Buying a car can be an expensive process. Between inflation, gas prices, supply chain challenges and insurance premiums, it may seem harder than ever to get that dream car off the lot.
In fact, car-sharing service Turo’s Car Ownership Index released in April found that 39 per cent of Canadians are less likely to buy a car due to the rate of inflation, while 55 per cent of respondents who currently own a car are planning to stop doing so in the future.
“My philosophy around a car, it’s like buying an asset that never goes up in value,” Alim Dhanji, a certified financial planner and senior financial planner at Assante Wealth Management, said in an interview with Yahoo Finance Canada.
“You really have to be certain that you need a car and that it’s the best decision financially for you (and) if you really need a car, then it’s difficult to go back to not having one.”
For those who find it difficult to live without a vehicle, making a new car purchase is a necessary, if painful, process and there are things to consider before you might be ready to take one out for a test drive.
Understand the total costs of car ownership
Owning a car is much more than paying for the vehicle, insurance and gas. There are plenty of unexpected costs that should be budgeted before making a purchase.
A report from Ratehub.ca in January found the average cost of car ownership in Canada is $1,387 per month when considering all the expenses, including maintenance, parking and interest payments on a loan.
“Regardless of make, model or trim, all buyers should be considering the price of the car, the cost of financing, the need for additional products, and the value placed on a trade-in,” Dan Park, CEO of car-buying website Clutch.ca, said in an email.
Cars also depreciate in value. The Ratehub.ca report found that depreciation represents nearly 43 per cent of the monthly costs.
“See if you can get one that’s maybe a year or two old, because you know what they say, as soon as you ride a car off the lot, a lot of its value is gone through depreciation,” Dhanji said.
New vs. used, EV vs. gas-powered
There are plenty of pros and cons when considering a new or used vehicle. A new car will cost more, but is less likely to require repairs in the near term, while a used vehicle is cheaper but could require frequent trips to the mechanic.
For Dhanji, going used is the way to go, as long as it’s slightly used.
“If you buy a car that’s a year or two old, you probably will get it at a much better price and it’ll still be in a really good condition,” he said. “There are a lot of dealerships out there that’ll certify those cars.”
Meanwhile, Park argues the better deals right now are in the new vehicle market, as resolved supply chain issues have led to more inventory, and more deals at the dealership.
“Buyers will find a wider selection and more enticing deals on new vehicles this year, a change from the scarcity and high prices during the pandemic,” he said.
“Many manufacturers have phased out their least expensive models, making sub-$25,000 new cars a rarity. As a result, finding a good deal on a used vehicle will require more effort, especially for those looking to spend less.”
The same goes when considering an electric or gas-powered vehicle, Dhanji explains.
“The (EV) might cost you a little bit more … but depending on how much you drive it, you might actually save money in the long run,” he said.
“There are government rebates that are available when you purchase a fuel-efficient vehicle, as well as tax incentives. If you’re self-employed or a business owner, there might be other tax incentives that are available to you.”
Research insurance premiums before you buy
When looking for a new vehicle, the experts agree insurance should be top of mind.
For example, an August report from Ratesdotca found that frequently stolen vehicles, such as the Honda CR-V, could see premium hikes upwards of 25 per cent.
It’s for that reason that Dhanji believes researching the vehicle and its insurance premiums is key.
“There are insurance companies that you can shop around with in terms of who’s going to give you the best deal,” he said. “Just like when you’re shopping for a car, you can shop the type of insurance plan that works for you and the rate.”
Park says research is important because backing out of an insurance plan can be a challenge.
“While it’s possible to cancel your insurance policy, be aware that you might face a cancellation fee,” he said. “Given this, it’s essential to carefully research and select an insurance provider that offers both the coverage you need and fits within your budget.”
Park adds that it’s important to understand several factors can determine a quote, including the car’s age, your own age, driving history and where you live.
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