If you’re a newcomer thinking about buying a new car in Canada, the auto market offers a wide range of vehicles to meet different financial situations, lifestyles, and driving habits. If you’re in Canada from a country with a smaller auto market and fewer choices, this can be daunting as you begin your search. Buying a new car is often the second most expensive purchase after buying a home. So it’s worth it to do some research to determine what kind of vehicle will suit your needs.
But before you buy a new car, it’s a good idea to consider if you even need a new car. Most large cities like Vancouver, Toronto, Calgary, and Edmonton have extensive public transit systems. Public transit allows you to move about cost-effectively and conveniently. Or you can even consider buying a used car. However, if you still want to buy a new car here are some important things to do and think about.
Do Your Research Before Buying a Car
Talk to people who own the make and model of the car that you are interested in buying. That way you can get first-hand knowledge about their experience. Their insights about reliability, repair costs, and gas mileage can be helpful information that can save you money. Also, don’t be invested in brand loyalty too heavily as the quality gap between domestic and import brands has narrowed in recent years.
You can also research Canadian automotive websites that are full of reviews and road tests for all types of vehicles. Specific factors to research include:
- Fuel economy
- Running costs
- Depreciation and eventual resale value.
Be sure to evaluate how the car you want to buy compares to the competition’s price.
Know How the Pricing System Works
Before buying a new car it’s worth knowing how you can get the best price for your new vehicle. Here it’s important to the difference between the suggested retail price (SRP) and the dealer invoice price.
Manufacturer’s Suggested Retail Price (MRSP):
The MRSP is also commonly known as the list price or “window sticker” price. This is the price point that new car dealers work from. In many cases, you can negotiate a lower cost. However, if the car is in high demand, it may sell for more.
Dealer Invoice Price:
This is the actual price the dealer pays the manufacturer for the vehicle. And there is usually some variance. The price margin is important as it tells the new car buyer how much profit the car dealer can make on the sale of the car and help you negotiate a lower price.
Rebates, Incentives, and Special Offers:
Car dealers commonly offer special promotions, factory/dealer rebates, and other incentives to increase car sales. Find out when manufacturers and dealers offer these programs before buying a car as you could make big savings.
The Best Time to Buy a Car
There are different Canadian automotive websites that show what manufacturers and dealers are offering incentives and for what models. Also, some good times to look for and buy a new car include:
- Slow sale periods in the winter
- End-of-year inventory clearances, and
- End of the month when a car dealer is making way for new models.
Car dealers will offer other incentives to new car buyers such as no interest payments, low financing rates, attractive leasing rates, and cash rebates.
Take a Test Drive Before You Buy a Car
Before you buy a car, it’s important to take a test drive. The car dealership will allow you to take a half-hour test ride on urban and highway roads so you can get an idea of how the vehicle drives and feels. If a spouse will drive the car, ensure they come along for the ride to use the controls, explore the features and evaluate the vehicle. . You can also bring the family to test out the back seat room!
Another helpful way to take a test drive is to rent the make and model you’re considering buying. That way, you can drive the car for a longer period of time to experience the car and its benefits. Or, you may discover that the vehicle doesn’t meet your needs. Either way, a test drive is an important first step to take before buying a car.
To Lease or Buy a Car
When buying a car, you have two types of financial agreements to consider: buy or lease a vehicle.
Whether you choose to lease or buy a car, you’ll have a monthly, weekly, or bi-weekly car payment for a few years, unless you pay cash. Typically, most car-buyers put down a deposit on a car and get a loan from a bank to buy it. In which case, you’ll also have to pay interest on the loan.
The other option is to lease a car. When you lease, you don’t own the car. You are essentially renting it for a specific period. At the end of the lease term, you will have the option to return the vehicle, trade it in for a newer model, or buy it out.
With a lease, instead of borrowing the full purchase price of the car, you are only borrowing the amount the car will depreciate over the term of the lease. For example with a three-year lease, and taking into account regular wear and tear (known as the “residual value”), then you only have to finance the difference between the purchase price and the residual value. This is the basic reason lease payments are lower than loan payments.
Pros and Cons of Leasing vs. Buying a Car
Both leasing or buying a car has pros and cons. When you buy a car, you own the car at the end of the payment period – you own the car fully and it has some residual value and equity. The cons are that payments are more expensive than leasing and once the vehicle is out of its warranty period you are responsible for maintenance and repair costs.
When you lease a car, you have lower car payments and better cash flow. And since car leases are generally between two and three years, the vehicle you buy is almost always going to be covered by warranties. Once the lease is up, you can either walk away or upgrade to a newer model. However, unless you negotiate to buy the car at the end of its lease you will never really own the vehicle and will not build equity.
When Does Leasing Make Sense?
Deciding to lease or buy a car in Canada can be a difficult decision. Basically, you have to decide what option makes sense given your financial situation, individual, or family lifestyle. Here are some things to know about leasing:
- Lease periods are usually two to three years, so leasing makes sense if you like to change new vehicles often.
- Regular maintencance may be included in your leasing contract. Be sure to confirm this.
- A lease usually limits the number of kilometres you can drive. After you drive more than the limit, you will have to pay mileage. So if you expect to drive long distances over the course of your lease this will drive up your cost at the end of the lease.
- Monthly lease payments may be lower than financing options.
Carefully evaluating your driving habits and your car needs will help you to make the decision the lease or buy a car.
Payment Options When Buying a Car
You have a few ways you can pay for your vehicle when you buy a car in Canada:
Cash: You pay the full amount upfront to the dealership or private seller.
Financing from the car dealer: Financing and payment options are readily available from auto dealers through their financing company. However, you may face challenges getting approval if you don’t have an established credit history.
Bank loans or line of credit: You can apply for financial aid through your bank or credit union. Most banks have programs in place to help newcomers get a car loan with little or no credit.
Do the math to figure out which option makes the most financial sense.
Making the Deal to Buy a Car
If the test drive goes well and you’re ready to buy a car, ensure you use all the information you researched to work out a fair price. The price should take into account any factory and dealer rebates, discounts, and incentives. It is a good idea to have this information in a report to use as a negotiating tool when dealing with a salesperson. This can be the most difficult stage of buying a car since car dealers want to get the suggested retail price. So, at a minimum, you should know what price the dealer paid the factory for the car and what rebates are available to them.
Your solid research can help you to negotiate the best price and save you hundreds or thousands of dollars on the new car price. The art of the deal is to allow the dealer to make some profit, but not all at your expense.
During the buying stage, the cost of the car can go much higher when the salesperson tries to sell dealer-installed extras such as:
- Roof racks
- Fabric protection
- Paint protection
- Entertainment systems, and
In most cases, these are high-margin profit items for the dealer that reduce any cost-savings you negotiate. These are added profits that only come out of your wallet. And most of these extras aren’t necessary. If there are options that you want to purchase, it will drive up the price of your car. So, try to negotiate the price on the options as well. Or, you can also add options at a later date from other places outside of the dealership at a reduced price.
Negotiation Tips When Buying a Car
Remember as the buyer with money to spend you have the upper hand. Dealerships don’t want to lose a sale and will try their best to win and keep your future business. So keep these tips in mind when negotiating price:
- Be firm and confident
- Research as much as possible in advance of buying a car
- Make a counter-offer if the deal is not in your favour
- Know the price that other dealers are offering for the same vehicle
- Be prepared to walk away if the dealer does not accept your counter-offer.
Other Factors to Consider Before You Buy a Car in Canada
There are certain steps you will need to take and documents you will need before you can drive off the lot with your new car. Don’t expect to arrive and buy a car on the first day you are in the country. It will take a little bit of time to get things in order first. If you have recently arrived in Canada, here’s some additional information to know and things you need before buying a car.
You Need a Canadian Driver’s Licence
Depending on your country of origin, you may be able to exchange your driver’s licence for one in your new province. If you can’t transfer your licence, you may be able to get some driving experience credit. Bring your current driver’s licence to a local licencing office to start the process of getting a Canadian driver’s licence.
Driving in Canada: 10 Essential Facts to Know
Buying a Used Car in Canada | What to Know Before You Buy
Building Credit History in Canada
Banking in Canada | Your Financial First Steps
You Need Proof of Insurance
You cannot get car insurance without first getting your Canadian driver’s licence. Once this is in place, you can compare car insurance quotes and find coverage for your vehicle. If you are buying a car from an auto dealership, they can help you get your insurance documents in order. Using an insurance broker is also a good option. Brokers can help you explore your insurance options and find affordable premiums.
You Must Register Your Vehicle with the Provincial Government
To finalize the purchase of your vehicle, you will need to register your car with the provincial government where you reside. Check out this post for links to Provincial Ministries of Transportation. You will need your drivers’ licence, insurance, and bill of sale to complete this process. Again, if you are buying from a dealership, they will take care of the registration process for you.
These tips and information are important things to consider if you are thinking of buying a car in Canada. A new car is a large investment and these tips can help you to make a wise financial decision.
For more information about your financial first steps in Canada, visit our banking in Canada resource page. Get the essential information you need to manage your finances in Canada!