,000
19.99% to 23.99%
Varies by province
3-10 years
560
Fairstone offers secured personal loans up to $35,000.
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How to get cheap insurance for a new car

Save on new car insurance by being smart with extra features and discounts.

  • Opt for less customization and fewer upgrades. A base or lower end model will often cost less initially and have a smaller engine, which will help you save on upfront costs, fuel expenses and insurance bills.
  • Look for discounts. Most insurers offer stacking insurance discounts for being a safe driver, a good student, having a claim-free record for a while and more.
  • Shop around. Finally, shop around for your insurance. You could save a substantial chunk of cash if you take time to get quotes from multiple companies.
  • Add safety and security features. Cars with anti-theft devices and extra safety features, such as seat belts, blind spot sensors, side airbags and backup cameras, are often cheaper to insure.
  • Choose extras wisely. Insurance add-ons can quickly raise the amount you have to shell out, especially if you don’t need them. You might not need to purchase towing insurance on a new car, but gap insurance is probably a good idea if you end up taking out a car loan.

Gap insurance explained

If your car is written off after an accident, gap insurance covers the difference between what your insurance would normally payout and what it would cost to pay off your car loan.

Say, for instance, that you owe $14,500 on a car loan, but you accidentally total your car and insurance only covers $9,000 after a $500 deductible. You pay the deductible and your insurance pays $9,000, but there is still $5,000 owing on the car ($14,500 – $500 – $9,000 = $5,000). Gap insurance would cover this amount so that you don’t have to continue paying for a car you no longer use.

Not only is gap insurance useful when accidents happen, but it also comes in handy if you’re buying a new car and/or have a lengthy loan term. In both cases, the value of your vehicle depreciates faster than you can pay it off. This results in a difference between what you could sell the vehicle for and what you owe on it, and gap insurance can help cover the difference if you need it to.

When is the right time to upgrade my older car?

If you find that your car has a track record of reliability and is cheap to run, then it may not be worth upgrading from a financial point of view.

But if you’re starting to see more maintenance costs on your older car, calculate how much you spend per month fixing your car. You might be better off trading in your current car, putting the money towards a down payment on a new car and then using your monthly payments to pay for that car. If you don’t relish the thought of buying new, you might want to buy a gently used, but more reliable, car.

In fact, given that vehicles lose much of their value within the first 2 years of ownership, some financial experts advocate buying slightly used vehicles rather than new ones, because you get a car that’s almost new but for a greatly reduced price.

You can also keep track of your car’s value over time. If your car faces a big problem that will cost more to fix than it’s worth, you’ll have to decide if you want to put in the cash to repair a dying car or get rid of it and start fresh with a lower maintenance vehicles. If your car is really beginning to age, it’s anyone’s guess how much maintenance it will need in the future.

Keep in mind that your car’s value is also tied to its working condition. You might be hoping to drive your car into the ground, but trading in your car before it dies could actually give you some money to pay for a new or new-to-you car. It could be hard to find a buyer for a car that won’t run or that needs major repairs.

Bottom line

If your car’s still got its best years ahead, don’t take on a loan you can’t afford just to upgrade. On the other hand, if your car breaks down every other week and practically has a custody arrangement with your local mechanic, keep yourself safe and save money by upgrading to a newer vehicle.

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