Hidden costs of owning a car

Whether you're buying a car for the first time or upgrading to a new model, purchasing a vehicle in Canada doesn't just encompass the price tag you see online or at the dealership. From the moment you sign a new car into your name, the total cost of car ownership can be quite a surprise to most everyday Canadians.

From insurance premiums, driver's licensing, to fuel, ongoing maintenance, and more, these expenses can add up quickly and vary depending on which province you live in. But at the end of the day, knowing what the short and long-term costs of car ownership are can help you make a more informed decision about what type of vehicle you want to purchase and avoid financial surprises later down the road.

With rising vehicle prices and ongoing inflation, smart financial planning can help Canadians stay in the driver's seat when it comes to their transportation costs while choosing a vehicle that fits both their lifestyle and their long-term financial goals.

Overlooked upfront car ownership costs

Beyond the vehicle sticker price you see at the dealership, there are several other costs upfront that you need to worry about when financially planning your next vehicle purchase:

Delivery and dealership fees

If you're planning on purchasing a new car fresh off the lot, you'll need to factor in delivery and dealership fees. Most new cars throughout Canada include a delivery and destination fee, also referred to as freight and PDI fees. These fees cover the cost of delivering your new car to you, inspecting it for defects, and preparing it for you to pick up from the lot. According to Driving.ca, this fee can range between $1,700 and $2,500 depending on the make and model of the vehicle.

It's important to note that these fees are non-negotiable and often set by the vehicle manufacturer. On top of this, the dealership may also add additional expenses between $500 and $700 for administrative costs.

Sales Tax rate by province

Next, because you're making a purchase, your vehicle pricing will be subject to provincial sales tax. These tax rates vary by province. For example, you'll only be subject to a sales tax of 5% in Alberta for your car purchase, but in Ontario, you'll pay 13% HST. This may not seem like a lot, but when you consider the average car costs around $40,000, this can mean a difference of over $3,000 depending on where you live.

Licensing and registration fees

Licensing and registration fees are often overlooked when buying a vehicle, but that doesn't make them any less important. As of 2024, to register a vehicle in Ontario, you'll need to pay $59 annually. In British Columbia, provincial vehicle registrations include an $18 registration fee and an annual licence fee that ranges from $46 to $142, depending on the weight of your vehicle.

Car insurance premiums: What Canadians may be unaware of

All motorists in Canada must have car insurance; it's legally mandated. However, your insurance premiums can vary significantly, depending on where you live, given that insurance is regulated on a provincial level.

When insurance companies calculate your insurance premiums, they'll look at several different factors to determine your risk level, including age, driving record, postal code, driving habits, and more. Here are the key considerations:

High-Risk insurance premiums

Car insurance rates for those under 25 are some of the highest in the country. According to statistical data, young drivers are more likely to be involved in serious collisions, which increases their risk profile. At the same time, those with poor driving records (numerous traffic violations, at-fault accidents, and other convictions) can also expect to pay more for auto insurance compared to those with safe driving habits. High-risk premiums can range anywhere from $3,000 to $10,000 or more.

Provincial differences

According to Kanetix.ca, the average premium in Ontario is approximately $1,700 annually, whereas those in Quebec only pay around $857 a year. Looking at drivers in British Columbia, they can anticipate paying around $1,850, which is one of the most expensive insurance rates in the country.

Even within the geographic region of provinces, drivers will experience varying auto insurance premiums. For example, those living in big cities like Montreal or Toronto can anticipate higher premiums due to more traffic congestion and auto-theft rates. In contrast, drivers living in more rural areas of the country with smaller populations and less traffic can expect slightly lower rates.

Mandatory vs. optional insurance coverage

Remember, car insurance is mandatory in all parts of Canada. However, because insurance is regulated provincially, the types of auto insurance you need and coverage minimums will differ based on your home province. For example, all provinces require a minimum of $200,000 in liability coverage, except in Nova Scotia, where you must carry a minimum of $500,000 and in Quebec, only $50,000 in coverage is required.

Furthermore, collision coverage, comprehensive coverage, and accident forgiveness are all optional policies. Skipping these can save money, but if you're involved in an accident, you'll need to pay out of pocket to have your vehicle fixed.

One thing to note is that if you're planning on paying for your new car with a car loan or leasing a vehicle, you'll likely be asked to purchase collision and comprehensive coverage regardless.

Auto insurance discounts

Most insurance companies offer discounts to customers:

• Being a safe driver can save you up to 15% on your auto insurance.

• Installing winter tires can save you up to 15%.

• Purchasing a multi-car insurance policy will save you 20% on your premiums.

• Bundling your home and auto can also save you up to 15% on each policy.

• Choosing a higher deductible can lead to some savings as well.

Make sure to reevaluate your insurance annually. Rates change, and loyalty with one company doesn't always pay off in this market.

Total Depreciation: The silent money drain

Vehicle depreciation is one of the most underestimated expenses of car ownership. Depreciation refers to the reduction in your car’s value over time. While you don't pay depreciation, when it comes time to sell or trade in your car for a new one, it will determine how much you get for your vehicle.

According to the Canadian Black Book, a new vehicle's value often drops 20% to 30% in the first year alone. By the third year, most cars will lose as much as 50% of their initial value. That means a $40,000 vehicle may be worth only $20,000 after three years, even if it's still in relatively good condition. Read on to find out more about vehicle depreciation:

Depreciation: Why it happens

Several factors contribute to depreciation, including mileage, general wear and tear, how in-demand the model is, brand reputation, and more. For example, vehicles with poor ratings or unpopular design models tend to lose their value at a faster rate compared to pope models that are known for being durable, like certain Toyotas or Hondas. Here’s how to avoid it:

Buy used cars

So, what can you do to avoid this? One of the options you have is to purchase a used car rather than a new one. Many Canadians are opting for used vehicles compared to new ones. In fact, in 2021, Canadian used car retail sales reached $15.34 billion.

Purchasing a used car that's 2 or 3 years old has already experienced its steepest drop in value, which means you'll get a better deal and won't lose as much of your original investment. If you're considering a used car, look into certified pre-owned vehicles to get a reliable vehicle at a good price.

Leasing a car

If you choose to lease your car from a dealership, depreciation will be factored into your monthly payments, which is why leases for vehicles with poor resale value tend to be more expensive.

Resale Value: what to consider

Planning to sell your car in a few years? If you can, choose a vehicle with strong resale value. Resources like the Canadian Black Book or Kelley Blue Book can help you compare projected depreciation for different models, which can help you make a more informed decision.

Fuel costs and maintenance costs: variable and unpredictable

Ongoing fuel costs and maintenance costs can be unpredictable given differing factors like driving habits, vehicle make and model, where you live in Canada, and more. A few reminders about fuel and maintenance expenses and the variables involved:

Fuel costs by province

In 2024, the national average gas price was approximately $1.65 per litre. On average, a standard mid-size SUV with good fuel economy consumes between 8 to 9 litres of gas per 100 km driven. Now, let's say the owner of this mid-size SUV drives an average of 15,000 kilometres annually. This would come out to approximately $2,235 per year in fuel costs.

Remember, however, that fuel costs vary by province. For example, drivers in British Columbia and Quebec experience some of the most expensive gas prices in the country, whereas those in Alberta experience some of the lowest.

Electric Vehicles/Hybrid Vehicles

Electric vehicles, which accounted for 11.7% of total new vehicle registrations in 2024, offer significant savings on gas prices, which can lower the overall cost of car ownership for drivers. According to Hydro Ottawa, the average EV driver will spend $0.82 a day to charge their vehicles. Again, this will depend on provincial electric prices.

Although electric vehicles and hybrid models have higher upfront costs, your monthly payments for electricity will help offset these initial expenses over time.

Vehicle maintenance costs are inconsistent

According to CAA, the average Canadian spends $1,000 to $1,500 a year on standard vehicle maintenance. This covers things like oil changes, brake pad replacements, air filter changes, tire rotation, and fluid checks.

Generally speaking, EVs require less total maintenance because they don't need oil changes and have less brake friction due to regenerative braking systems, whereas sedans require less maintenance than SUVs and trucks due to their lighter build and simpler mechanical components.

Winter conditions add to wear and tear

The Canadian winters are tough on cars. Cold temperatures reduce battery capacity and cause engine strain. In most provinces, winter tires are often recommended or legally required. A good set of four winter tires can cost $800 to $1,200, and many motorists pay extra for seasonal tire storage and tire swaps, which can add $100 to $200 per year.

Skipping maintenance can cost you

Car maintenance is, unfortunately, not something you can neglect unless you want to triple your car expenses down the road. Neglecting car maintenance will lead to more expensive repair costs and damage your vehicle more significantly. To maintain your manufacturer's warranty and keep your vehicle safe, your calculations for the cost of car ownership should always include maintenance and repair costs.

Unexpected repair costs and emergencies

Even with routine car maintenance, unexpected problems can arise, especially when you're driving an older vehicle. Below, we examine these repairs and urgent issues:

Battery replacement

A standard car battery will last between 3 to 5 years before needing to be replaced. Depending on the size and capacity of the battery your vehicle takes, you can anticipate paying anywhere between $100 and $250.

On the other hand, electric car batteries can cost $5,000 to $15,000 to replace. However, these batteries have ranges of up to 100,000 kilometres or more before they'll need changing.

Brake and tire rotations

According to Jiffy Lube, a total brake repair, including pads, rotors, and callipers, normally costs between $200 and $800, depending on the vehicle. Kal Tire recommends rotating your tires every 8,000 kilometres, and this should cost you between $50 and $100.

Emergency repair costs

Engine troubles, alternator failures, and transmission breakdowns can cost anywhere from $1,500 to $5,000 or more to fix. Extended warranties can be useful in certain instances, but they rarely cover everything. You'll also need to pay extra for warranties that extend past your manufacturer's guarantee.

Extended warranty

An extended warranty is one cost of car ownership that is optional. These warranties are either offered by dealerships or through third-party insurance companies. It can help cover the cost of emergency repairs for major mechanical components. However, these warranties can cost anywhere between $1,000 and $2,000 annually, and may not be worth it for some car buyers.

Emergency funds

The Government of Canada states that your emergency fund should cover between 3 to 6 months of your regular expenses. Depending on what your expenses are, you may want to set aside $1000 to $3,000 for your vehicle in case something happens. Otherwise, you may be stuck taking public transportation until you can come up with emergency funds.

Financing, leasing, and interest costs

Most Canadians aren't paying for their new cars outright, especially first-time buyers. Instead, most rely on car loans or leasing. Keep reading to find out more:

Loan interest rates

The average interest rate for vehicles in June of 2024 was 7.59%. This means that if you were to purchase a car for $35,000 with a loan term of 60 months, you'd be paying an additional $5,600 in interest.

When it comes to car loans, it pays off to have a good credit score. The higher your score, the lower your interest rate will be, which means you'll be able to keep more money in your pocket at the end of the day. In contrast, a high interest rate with a longer loan term will cost you more.

Leasing

While leasing a vehicle can offer you the opportunity to drive a newer car model, it often comes with mileage restrictions and wear-and-tear clauses. For example, once your lease is over, you may face penalties if you’ve exceeded your mileage limits or haven’t maintained the vehicle properly.

Financing fees

Dealership financing fees can range between $200 and $600 on top of your purchase price. These are often hidden expenses that dealerships won't disclose until later in your buying journey. Some dealers may be open to negotiating these fees, while others won't be. The best thing you can do in this situation is negotiate your car price and compare quotes from different dealerships before making your purchase.

Down payments

Putting more money down on your new car will reduce your total interest owed and monthly payments. For example, a 20% down payment on a $40,000 car ($8,000) can save you over $1,000 in interest over the course of a five-year loan term.

Parking and tolls

If you live in urban areas like Vancouver, Toronto, or Montreal, you may want to factor in parking and toll fees into your annual costs of car ownership. While most condos downtown have parking included, it may cost you an additional $100 to $250 a month to rent the space.

Roads like Ontario’s 407 ETR charge motorists a toll based on their distance travelled and the time of day. For example, regular commuters can anticipate paying up to $150/month using these roadways. At the same time, Quebec’s Highway 25 also operates on a toll basis.

Think you can get away without paying for public parking? Think again! If you're caught parking in an area without paying, you can face fines of up to $100 for each violation. For example, in Vancouver, parking tickets are $35 if you pay within 30 days. Wait too long, and this can increase to $60. So, if you live in a big city or travel to one for work, make sure these hidden costs are accounted for.

The bottom line

As you can see, the true cost of car ownership is more than what you pay for your ticket price. Whether you're buying for the first time or not, understanding how these costs are calculated and what to expect can help you plan better financially.

If you're looking to save on your insurance rates, speak with a broker from BrokerLink by contacting us directly or getting a free quote using our online quote tool today!

Get an auto insurance quote