Blog How Much Does It Cost To Own And Drive A Car?

May 20, 2021

The Total Cost Of Owning A Car In Canada

Buying a new car is one of the biggest purchases you’ll make next to buying a house. And when you think about adding that big-ticket item to your monthly or annual budget, there are a lot of expenses you need to take into consideration to get an accurate idea of what it will cost.

To help you make an informed and financially sound decision, we’ve put together a guide of expenses you need to include when figuring out the total cost of buying and driving a vehicle in Canada.

What Are The Types Of Car And Driving Costs?

Graphic of red car on coins

When calculating the cost of ownership, divide your expenses into operating and fixed costs. These are cash outlays that you have to make if you own it and don’t drive it!

Fixed Costs

These are made up of the following :

  • Total purchase price
  • Finance or interest expenses
  • Car insurance
  • License and registration fees
  • Sales taxes on your purchase
  • Depreciation

Operating Costs

Operating costs are variable and change depending on the vehicle type and driving habits. This includes fuel and maintenance which increase the more often you drive.

Tips To Save Money When You Buy A Car

  1. Cheaper Isn’t Always Better : You will not necessarily pay less to drive a lower priced car. Other important factors come into play such as fuel consumption, maintenance and depreciation.
  2. Drive Your Car A Long Time : The longer you own a particular car, the less it will cost you to own.
  3. Resale Value : Depreciation is the most expensive factor in your purchase so find a car with a good resale value and you can save.
  4. Depreciation Is High In Year 1 : When you drive off a dealership lot, you can lose between 15-20% of its value immediately.
  5. Larger Vehicles Are Expensive : Large and luxury SUVs vehicles are the most expensive to own. Pickup trucks are almost as expensive. If saving matters, think twice before you choose one of them.
  6. Save With Hybrids : Hybrids that are not luxury vehicles or SUVs can save you money if you keep it for 5 or more years.

What Costs Do You Need To Consider When Buying And Driving A Car?

We’ve put together a checklist to help you calculate and understand how much it will cost on average. Below this list, we’ve given you more detail for each item.

Here’s what you need to consider if you want to get a clear picture of the total expense of owning and driving :

  1. Total Purchase Price
  2. Finance & Interest
  3. Vehicle Registration
  4. Maintenance
  5. Depreciation
  6. Fuel Consumption
  7. Insurance

What Is The Total Cost To Buy Your Car?

The price that you see advertised is the Manufacturers Suggested Retail Price (MSRP). But that is not usually the total amount that you pay when you buy it. Below we’ve listed some of the typical “extras” you might encounter.

  • Freight Or Shipping : Also known as Destination and Delivery (D & D for short). If you buy one that isn’t in a showroom, it will have to be shipped to you at an additional charge.
  • Market Adjustment : If a model is in high demand or short supply, the dealer will put a premium on the vehicle usually known as a market adjustment.
  • ADM/ADP (Additional Dealer Markup or Additional Dealer Profit) : Dealers generate a little extra profit from this.
  • Admin Processing Fees : This charge usually appears when you apply for dealer financing.
  • Dealer Financing : The dealer acts as the liaison between you and the lender. They don’t have to give you the best rates. Negotiate with your lending institution before you go in to purchase. You may be able save a lot of money here.
  • Taxes : You will have to pay federal and provincial taxes.

Remember that when you are buying a car, every line item on the pricing sheet is negotiable (except for the taxes but they’ll depend on the final agreed-upon price you pay). If you don’t know what an additional cost is, ask to have it explained to you.

What Is The Cost Of Your Car Payment Or Lease?

Most people have to finance a car purchase so this becomes another expense. You can choose to get a car loan or you can enter into a lease agreement.

Should you lease or finance your car? Car buyers are attracted to leasing because monthly payments are usually lower. Once it is terminated, you walk away from the car or you make a final payout amount to buy the vehicle – which can make your total costs higher than getting a loan.

Watch out for 0% loans. As they say, if it’s too good to be true, it probably is! A dealer will usually give you the choice of a 0% loan or a cash rebate on the total cost – you won’t get both.

What Are The Provincial Administration Fees?

Car ownership is another amount that you need to factor into your purchase. Once you have your vehicle permit and plates, you only pay the recurring annual fee for your license plate sticker. Older vehicles will have to complete an emissions test.

What Is The Average Cost For Maintenance?

Mechanic adding oil to vehicle

Base your estimate of regular car maintenance costs on the manufacturers recommended schedule – oil changes, brakes, rotors, fluid levels, etc. Don’t forget to factoring paying more for such things engine or air conditioning repairs.

Remember, your driving habits will also influence your car expenses. Are you hard on your brakes or are you an aggressive driver? You’ll put more wear and tear on your brakes.

Tires And Wheels

Think about winter tires. Do you need wheels and rims to go with the tires? You don’t have to purchase tires every season so it’s not exactly an annual cost. Still, remember to factor the price of tires and what you pay to have them switched over from season to season every year.

Wear And Tear Body Work

The bodywork we’re referring to here is not damage from an accident, but more wear and tear to the vehicle’s body—things like windscreen chips, paint scratches and rust repairs. These are minor repairs but over time – especially if you keep it for several years, they may add up.

Are The Costs Of Car Warranties Worth It?

Most new cars come with warranties. Check what is covered and how much you’ll save if you have a problem during the warranty period. Sometimes you can buy extended warranties when you purchase it. This is an extra up-front cost but over time, you can save yourself on future repairs and maintenance.

You have to decide whether you will be better off paying upfront in exchange for potential expenses down the road. Do your research before you decide - warranties are not all created equal.

What Is Your Car Depreciation Cost?

The depreciation cost is the difference between what you pay for your vehicle and what you get for it when you sell it or trade it in. Some car makes and models hold their value better. Also, the more kilometres you drive annually, the greater the yearly depreciation in the value of your vehicle.

How Much Does Your Car Depreciate In The First Year?

Your car’s value depreciates the most during the first year of its life. Some estimates indicate that depreciation can account for 57% of your cost to own the car in the first year. Depreciation steadily decreases over time so by year 5, your depreciation accounts for 48% of its origional value and by year 8 – only 43% of your costs are depreciation.

Depreciation Can Be Up To 15% As Soon As You Leave The Lot

A couple of online sources state that you can lose from 10-15% on the value of your car when you leave the lot. That can add up to a lot of cash in a short period of time.

This infographic shows the TMV (True Market Value) of a vehicle (at the time of purchase is $29,873. Then 1 minute after purchase, the TMV is $27,314 or 91% of its value on the lost – 60 seconds prior. That’s 9%.

  • A new car loses 11% of its value when it leaves the lot.
  • For each year of the first 5 years, a car depreciates 15-25% per year.
  • After 5 years, a car is worth 37% of what you originally paid.

Do The Total Costs Of Car Ownership Decline Over Time?

Depreciation accounts for nearly 60% of costs in the first year. Over time, depreciation rates decrease and your cost of ownership decrease with it.

A Consumers Report article also notes that “cars cost less to own every year after that [the first year] ... the average model in our study costs almost twice as much to own the first year as it does the second year. The sixth, seventh, and eighth years combined about equal the cost of the first year.”

How Much Does Gas Cost Per Year To Drive Your Vehicle?

Average fuel consumption in litres per 100 kms graph

Fuel consumption per year is another expense when owning a car. In fact, fuel costs account for 24% of what you pay to drive. To estimate fuel consumption, you’ll need to know :

  • How many kilometres do you drive annually
  • The percentage of city versus highway driving you do
  • The fuel price

If you haven’t kept records about kilometres driven and what you’ve spent on gas, you can always estimate by using the averages car companies publish or figures you can get from the Ministry of Transport.

For example, a 2016 Mazda5 averages 10.8 city L/100 km and 8.3 highway L/100 km and a combined L/100 km of 9.7 (From the Ministry of Transport).

Examples Fuel Efficiency For Vehicles In Different Classes

We did a little research on fuel consumption ratings and yearly costs using the Ministry of Transport’s Fuel Consumption Ratings Search Tool. We put together some charts to help illustrate fuel efficiency and consumption for cars from various classes.

NOTE : “Estimated annual fuel cost is based on the combined rating, a driving distance of 20,000 km and forecast prices of $1.09/L for regular gasoline and $1.24/L for premium gasoline.”

Fuel consumption annual costs

Notice that yearly fuel consumption costs range between $1,482 for a Honda CR-Z which is a sub-compact car and $2,594 for a Ford F-150 which is a standard pickup truck. In general larger vehicles consume more fuel as they are heavier and have larger engines.

Remember that fuel prices fluctuate, sometimes widely, so this can change your annual costs for owning a car.

How Does Insurance Affect The Cost Of Owning A Car?

Automobile policies are based on several factors about the driver, the vehicle, and the plan and the insurer that you select. Here are some things to consider when looking for the Ontario car insurance :

  • What driver’s license do you hold – G, G1, G2? How long have you been insured? The longer your insurance history, the better rates you’ll probably get.
  • Older drivers are more likely to drive more carefully.
  • Driving studies confirm that women are less likely to be involved in accidents.
  • At-fault accidents, tickets and claims results in higher rates.
  • The safety rating and safety features.
  • How easy or difficult is it to steal your car? Your comprehensive insurance will be lower based on this.
  • How much will it cost to repair? Parts and labour impact collision insurance. Domestic cars are generally less expensive to repair than imported.

Find out the cheapest cars to insure and the most fuel-efficient vehicles. You can get a car insurance quote before you buy to get an estimate of how much you will pay.


Costs Of Owning And Driving A Car FAQs

The best way to get an estimate is to add up all expenses associated with driving. Your vehicle type, how much you drive, and age of the automobile play a big role. Also, your driving record and insurance will dictate how much it will cost you to drive.

The cost to own and drive your car varies. When you factor in your monthly payment, insurance, fuel, washes, and maintenance you could be spending between $750 and $1,000 per month. Again, this depends on your car type, how much you drive and other factors unique to your situation.

It really depends on your personal situation and needs. Some people require a vehicle for work and to get around. Others have one as a convenience. There are countless people who get by just fine without a car. Assess your situation, compare the pros, cons and costs and see if it makes sense for you.

Total cost of ownership, also known as TCO, is an average of the total expense to drive your car over a 5 year period. All costs are added up and averaged out over the 5 year span to give you an estimated monthly/annual cost.

Yes. While there are some fixed costs, such as the payment, other expenses are variable. Some years you’ll use more fuel than others. There may be a year where you have a major repair. Insurance can also fluctuate and depending on any claims or tickets.

Car Ownership Cost Estimator

With some research and knowledge, you can save yourself a lot of money on buying and driving your car. Make sure you take all the necessary time to weigh the costs, evaluate your options and choose a car that best fits your needs and budget.

In an effort to help drivers understand the true amount involved with owning and driving a vehicle, the CAA offers a tool to estimate the total outlay. Try it out to get an idea of what you will spend.

Here Are Some Other Helpful Articles

How To Buy A Used Car In Ontario
Top 45 Car Insurance Savings Tips
What Happens If You Get In A Parking Lot Accident In Ontario?
Demerit Points In Ontario

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