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The costs of owning a car

May 31, 2023
4 mins
A young woman drives with the sun reflecting behind her

This article has been updated from a previous version. 

Thinking about buying a car? You probably know that the privilege of access to a car when and where you want it doesn’t come cheap. Considering the car itself, insurance for it, parking and other fees, the costs can rack up quickly.

So how much do you need to afford a car and to keep driving it? While there’s no way predict what that actual cost will be, there are a few different items you’ll want to budget before you start shopping around.

The car itself

The most obvious (and likely biggest) expense involved in car ownership is the vehicle itself.

While the amount varies depending on whether you choose to buy a new or used car, it is advisable to put down 10% to 20% of the price of a new vehicle as a down payment. After the initial purchase, costs vary depending on the kind of loan you opt for and its pertaining interest rates

Here are a few different scenarios that can help you estimate costs:

  • In 2023, the average cost of a used car is $39,000. With a downpayment of $7,800 and a loan of $$31,100.00 with a term of three years, a buyer with a “great” credit rating gets an interest rate of 6.9%. The monthly cost of that vehicle would be: $958.86, excluding taxes
  • A driver might choose to buy a new vehicle, which would run around $61,000. With a 20% down payment of $12,200 and a loan for $48,800 at an interest rate of 6.9%. It breaks down to a $1,504.57 monthly, taxes excluded.

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 and your credit score.

However, that’s far from the end of your costs. Let’s look at some of the additional costs of owning a car.

Car insurance

When purchasing a car in Canada, car insurance is a mandatory requirement before you start driving.

By Ontario law, you must have third-party liability coverage, direct compensation-property damage (soon to be optional, but still much advised), uninsured automobile coverage, and accident benefits protection.

Beyond these mandatory coverages, insurance providers offer additional kinds of protection with adjusted premiums. Two optional coverages you may wish to add to your policy are:

  • Comprehensive. Comprehensive insurance covers incidents that do not involve another vehicle, like natural disasters, fire, theft, vandalism, or an accident involving an animal.
  • Collision. Collision insurance 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. Collision coverage will also 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 insurance company. The premium corresponds to a deductible, which is the amount you would have to pay in the event of an accident. The insurance company will cover all costs incurred in an accident beyond the deductible. The higher your premium, the lower the deductible.

To calculate your premium, insurance companies consider a range of factors such as your gender, age, and marital status, the type of vehicle you drive, and your driving record.  Another factor that could considerably impact your car insurance? Where you live.

Read more: Factors that affect your car insurance quotes

Licensing and registering a vehicle

Registering your vehicle with a government body establishes you as the legal owner of the vehicle. 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.

Routine maintenance costs

You also need to consider maintenance costs, including oil changes and other wear-and-tear repairs. If you are purchasing a new car, 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 maybe a considerable cost for many Canadians, as this expense not only means regular tire rotations but also seasonal switches to winter tires. A rotation will cost you between $50 and $75 while new tires retail between $80 and $150 each. One good news is that most insurance companies offer a discount of up to 5% on your premium for installing winter tires.

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 costs for an extended period, it might be worth considering switching to a new vehicle.

The cost of fuel

For many drivers, 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 is approximately $200 to $300 a month. Drivers of electric or hybrid vehicles may pay significantly less per month, which you can read about below.

You can estimate your vehicle’s annual fuel costs using National Resources Canada’s fuel consumption rating tool

Costs of electric vehicles

With climate change and gas prices weighing heavy on our pockets, 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 cheaper the unit, the longer the car will take to recharge. This initial cost may seem exorbitant, but it will allow you to cut the cost of gas entirely, saving you money in the long run.

The cost of EVs themselves varies according to the car’s quality and range. The 2023 Ford F-150 currently retails for about $46,055, while the 2022 Tesla Model X will cost you around $124,000. Although the average price of an EV is more expensive than gas-operated vehicles, the cost of depreciation can make them worth more when resold.

Another potential benefit for those switching to an EV are government incentives. Canadians who purchase zero-emission vehicles qualify for discounts ranging from $2,500 to $5,000. Buyers in Quebec and British Columbia are eligible for an additional provincial rebate of up to $8,000.

Finding the right vehicle

Unfortunately, car ownership can cost drivers thousands a month in monthly payments and other expenses. However, there are small choices you can make to make it easier on your budget. You can minimize costs by considering a second-hand vehicle and investigating the different loan options and insurance plans on the market. One of the best ways to lower car costs is to compare auto insurance rates from different providers.

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.

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