Car Deal Canada

Costs of Owning a Car in Canada

Costs of Owning a Car in Canada

Owning a car in Canada is getting more expensive by the year. With the costs of gas, insurance, maintenance and more on the rise, many Canadian households are feeling the financial squeeze of higher car ownership costs. For some, it’s making them rethink whether owning a vehicle is even affordable anymore.


In this comprehensive guide, we’ll break down the major factors driving up the cost of car ownership in Canada. You’ll learn about the average prices for purchasing, insuring, fueling, maintaining and repairing vehicles. We’ll also provide expert tips to help you manage these increasing costs without breaking the bank.


By the end, you’ll have a complete picture of what it really costs to own a car in Canada today. You’ll also discover smart budgeting strategies to keep your auto expenses under control, even with prices on the rise. Let’s get started!

Get Pre-Qualified in Under 60 Seconds

All Credit Approved and 0 Money Down Options Available

 

Average Purchase Price of New and Used Vehicles

The purchase price is often the largest single expense when buying a car. Over the past 5 years, prices for both new and used vehicles have been steadily rising in Canada.

For new cars and trucks, the average purchase price has gone from around $33,000 in 2018 to over $42,000 in 2022. That’s an increase of nearly 30% in just a half decade. Used car prices have similarly jumped from approximately $20,000 to $30,000 over the same time period.

Industry analysts project prices will continue climbing over the next few years. New vehicles may average over $45,000 by 2025, while used cars are predicted to surpass $35,000 on average. This upwards trend is being driven by several key factors:

 

  • Global microchip shortages limiting new car inventory and driving up demand for used
  • Rising material and transportation costs for auto manufacturers
  • Ongoing shifts in vehicle preferences towards SUVs and trucks, which tend to be more expensive
  • Persistently high consumer demand even amid rising prices

 

While prices may moderate if economic conditions worsen, most experts don’t foresee major declines. This means Canadian car buyers should brace for steadily rising purchase costs when planning their budgets.

 

Financing Costs

Financing is a major component of the total cost when purchasing a new vehicle. With the average price of a new car now over $45,000 in Canada, most buyers need to take out an auto loan to cover the full cost. This financing adds a significant expense through interest payments over the life of the loan.

Current interest rates on new vehicle loans range from 3-7% for buyers with good credit. The average amount financed for a new car is around $35,000, with loan terms averaging 68 months. That can equate to several thousand dollars in interest payments over the course of the loan. Those with lower credit scores may pay even higher interest rates, driving costs up further.

There are some strategies to get the best possible financing deal. Having an excellent credit score above 720 will qualify buyers for the lowest rates. Opting for a shorter loan term of 3-4 years will minimize interest costs, although it raises the monthly payment. Providing a larger down payment upfront also reduces the amount financed and interest owed. Finally, shopping around with multiple lenders and negotiating can help get the best rate.

Taking the time to secure favorable financing terms will pay off over the long run. Lower interest rates reduce the total outlay and keeps more money in the buyer’s pocket rather than going to the lender.

 

Insurance Costs

Insurance is one of the largest recurring costs for Canadian car owners. According to the Insurance Bureau of Canada (IBC), the average auto insurance premium in Canada was $1,532 in 2021. However, there is significant variation across provinces due to different regulations, claims costs and other factors.

Ontario has the highest average premiums at $2,005, followed by Alberta at $1,473. The lowest premiums are found in Quebec at just $795 on average. British Columbia, Saskatchewan, Manitoba, and the Atlantic provinces fall somewhere in between.

Insurance rates are calculated based on many variables, including:

 

  • Driver’s age and experience
  • Driving record and claims history
  • Type of vehicle
  • Coverage options selected
  • Where the vehicle is operated

 

There are several strategies drivers can use to lower their insurance costs, such as:

 

  • Maintaining a clean driving record with no accidents or tickets
  • Opting for higher deductibles
  • Bundling home and auto insurance policies
  • Comparing quotes from multiple providers
  • Choosing lower premium vehicle models

 

Finding the right balance of coverage and deductibles along with shopping around for the best rates can lead to significant insurance savings for Canadian drivers.

 

Registration, Licensing and Taxes

Beyond the initial purchase price, Canadian drivers must also budget for registration, licensing and various taxes associated with owning a vehicle. These recurring fees can really add up.

Each province charges registration and licensing fees to legally operate a vehicle on public roads. For example, in Ontario, renewing a vehicle permit costs around $120 per year. There are also initial licensing fees that run over $300 for new vehicles and drivers.

On top of registration, most provinces also levy special taxes on vehicle ownership. In British Columbia, there is a provincial sales tax on all vehicles that must be paid each year. Quebec has an “air conditioning tax” of $100 that applies to all vehicles equipped with A/C.

While mandatory, there are ways to reduce registration, licensing and ownership taxes. Buying used rather than new vehicles avoids initial sales taxes in most areas. Choosing a model with lower emissions can also lower any environmental fees. And shopping around between provinces can lead to substantial savings, especially for those living near borders.

With some research and planning, Canadian drivers can minimize the recurring bite of registration, licensing and taxes. But they will still amount to several hundred dollars per year in most cases.

 

Maintenance and Repairs

The ongoing maintenance required for vehicles is another major cost for car owners. On average, Canadians spend around $800-1200 per year on routine maintenance like oil changes, tire rotations, fluid flushes, new brakes and battery replacements. This is based on recommended service schedules from automakers.

Additionally, unexpected repairs pop up regularly in older vehicles. Some common issues and their average repair costs are:

 

  • New transmission – $1800-$3500
  • Timing belt/chain replacement – $500-$1000
  • Catalytic converter replacement – $1000-$2500
  • New alternator – $400-$700
  • AC compressor replacement – $650-$1200

 

With high hourly shop labor rates, many minor repairs can quickly become expensive. Learning to perform basic maintenance and repairs yourself can lead to significant savings. Tasks like oil changes, replacing brakes, batteries, and some belts are manageable for most car owners with some research. However, major issues still require professional service to avoid creating larger problems.

Proper maintenance greatly reduces the chances of costly breakdowns and repairs down the road. It also maintains the vehicle’s safety, performance and resale value. So while DIY repairs save money in the short-term, staying on top of manufacturer recommended maintenance pays off exponentially over the life of the vehicle.

 

Fuel Costs

Fuel costs make up a significant portion of the overall cost of owning a vehicle in Canada. With gas prices that regularly exceed $1.50/liter across much of the country, filling up the tank can be a painful experience for Canadian drivers.

According to CAA’s latest gas price analysis, the average price for regular gasoline in Canada as of February 2023 was $1.68/liter. This is up over 30% from February 2022, when average gas prices were $1.28/liter. Major cities like Vancouver and Toronto see average prices approaching $2.00/liter.

Unfortunately, projections suggest gas prices will remain high in the near future. Continued instability in global oil supply and demand means ongoing volatility is likely. CAA estimates gas prices will average around $1.75/liter nationally in 2023.

With Canadians driving an average of around 15,000 km per year, high gas prices can add thousands of dollars to the annual cost of car ownership. For example, a vehicle that gets 8L/100km driven 15,000 km per year will consume around 1,200 liters of gas annually. At $1.75/liter, this equates to $2,100 per year just on fuel costs.

Elevated gas prices force many drivers to cut costs elsewhere or reduce discretionary driving. However, vehicles remain a necessity for most Canadians, so fuel costs are an unavoidable aspect of ownership that must be budgeted for.

 

Depreciation Costs

Depreciation is one of the largest ownership costs for new vehicles. On average, a new car will lose around 11% of its value each year for the first 5 years. After 5 years, depreciation slows but an average new car will only retain around 38% of its original value after 5 years.

There are several factors that impact how quickly a vehicle depreciates:

 

  • Brand – Luxury and imported vehicles tend to depreciate faster than mainstream domestic brands.
  • Mileage – The more miles driven, the faster the depreciation.
  • Market factors – Things like high gas prices or recession can accelerate depreciation.
  • Options – Vehicles loaded with extra options tend to depreciate faster.

 

Strategies to minimize depreciation include:

 

  • Buying a gently used 2-3 year old vehicle instead of brand new.
  • Opting for a mainstream model with fewer options.
  • Keeping mileage reasonable and following maintenance schedules.
  • Holding the vehicle longer before trading in.

 

While depreciation is unavoidable, smart purchases and ownership practices can reduce this major cost over time.

 

Government Incentives

All levels of government in Canada offer programs and incentives aimed at easing the financial burden of car ownership for citizens. One of the most popular is rebates for purchasing electric vehicles in certain provinces. In British Columbia for example, residents can receive up to $8,000 off the pre-tax sticker price of a new battery or plug-in hybrid electric vehicle. Quebec and Ontario also offer generous rebates up to $8,000 for going electric. The federal government provides additional incentives up to $5,000 for zero-emission vehicles as part of its iZEV program.

For those who take public transit, many will be eligible for the Public Transit Tax Credit on their personal income tax return. This provides a non-refundable tax credit equal to 15% of the cost of monthly or annual public transit passes. There are also tax deductions possible for those who carpool to work. Some provinces such as Ontario offer rebate programs for ditching older, less efficient vehicles in favor of electric bicycles which can drastically reduce transportation costs.

Various municipalities in Canada offer their own incentives as well to reduce congestion and pollution from excessive driving. Vancouver for example has a Fare Share program which provides discounted annual transit passes to lower income residents. Researching federal, provincial and city level programs can unlock savings for Canadian drivers looking to offset the rising costs of car ownership.

 

Impact on Household Budgets

The rising cost of car ownership is having a significant impact on Canadian household budgets. With the average car now costing over $30,000 to purchase and thousands more per year to operate, many families are spending a large percentage of their income just to have a vehicle.

Statistics show that lower and middle income households are spending around 15-20% of their total earnings on car payments, insurance, gas and maintenance. This high cost is forcing many to make cuts in other critical areas like groceries, utilities and childcare in order to own a car.

In addition, the high vehicle costs are preventing many Canadians from meeting their savings goals. Money that could be put towards retirement funds, education savings or emergency funds is instead being allocated to basic transportation needs. This long-term impact can be quite detrimental to a family’s overall financial health.

The strains are also leading more consumers to rely heavily on loans and credit cards to finance their cars. With banks offering 84 and 96 month loans, Canadians are taking on larger debts and higher interest costs. This debt burden again limits their ability to get ahead financially in other aspects of life.

While vehicles remain a necessity for most households, the rising prices are clearly taking a toll. Finding ways to cut costs in other areas of the family budget is becoming essential in order to maintain car ownership without sacrificing other financial goals.

 

Future Outlook for Car Ownership Costs

The rising costs of owning a car in Canada are expected to continue their upward trajectory over the next 5-10 years. Several key factors will contribute to this continued increase:

 

Gas Prices – Gas prices are projected to rise steadily in the coming years. Some analysts predict gas averaging $2/liter or more across Canada within the next decade.

 

Vehicle TechnologyNew vehicle features like advanced driver assistance systems, connectivity services and electrification will make cars more expensive to purchase. These costs will likely be passed onto consumers.

 

Insurance Insurance rates are largely driven by vehicle repair costs. As cars get more complex, premiums will rise. Rates also tend to increase alongside inflation over time.

 

Maintenance – New vehicle technologies often require specialized tools, diagnostics and parts. This will make routine maintenance more expensive over time.

 

Depreciation – New vehicles lose value quickly. With high initial purchase prices, depreciation costs will remain substantial.

 

Interest Rates – Rising interest rates on car loans will increase monthly payments and overall financing costs.

 

Alternatives – Ride sharing services and car sharing programs may provide cheaper alternatives to ownership for some consumers. Public transit usage could also increase to avoid rising car costs.

 

While the convenience of owning a personal vehicle comes at a price, costs are forecast to climb even higher in the years ahead. Careful budgeting and smart financial choices will be key to managing affordability.

 

Strategies to Reduce Costs

With car ownership costs on the rise, Canadian drivers are looking for ways to cut expenses without sacrificing necessities. Here are some of the most effective strategies to reduce the cost of owning a vehicle:

 

Buy Used Vehicles

Purchasing a used car rather than new can lead to major savings. New vehicles depreciate rapidly in the first years of ownership. Opting for a car that is 2-5 years old with lower mileage can provide a similar ownership experience for thousands less. Be sure to have any used car inspected thoroughly by a mechanic before purchase.

 

Research Insurance Providers Thoroughly

Insurance is often one of the biggest recurring costs for drivers. Take the time to get quotes from multiple providers and compare coverage options to find the best rate. Loyalty discounts may be available for remaining with the same company. Usage-based insurance ties rates directly to driving habits and can also lower premiums.

 

Learn Basic Maintenance Tasks

With some time and effort, many basic maintenance tasks like oil changes, replacing brakes or changing air filters can be learned and completed independently. This prevents paying retail labour rates for routine services. However, major repairs should still be left to professional mechanics.

 

Follow Optimal Driving Habits

How you drive has a big impact on fuel consumption. Practices like avoiding sudden acceleration/braking, removing excess weight, avoiding idling, maintaining proper tire pressure and using cruise control can help maximize efficiency. Route planning to avoid congestion also cuts fuel use.

 

Managing Costs Through Smart Budgeting

With car ownership costs continuing to rise, it’s more important than ever for Canadian drivers to get a firm handle on their automotive budgets. The best way to manage costs is to set clear budgets and savings goals around your vehicle expenses.

Take the time to tally up all your ownership costs – everything from loan payments to insurance, gas and maintenance. This will give you a clear picture of where your money is going. From there, you can set limits on what you’re willing to spend in each category. Try to find areas where you can scale back to save money, whether it’s lowering your insurance coverage or driving fewer annual miles.

It’s also wise to build up a “car fund” with savings set aside for big expenses like repairs. Aim to save around $50-100 per month into this fund so you’re prepared when a big bill arises. Even minor budget tweaks like buying cheaper gas, using coupons for oil changes, or learning to do your own basic maintenance can yield savings.

If your budget is really tight, look at ways to reduce usage and dependency on your vehicle. Using public transit for your commute and carpooling for errands can drastically cut fuel and parking costs. Every mile driven has associated expenses, so reducing mileage directly lowers your spending. The savings from using your car less may allow you to afford the fixed costs of ownership.

Owning a car requires constant budget vigilance. But through smart planning, prioritization, and tradeoff analysis, Canadian drivers can find the right balance between affordability and necessity. The key is tracking expenses, setting limits, and maximizing savings where possible through changes in usage and habits.

 

Conclusion

The cost of owning and operating a car in Canada has risen substantially in recent years, putting increasing strain on household budgets. By breaking down the major components of ownership costs, this article aimed to provide Canadian drivers with a comprehensive understanding of what contributes to the rising expenses of car ownership.

Some of the key factors behind the surge in costs include high gas prices, rising insurance premiums, pricier maintenance and repairs, and record-level vehicle purchase prices. While costs are expected to remain elevated in the years ahead, Canadians can employ smart budgeting strategies to ease the financial burden.

Planning ahead for ownership costs, learning basic vehicle maintenance, shopping around for the best insurance rates, and modifying driving habits to save fuel, are all ways to minimize expenses. Finding an optimal balance between affordability and necessity will be important for households feeling the pinch of steeper car costs.

With mindful budgeting and cost-conscious decision making, Canadian drivers can still enjoy the benefits of car ownership while avoiding undue financial stress. But being aware of all the costs associated with buying, operating and maintaining a vehicle will be key to making ownership viable for the average household.

Get Approved Today

See if you qualify in under 60 seconds

Questions About The Costs Of Owning a Car in Canada

The average total cost of owning a car in Canada is $10,452 per year according to CAA’s Driving Costs 2023 report. This factors in fuel, insurance, maintenance, repairs, financing, depreciation, registration fees, and taxes. Costs are lower than in the U.S. due to lower insurance premiums and registration fees. Fuel and depreciation make up the largest expenses.

Based on the CAA report, the average monthly cost to own and operate a car in Canada is around $871. This factors in all ownership costs spread out over 12 months. Costs are highest in provinces that require annual safety inspections like Ontario and Quebec.

The main factors that impact car ownership costs in Canada include:

 

– Vehicle price – More expensive vehicles have higher depreciation, financing, insurance costs

– Fuel economy – Low mileage vehicles have lower annual fuel costs

– Driving distance – More kilometres driven increases costs like fuel, maintenance, repairs

– Insurance rates – Varies by province, driver’s record, vehicle type

– Financing terms – Interest payments increase with higher rates and longer loans

If you drive an average of 20,000 km per year in Canada and your vehicle has a fuel economy of 8 liters per 100 km, you can expect to pay around $3,000 per year on gasoline based on current national average fuel prices. This equates to about $250 per month. Costs may be higher or lower depending on actual fuel economy and prices.



The main tax deductible auto expenses for Canadians include:

 

– Fuel costs for business-related driving

– Interest payments on an auto loan if the vehicle is used for business

– Insurance premiums

– Maintenance and repairs

– Lease payments

– Depreciation of the vehicle value

 

To qualify, expenses must relate to driving for business purposes as documented in a logbook. Personal and commute driving costs are generally not tax deductible.

For new drivers in Canada, car insurance costs between $3,000-$8,000 per year on average depending on factors like age, location, driving record, vehicle type and coverage limits. Due to perceived higher risk, new drivers under 25 can expect to pay higher premiums, often exceeding $5,000 annually for minimum coverage.

Tips for saving money on car expenses in Canada include:

 

– Choosing a fuel efficient vehicle

– Practicing efficient driving habits

– Performing regular maintenance

– Comparing insurance rates annually

– Paying off auto loans quickly to reduce interest

– Finding discounts on parts, repairs and services

– Tracking expenses to identify waste

Whether buying or leasing makes more financial sense depends on factors like length of ownership, annual driving distance, and desired vehicle type. Leasing often costs less per month but you don’t build any equity and have mileage restrictions. Buying has a higher upfront cost but total expenses over 5+ years of ownership tend to be lower than leasing if you drive a lot.

It costs roughly 3-4 times less to charge an electric vehicle than a similar gas-powered vehicle in Canada. Based on national average electricity rates and gas prices, it costs around $1.50 to travel 100 km in an EV compared to $5.40 per 100 km in a gas-powered car with 8L/100 km fuel economy. Exact costs vary by province.

When buying a used car from a private seller in Canada, factor in expenses like:

 

– Purchase price

– Applicable sales taxes

– Registration and license plate fees

– Safety certification in some provinces

– Emissions testing in some regions

– Mechanical inspection at a garage

– Financing fees if taking out a loan

– Insurance premium increase over current vehicle

– Minor repairs that may be needed



For an older vehicle over 5 years old, a good rule of thumb is to budget $1,000-2,000 per year for routine maintenance and unexpected repairs in Canada. Budgeting $100-200 per month is wise to help cover oil changes, new tires, brake jobs, battery replacement and other common repair costs as vehicles age.

Common registration and license plate fees for used cars in Canada include:

 

– Provincial sales tax on vehicle purchase price

– Registration fee (varies by province, typically $30-$130)

– License plate sticker fee (varies by province, $30-$120 annually)

– Inspection fee in some provinces ($50-$150)

– Tire recycling fee ($5-$30 one time)

– Fuel tax license fee in some provinces ($100-$200 annually)

If living in a major Canadian city like Toronto or Vancouver and parking on the street or in public lots, expect to pay $100-$300 per month for parking costs. Renting a private parking spot ranges from $100-$250 on average depending on location. Underground condo parking can cost $100-$400 monthly. Street parking permits also apply in many areas.

The main expenses to include when calculating total cost of car ownership are:

 

– Vehicle purchase price

– Applicable sales taxes

– Registration and licensing fees

– Financing costs like loan interest

– Fuel costs

– Insurance premiums

– Regular maintenance costs

– Unexpected repair costs

– Depreciation and loss of vehicle value over time

– Parking costs and tolls

 

On average, cars depreciate between 15% to 20% per year over the first five years in Canada. This means a $30,000 new car will lose around $4,500 to $6,000 off its value annually. Depreciation slows down after the initial years. Luxury and imported vehicles tend to depreciate quicker than economical domestic models.

Tips to minimize car depreciation costs in Canada include:

 

– Considering a model with a lower rate of depreciation

– Making a larger down payment to lower financed amount

– Paying off auto loan quickly to get equity

– Driving annual mileage close to average

– Keeping the vehicle well maintained

– Keeping the car longer before trading in

Total sales tax on cars and light trucks by Canadian province:

 

– British Columbia: 12% PST

– Alberta: No PST, 5% GST only

– Saskatchewan: 6% PST + 5% GST

– Manitoba: 7% PST + 5% GST

– Ontario: 13% HST

– Quebec: 9.975% QST + 5% GST

– New Brunswick: 15% HST

– Nova Scotia: 15% HST

– PEI: 15% HST

– Newfoundland: 15% HST

You can expect to pay $150 to $350 on average in total taxes and fees per vehicle annually to provincial and municipal governments across Canada. This includes license plate renewal fees, registration costs, tire taxes and driver’s license fees. Fuel taxes also amount to about $500 per year for the average driver.

Get Approved Today

See if you qualify in under 60 seconds