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How To Save Up For a Car in Canada

How To Save Up For a Car in Canada

Saving up to buy a car is one of the biggest financial goals for many Canadians. However, with the rising costs of both new and used vehicles, plus additional expenses like insurance, maintenance, gas and repairs, it can be daunting to know where to start when it comes to affording your own set of wheels. While it does require dedication and budgeting to accumulate enough for a down payment and beyond, you can make the process manageable by setting a realistic savings timeline, making adjustments to discretionary spending, and researching all your options thoroughly. With some discipline and smart planning, you can end up with the car you need while still staying within your financial means. This guide will provide tips to develop a savings strategy, reduce expenses, maximize your income potential, and shop smart when it’s time to make your purchase.

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Determine Your Vehicle Budget

The first step in saving up for a car is determining your total budget. This involves deciding whether to go for a new or used vehicle based on your needs and wants. For example, if you need maximum reliability and the latest features, a new car may be the better option. However, buying used can help you get more value at a lower price point.

Once you’ve decided on new or used, it’s time to calculate your total budget. This includes the purchase price of the vehicle itself plus additional expenses like sales taxes, registration and title fees, dealer documentation fees, etc. Be sure to get quotes from dealerships on the total “out the door” price for the make and model you want so you have an accurate target.

In general, a new car will require a higher total budget than a used car of the same model. However, even older used cars can require repairs and maintenance costs that add up over time. Carefully weigh the pros and cons of buying new versus used given your budget.

Setting a total maximum budget from the start will help you know exactly how much you need to save up over time. You’ll also be able to determine the down payment amount and monthly payments needed to comfortably fit the vehicle into your overall finances.


Calculate the Down Payment

The down payment is the upfront amount you pay towards the total cost of the vehicle when you first purchase it. Financial experts generally recommend putting down 20% of the purchase price for a new car and 10% for a used car.

With a new car that costs $30,000, you would want to save $6,000 for a 20% down payment. For a used car priced at $15,000, aim for $1,500 down which is 10%.

The main benefits of making a larger down payment include:


  • Lower monthly car loan payments since you are financing less money
  • Pay less interest to the lender over the life of the loan
  • Shorten the length of the loan term
  • Increase the chances of getting approved for financing
  • Reduce the risk of the loan being upside down or owing more than the car is worth


While it takes discipline to save up a sizable down payment, the long term financial benefits are well worth it. The more money you can put down upfront, the less expensive owning the vehicle will be over time.


Estimate Other Ownership Costs

In addition to the vehicle purchase price, you’ll need to budget for ongoing ownership costs like insurance, gas, maintenance and repairs. These expenses can really add up, so make sure to do your research and account for them in your savings plan.

Car insurance is required in most provinces and can range quite a bit based on your age, driving record, location and type of vehicle. Get quotes from several providers to find the best rate. On average, Canadians pay $1,316 per year for auto insurance.

Fuel costs will depend on the efficiency of your vehicle, gas prices in your area and how much you drive. Calculate your potential gas budget by researching average fuel economy for your target vehicles and estimating your annual mileage. Most drivers budget around $1,500-2,000 per year for gas.

Maintenance like oil changes, tire rotations and tune-ups are essential for keeping your car running safely and smoothly. Most vehicles need about $800-1,000 in annual maintenance. Newer vehicles may have prepaid maintenance plans to make this more affordable.

Even with proper maintenance, repairs are inevitable as vehicles age. It’s wise to budget around $500 per year for minor repairs and have an emergency fund saved up to cover major repairs. Things like transmission work or engine issues can cost $2,000-5,000 to fix.

By planning ahead for all the potential expenses that come with car ownership, you won’t be caught off guard by hidden costs down the road. A little research into average costs can help you create a realistic budget.


Determine Monthly Savings Goal

Once you know your target down payment amount, you can calculate how much you need to save each month to reach that goal in time for your planned vehicle purchase. Most experts recommend saving for at least 6 months to 1 year before buying a car.

To determine your monthly savings target:


  • Decide when you want to purchase the vehicle (e.g. 6 months from now)
  • Take the down payment amount you need and divide it by the number of months until your target purchase date.
  • For example, if you need $3,000 for a down payment in 6 months, you would need to save $500 per month.
  • If you need $5,000 in 12 months, save $416 per month.


This monthly savings target may seem aggressive, but automating transfers and cutting discretionary spending can help you reach it. The more you’re able to set aside each month, the less you’ll need to finance when it comes time to buy your vehicle.

You may also consider extending your savings timeline if the monthly amounts initially seem unfeasible. Giving yourself even more time to reach the down payment goal can lower the monthly savings requirement.


Automate Savings

One of the best ways to ensure you consistently save money each month is to set up automatic transfers from your bank account to your dedicated car savings account. Automating your savings takes the effort out of manually moving money each pay period.

Arrange to have a set amount automatically transferred from your checking account to your high-yield savings account every time you get paid. You can set up recurring transfers through your bank’s website or mobile app.

The key is to “pay yourself first” before spending money on other things each paycheck. Decide what portion of your income you can realistically allot to car savings each month. Even if it’s a small amount like $50 or $100, it will add up over time.

Automated savings helps remove the temptation to skip or reduce transfers. The money moves before you realize it’s gone. Over time, you’ll build the down payment and extra savings cushion you need to purchase a quality used or new vehicle.


Use a High Interest Savings Account

When saving up for a major purchase like a car, it’s important to park your money in an account that will help it grow. One of the best options is a high interest savings account. These types of accounts pay out higher interest rates than regular savings accounts, allowing your money to accumulate faster.

When comparing banks, look for the highest interest rates on savings accounts. Online banks tend to offer rates of 2% or more, significantly higher than the 0.01% to 0.25% paid by most major brick-and-mortar banks. For example, EQ Bank and Motive Financial both offer over 2% interest on savings accounts. Even an extra 1% in interest can make a big difference over time.

By choosing a high interest savings account to store your down payment and car fund, you can maximize growth through compound interest. This allows you to save up the amount you need faster while your money earns more in the background. Just be sure to shop around for the best rates.


Cut Discretionary Spending

One of the most effective ways to boost your savings for a car purchase is to cut back on discretionary spending. Discretionary spending refers to expenses that are nice to have but not essential. This includes things like:


  • Dining out
  • Entertainment such as movies, concerts, sporting events
  • Vacations and travel
  • New electronics and gadgets
  • Clothing and accessories
  • Hobbies
  • Alcohol and cigarettes


When you’re focused on saving up for a major goal like a car, it’s important to differentiate between wants and needs. Needs are expenses that are absolutely necessary like housing, utilities, groceries, transportation and insurance. Wants are optional expenses that can be reduced or eliminated in the short term.

Try cutting back dining out to just once or twice a month. Limit vacations and instead plan affordable local activities and staycations. Avoid impulse purchases at the mall and only buy new clothes when you absolutely require them. Downgrade cable packages, cancel unused subscriptions, and borrow books, movies and games from the library instead of purchasing them new.

The money saved from reducing these discretionary expenses can quickly add up when banked instead in your car savings account each month. Every little bit counts when you are trying to reach a savings goal on a timeline. With some mindful spending reductions, you can find hundreds of extra dollars to put toward your new set of wheels.


Supplement with Side Hustles

Taking on a part-time job or gig work is a great way to bring in extra income that can be put directly into your car savings fund. There are many flexible side hustles to consider:


  • Rideshare driving for Uber or Lyft
  • Food delivery with apps like DoorDash or UberEats
  • Walking dogs through Rover or Wag
  • Tutoring students online or in person
  • Freelance writing, design, or programming
  • Selling handmade crafts on Etsy
  • Renting out extra space on Airbnb
  • Flipping and reselling items for profit


You can easily earn an extra few hundred dollars a month or more through side hustles like these. Just be sure to track income and expenses carefully for tax purposes.

You will need to report side hustle income when you file taxes. You may owe income tax on this money, as well as self-employment tax for Social Security and Medicare if you earned over $400. Be sure to set aside some of your side hustle income to cover potential tax obligations later on.


Use Budgeting Tools

Budgeting tools like spreadsheets and apps can help you track your spending, savings, and progress towards your car purchase goal. Here are some tips for using budgeting tools effectively:


  • Set up a simple spreadsheet to log your income, fixed expenses like rent and utilities, variable expenses like groceries and dining out, and savings contributions. Categorize expenses to see where your money is going.
  • Use free budgeting apps like Mint or YNAB to automatically connect accounts and categorize transactions. These provide visual charts of spending and can send alerts about overspending.
  • Enter your savings goal for the car down payment and configure the spreadsheet or app to calculate progress each month. Seeing the incremental progress can provide motivation.
  • Review the budget regularly – daily or weekly – to hold yourself accountable. If needed, adjust variable expenses to increase the savings rate.
  • Set savings reminders in your budgeting app so you don’t forget to transfer money at the beginning of the month.


Budgeting tools require some time investment upfront but quickly become habit. They provide visibility into spending leaks and help you consciously direct more money towards big goals like a car purchase.


Build Your Credit Score

Your credit score is one of the biggest factors lenders use to determine your interest rate and loan terms when financing a vehicle. The higher your credit score, the better deal you can get. Here are some tips to build a strong credit score over time:


  • Make all loan and credit card payments on time each month. Payment history makes up a significant portion of your credit score calculation. Set up autopay if it helps you avoid late fees.
  • Keep credit card balances low. High utilization hurts your score so try to keep it under 30% of the limit.
  • Have a mix of credit types including installment loans and revolving credit. This shows you can manage different types of credit responsibly.
  • Limit new credit applications in the months before applying for an auto loan. Too many “hard inquiries” can temporarily ding your score.
  • Check your credit reports from Equifax and TransUnion each year. Dispute any errors or fraudulent accounts bringing down your score.


With diligent credit management over time, you can get your score well above 700, which unlocks the best rates and loan terms when it comes time to finance your vehicle purchase.


Shop Around for Financing

Once your savings goal is met, it’s time to secure financing for your vehicle purchase. Shopping around for the best possible auto loan rates and terms is crucial. Start by getting pre-approved for financing from your bank or local credit union. Bringing a pre-approval letter with you when visiting dealerships gives you leverage to negotiate the best possible financing terms.

Next, check online at banks, credit unions, and auto manufacturers for current interest rates and promotions. Compare all of the rate quotes you receive. Look closely at whether the rate is for a new or used vehicle, as well as the loan term lengths. Weigh the pros and cons of longer vs shorter term loans. Typically, 60-72 month loans will have lower monthly payments but you’ll pay more interest over the life of the loan.

In addition to the interest rate, compare any fees lenders charge for processing the loan. Ask about potential prepayment penalties if you pay off the loan early. Read the fine print about loan conditions and requirements as well. With several auto loan offers in hand, you’ll be in a great position to negotiate the most competitive financing when you are ready to buy.


Research Prices and Features

Doing your research ahead of time online can help you determine a fair price range and narrow down the makes and models that fit your needs. Here are some tips for researching effectively:


  • Use car shopping sites like Autotrader and to compare models, see price ranges, and find inventory in your area.
  • Check online reviews from sources like Edmunds and Consumer Reports to see reliability ratings, owner satisfaction, safety features, and more for different vehicles.
  • Make a list of 2-3 models that interest you based on your budget, features needed, and reviews. Compare prices across dealers to get an idea of fair market value.
  • Take any vehicles you’re seriously considering for a thorough test drive. Test all the features and assess comfort, performance, interior space and how it “feels” to drive.
  • Consider certified pre-owned (CPO) cars which come with extended factory warranties. CPO cars cost a bit more than regular used but less than new.


Doing research ahead of time can save you money by ensuring you get the right car at a competitive price. Test drives also help assess if a car really meets your needs before purchase.


Negotiate the Best Deal

Once you’ve saved up enough for a down payment and have been pre-approved for financing, it’s time to start seriously shopping for your new vehicle. Negotiating the best possible deal involves being prepared to walk away if you can’t get a fair price or favorable financing terms.

Research prices online for the make, model, year, features, and mileage you want so you have a good baseline for negotiations. Print out data on pricing from third-party sites to bring with you. Know the invoice price and any incentives or rebates available from the manufacturer.

When inspecting vehicles at the dealership, take them for an extensive test drive and have a mechanic check them over first before negotiating. Focus negotiations on the vehicle’s out-the-door price, including taxes and fees. Be wary of talking monthly payments, as the dealer can stretch out loan terms to seem more affordable.

Have your pre-approval letter with the rate and terms you’ve secured. Make it clear you will not pay any extras like extended warranties or service contracts. Be firm that the negotiated price must include everything.

Make a reasonable offer below asking price based on your research. If the salesperson won’t come down to an acceptable price for you, repeat you will pay no more than your offer and be prepared to leave to shop other dealers. They may call you back with a better deal later.

Also negotiate the interest rate and loan length if financing. See if the dealer can beat your pre-approval terms. Consider compromising on loan length if you can get a lower interest rate. But don’t stretch the financing longer than you can comfortably afford the monthly payments.

Stay strong and don’t get pressured into extras or payments you’re not OK with. Walk away if you can’t get fair terms. With some persistence, you can negotiate the price and financing that fits your budget.


Maintain Your Vehicle

Once you have purchased your vehicle, it is important to properly maintain it so it continues running smoothly. Follow the manufacturer’s recommended maintenance schedule in your owner’s manual – this outlines when to get oil changes, inspect brakes, change filters, rotate tires, and more based on your driving habits and mileage. Staying on top of routine maintenance helps avoid costly repairs down the road.

You’ll also want to build an emergency fund to cover any unexpected repairs that may come up. Experts recommend saving $50-100 per month to build a fund that will cover things like a transmission rebuild, replacing a blown head gasket, or major electrical issues. Having this money set aside means you won’t go into debt when surprise repairs pop up.

Simple maintenance steps you can take include:


  • Check engine oil, coolant, brake and transmission fluids regularly and top up as needed
  • Replace windshield wipers and air filters when worn out
  • Rotate tires every 5,000-8,000 miles
  • Flush radiator and change brake fluid per your manual
  • Get annual wheel alignments to prevent uneven tire wear
  • Fix minor issues quickly before they become major repairs


Taking care of your vehicle properly makes it last longer, protects your investment, and prevents safety issues from arising. Don’t neglect routine maintenance and emergency savings – they are crucial for worry-free car ownership.



Saving up for a major purchase like a car takes some planning and discipline. However, by determining exactly what vehicle suits your needs, budgeting wisely each month, and shopping carefully when ready, Canadians can end up with reliable transportation without breaking the bank.

The key steps include deciding on your budget, calculating the down payment amount, estimating additional costs, setting a monthly savings goal, and automating transfers to your savings account. Cutting discretionary spending and supplementing income with side hustles can help you reach your goal faster.

Proper planning and saving ensures you get the right vehicle for your needs and budget. You’ll also benefit from lower loan payments, less interest paid, and the peace of mind of having emergency savings for repairs. With some discipline and smart money habits, your next car can be an affordable asset instead of a financial burden.


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Questions About Saving Up For a Car

To buy a car in Canada, financial experts recommend saving enough for a 20% down payment if purchasing new or 10% if purchasing used. For a $20,000 car, that would mean saving $4,000 for a used car or $2,000 for a new car before starting your search. Having a sizable down payment lowers your monthly costs, interest charges, and chances of becoming underwater on your loan. Be sure to factor in taxes, registration fees, and insurance into your savings goal as well.


Aim to save for at least 6 months before searching for your new vehicle. Automate transfers from each paycheck into a high-interest savings account to accumulate funds more quickly. Reduce discretionary spending temporarily while saving up.

Financial advisors caution against spending more than 10-15% of your monthly take-home income on vehicle expenses, including your loan payment as well as fuel, insurance, maintenance and repairs.


For example, if your net monthly income is $4,000, limit your total vehicle costs to $400-600 monthly. This ensures you have enough income left for other necessities like housing, food and retirement contributions without becoming overwhelmed by debt.

According to Statistics Canada, the average price for a new vehicle in Canada is around $42,000 as of January 2023. With a 20% down payment recommendation for new vehicles, you would want to save about $8,400 plus taxes and fees before purchasing.


Be sure to account for licensing, registration costs, sales taxes and insurance which can add several thousand dollars to the purchase. And remember that the average selling price includes both basic and luxury vehicles. You may be able to find suitable options for less with more modest features.

Here are some tips to save faster for a car purchase in Canada:


– Create an automatic monthly transfer from your bank account to a high-interest savings account earmarked for your car. Start with 10-15% of your take-home pay.


– Temporarily reduce expenses like dining out, vacations, and subscription services. Avoid new debt like loans or credit cards.


– Take on a side gig like ridesharing, freelance work or a part-time job and direct all earnings towards car savings.


– Live below your means and stash windfalls like tax refunds, birthday gifts or work bonuses into your car account.


– Use a budgeting app to track spending and find more opportunities to save.


– Shop for auto insurance early and pay lump-sum annually rather than monthly to save.

A good rule of thumb is to save 10-15% of your monthly take-home income towards the purchase of a vehicle. So for example:


– If you make $4,000/month after taxes, aim to save $400-$600 per month.


– If your monthly net income is $6,000, try to set aside $600-$900 monthly.


This allows you to accumulate funds for a sizable down payment while avoiding financing more than you can reasonably afford. Saving diligently for 6 months before car shopping is recommended.


Be sure to separate “car fund” money into its own high yield savings account to avoid temptation to spend it elsewhere. And use a budgeting spreadsheet or app to allocate money each month to your goals.

The best places to save up for a car in Canada are high-interest savings accounts (HISAs) or guaranteed investment certificates (GICs). HISAs allow easy access when you’re ready to make the purchase. GICs pay higher interest but lock up funds for 1 to 5 years.


Look for HISAs paying over 2% annually and ladder GICs with different maturity dates if you won’t need all funds immediately. Credit union accounts sometimes pay higher rates than big banks.


Avoid investing car savings in stocks or mutual funds which can lose value right when you need the cash. And keep funds earmarked specifically for your car separate from regular savings.

If you have bad credit, you can still qualify for auto financing in Canada through these options:


– Apply for loans from alternative lenders like Capital One who offer financing for credit scores under 650


– Get a co-signer with good credit to apply for the loan with you


– Save up and make a very large down payment of 30-50%


– Shop for a less expensive used car that equals less than half your gross annual income


– Join a credit union and take out a share-secured loan using funds already on deposit


Improving your credit score and showing regular on-time payments with secured cards can expand your auto loan options over time. Be wary of predatory buy-here pay-here dealers that inflate pricing and interest rates.

When budgeting for a car, include these ownership costs beyond just the loan payment:


– **Gas:** $100-300 monthly for fuel costs


– **Insurance:** $100-400 monthly depending on age, driving record and location


– **Maintenance:** $30-100 monthly for oil changes, tire rotations and repairs


– **Registration renewal:** $60-150 annually


– **Deductible savings:** $50+ monthly for transmission repairs or accidents


– **Car washes & supplies:** $20+ monthly


Underestimating supplemental expenses is one of the top budgeting mistakes made by new car owners. Overestimate these variable costs when planning affordability. And be sure to factor taxes into the purchase price as well.

Yes, designating a separate high-interest savings account solely for vehicle expenses is smart. This ensures money for insurance renewals, maintenance costs and monthly payments is protected from being spent on other temptations.


Try to maintain 3-6 months worth of car expenses in this dedicated account. Automate monthly transfers so it consistently grows. If you have bad credit, lenders may want to see regular savings habits too.


Keep this “car fund” at an entirely different bank from your primary checking account for an extra disincentive to tap it frequently for other reasons. It also simplifies tracking spending later when calculating budgets.

Used car experts typically recommend a 20% down payment when financing a used vehicle. So if your target purchase price is $15,000, strive for $3,000 down. Bigger down payments result in lower interest rates, more equity and increased chances of approval.


Aim even higher if your credit score is below 700. Putting down 30-50% shows lenders you can afford the loan and offsets some risk. Pre-saving for used cars is key since fewer qualify for 0% financing deals compared to brand new.

Experts caution against auto loan terms over 5 years since they increase your interest expense and likelihood of owing more than the car is worth. Aim for loan repayment terms of 3-4 years instead.


Shorter 2 year loans are ideal but may have impossibly high monthly payments unless you make a very large down payment of 30% or more. Avoid 6-8 year terms even if offered since you’ll still be paying years after reliability declines.

Emptying your RRSP to buy a car in Canada should be avoided since you’ll incur big tax penalties and lose future tax-deferred investment growth. The Home Buyers Plan does allow first-time home buyers to borrow $35,000 per person from an RRSP without penalty, but this does not apply to vehicle purchases.


Withdrawing RRSP funds should only be done in absolute emergencies since you lose contribution room forever. Take out loans against other assets first or explore alternate transportation options until you’ve saved up independently for the car. Payday loans and high-interest debt should also be avoided.

These tactics can help you score an even better deal:


– Shop at end of month when dealers rush to meet quotas

– Pit multiple dealerships against each other via email price quotes

– Point out flaws unnoticed by dealer to get the price dropped

– Offer 20% under asking price and negotiate up as needed

– Request free car washes, winter mats and accessories in deal

– Finance through dealer but refinance immediately after at a lower rate


Avoid mentioning monthly payment limits which dealers can stretch out. And don’t share your pre-approved rates so they cannot narrowly beat your rate. Test driving the exact car first also gives you negotiation leverage later on.

**Buying benefits:**


– Build equity as you pay down the loan


– Customize with accessories with no restrictions


– No mileage limits or wear & tear fees


**Buying cons:**


– Cars lose value quickly after purchase


– Maintenance & repair costs are your responsibility


**Leasing benefits:**


– Pay only for vehicle depreciation


– Drive a new car more frequently


– Lower monthly payments


**Leasing cons:**


– Never build any equity in the car


– Strict mileage limits & condition rules


– Extra fees for excess wear & tear at turn-in


Weigh your average annual mileage, typical length of ownership, and budget to decide if buying or leasing better suits your needs. Leases can make sense for those wanting a new car every 3 years with low mileage and perfect condition.

Canadian tax filers can deduct these common vehicle expenses:


– Gas & oil costs for job-related mileage

– Insurance premiums

– License fees

– Lease payments

– Loan interest

– Parking costs

– Repair bills


To qualify, expenses must be to earn or produce income, not just commute to work. Track mileage logs and save receipts. Business use of a personal vehicle deductions are limited based on factors like income level and use. Consult a tax expert to maximize write-offs.

In Canada, you must carry liability coverage, accident benefits, direct compensation property damage and uninsured auto insurance at a minimum. Major provinces also require fire, theft and vandalism.


Insurance rates vary greatly based on driver age, location, driving history and type of vehicle insured. Budget $100-400 monthly for a good policy. High-risk drivers can expect to pay towards the top of that range unfortunately.


Get quotes from multiple providers before purchasing and look for discounts like bundling home insurance. Pay annually rather than monthly to save more. And consider raising deductibles to reduce premiums.

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