The most obvious expense involved in car ownership is the vehicle itself.
The amount varies depending on whether you choose to buy used or new. It is advisable to put down 10% to 20% of the price of a new vehicle as a down payment. Costs after the initial purchase vary depending on the kind of loan you obtain and its interest rates.
We can estimate costs for a couple of different scenarios to put these numbers into perspective:
- Assuming a $3,500 down payment and a $14,500 loan with a term of three years for an $18,000 vehicle, a buyer with a “great” credit rating gets an interest rate of 6.9%. That boils down to a $447.06 monthly payment, and a total of $1,593.99 in interest over the three years. In other words, the total cost of that vehicle is $16,093.99.
- A driver might choose to buy a more expensive vehicle for $40,000 with a $3,500 down payment and gets a loan for $36,500 at an interest rate of 6.9%. It breaks down to a $1,125.35 monthly payment with a total of $4,012.45 paid in interest over the three years. The total cost of that vehicle will be $40,512.45.
Of course, there are many variables at play when buying a car. Some of these include the timeframe of the loan and your records, such as any outstanding loan payments on a previous vehicle or a poor credit score.
How does vehicle depreciation factor into the equation?
Depreciation is the sometimes left out and somewhat abstract expense of buying a vehicle. If a car is purchased new, it loses immediate value once it is driven off the lot. In the first year, a new car will lose 20% to 40% of its original value. After that, the longer you hold onto your vehicle, the less depreciation will affect its value. To estimate your vehicle’s depreciation, compare the cost of the car new with its resale value on popular car trading sites.
Buying used vehicles can more or less bypass this expense. A quality used car may not hold the same guarantees as a brand-new vehicle, but for first-time buyers or drivers on a budget, the savings can make second-hand purchases worthwhile.
What about car insurance?
When purchasing a car in Ontario, car insurance is a mandatory requirement before you start driving.
In Ontario, by law, you must have third-party liability coverage, direct compensation-property damage, uninsured automobile coverage, and accident benefits protection. Beyond these mandatory coverages, insurers offer additional kinds of protection with adjusted premiums. Two optional coverages you may wish to add to your policy are:
- Comprehensive. Comprehensive insurance addresses incidents that do not involve another vehicle, such as natural disasters, a fire, theft or vandalism, or an accident involving an animal. Or a falling coconut. (Yes, the windshield of my rental car was shattered by a falling coconut.)
- Collision. Collision coverage pays for damages or losses resulting from a car accident whether you are at fault or not. It also pays for damages to your vehicle for a hit-and-run. Furthermore, collision coverage will pay for damages to your vehicle if you strike an object such as a telephone pole or a tree. The amount of coverage you have depends on the coverage limits set in your policy.
The premium is the amount you pay (either monthly or yearly) to your insurer. The premium corresponds to a deductible which is the amount you would have to pay in the event of an accident. The insurer will cover all costs incurred in an accident beyond the deductible. The higher your premium, the lower the deductible.
To calculate your premium, insurers consider a range of factors such as your sex, age, and marital status, where you live, the type of vehicle you drive, and your driving record. As such, insurance costs are typically higher for young or inexperienced drivers.
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Licensing and registering a vehicle
This process involves registering your vehicle with a government body to establish you as the owner legally. You will need to renew your registration every one or two years. Thankfully, the costs of licensing and registering a car are minimal. In Ontario, permits for any vehicle cost $32, and license plate fees are $60 per year in Northern Ontario and $120 per year in Southern Ontario.
Keeping your car on the road
You also need to consider maintenance costs, including getting oil changes and other wear-and-tear repairs. If a car is purchased new, its warranty will cover some of these expenses for the first three years. A warranty covers bumper to bumper maintenance costs except for damage caused by wear, such as new tires. If you would like to prolong this coverage, you can purchase an extended warranty.
Tires represent a considerable cost for many Canadians who not only require regular tire rotations but seasonal switches to winter tires. A rotation will cost you between $50 and $75 while new tires will retail between $80 and $150 each.
You can estimate your car’s maintenance costs by keeping a record of previous expenses. For instance, if you spend $800 on maintenance under warranty, that averages out to roughly $67 a month. Once the warranty ends, you might spend closer to $100 a month. As your car ages, the maintenance costs will continue to rise. If you are paying over $1,200 a year in maintenance for an extended period, it might be worth considering switching to a new second-hand vehicle.
The cost of fuel
Besides depreciation, gas often represents the most significant expense for car owners. This cost depends on how much you drive, what size of vehicle you own and where you live.
The average cost of gas in Ontario for drivers covering 15,200 kilometres a year is approximately $174 a month according to GasBuddy.com. You can estimate your gas costs using National Resources Canada’s fuel consumption rating tool: https://fcr-ccc.nrcan-rncan.gc.ca/en.
What about electric vehicles?
With climate change and gas prices weighing increasingly on our minds, some drivers may be inclined to make the switch to zero-emission electric vehicles (EVs).
It costs between $400 and $2,000 to install an electric charging unit in a residential area. The less a unit costs, the longer the car will take to recharge. This initial cost can become a saving by allowing you to cut the cost of gas entirely, as well as reducing maintenance expenses because EVs typically have fewer working parts than gas-powered vehicles.
The cost of EVs themselves varies according to the car’s quality and range. The Ford Focus Electric currently retails for about $34,000 with a range of 155 kilometres, while the Tesla Model X will cost you around $125,000 with a 500-kilometre range. Although purchasing an EV is more expensive than gas-operated vehicles on average, the cost of depreciation can make them worth more when resold.
Another potential benefit for those thinking of switching to an EV is the government incentives. Canadians who purchase zero-emission vehicles qualify for incentives ranging from $2,500 to $5,000 with buyers in Quebec and British Columbia eligible for an additional provincial rebate of up to $,8000.
Finding the right vehicle
Most Ontarians pay between $720 and $1,100 per month in car expenses, including the cost of depreciation. You can minimize these costs by investigating the different loan options and insurance plans on the market, as well as considering second-hand vehicles.
In other words, the most crucial step in becoming a car owner is to know your needs as a driver and plan your purchase to find the absolute best fit, whether it be new or used, gas or electric. You can learn more at Complete Car.