Get a free, no obligation personal loan quote with rates as low as 9.90%
Get Started You can apply with no impact to your credit score

Cars are a necessary expense for most Canadians. This is why, it’s important to account for all factors before purchasing a car, including the price of the car, insurance, gas and repairs, loan payments, and more. Let’s take a look at some key considerations and tips to help you budget for your next car.  

How Much of Your Salary Should Go to Your Car Payments?

Not everyone has the same financial or transportation scenario. That being said, not everyone will have the same approach to budgeting for a car. Depending on your income and frequency of use, you may decide to spend more or less on your car budget. Regardless, here are a couple of common approaches to budgeting for car payments.

The 20/4/10 rule

One common car budget rule is the 20/4/10 rule. With a 20% down payment, and 4 years to pay the car loan, you can buy a car provided that the monthly car payments do not exceed 10% of your income. 

Total Debt Ratio

Consumer experts say that one shouldn’t spend more than 36% of their income on debt. This includes monthly payments on credit cards, student loans, mortgages, and more. Find out how much of your income every month goes toward your debt (debt-to-income ratio). Then, you can see if there’s any room to add to it with a car loan payment. For example, if you find that you spend 30% of your income on debts, account for another 5% that you can spend on car loan payments. 

Expenses to Consider When Budgeting For a Car

When buying a car, you aren’t only paying for the amount listed on the price tag. There are other expenses to consider, like tax, warranties, gas, and more. Let’s take a look at some expenses you need to consider when buying a car. 

Total Price 

So let’s say the car you’re interested in buying costs $5,000. This does not mean your car budget should only be $5,000. You want to make sure you have some wiggle room to account for other costs associated with the purchase price, like sales tax, title and registration fees, and optional items such as warranty

Fuel 

You will need to budget for the cost of gas when driving your new car. Depending on the model, you may need to spend more or less on your gas budget. If the car is good on gas, you may be able to save a bit of money here. However, some models use up a lot of gas, which in turn requires you to have a higher gas budget.

Repairs and Maintenance 

Experts say that you should budget at least $2,000 on car repairs every year. However, this is a general number. Depending on your car model, repairs and maintenance can be more expensive. You’ll want to be on top of maintenance visits and ensuring your car is running smoothly. Additionally, you’ll want to be prepared for any possible accidents or issues that could result in your car needing repairs. 

Down Payment

The down payment will often require you to use money out of pocket, as lenders will want to see that you can put some money down toward your car. Although some lenders will finance your purchases with less than 20% down, it is ideal to make a 20% down payment on a car. The higher your down payment, the lower your monthly payments will be, and the more likely a lender will be to finance your purchase. 

Estimate Your Monthly Payments

CALCULATOR

Credit Score 1
Your Interest Rate: 35 %
Loan Options 2
$
$
Result 3

Don’t Forget Car Insurance

If you are in the market for a car, you should know that car insurance is mandatory. It’s the law to have insurance on any vehicle you operate. If you are caught driving without insurance by the police, you could face heavy fines and even confiscation of your vehicle. Insurance offers you financial protection if you get into a car accident, if your car gets stolen, and if a variety of other incidents happen to damage or otherwise compromise your car. In exchange for a monthly premium, you can file a claim with an insurance company if an incident takes place with your car. 

When choosing an insurance  policy that works for you, it’s important to take many factors of a policy into consideration:

How much coverage will you need? 

Make sure that you do your research and examine each policy in detail. You’ll want to make sure you are informed about what your policy includes. If you think you’ll require more coverage, it might help to discuss your needs with an insurance agent to make sure you are adequately covered by your policy. 

What are the premiums like?

Sometimes, you could get a better deal by paying annually as opposed to monthly. Examine your policy to get a good idea about what the premiums will look like.

Thinking of purchasing your car insurance online? Check out our guide on buying insurance online

How much should your deductible be?

If you make a claim, you will have to pay a deductible before your insurance covers you financially. You have control over the amount of your deductible. Generally, the lower your deductible, the higher the monthly premium, and vice versa. 

Does the insurance company offer any discounts? 

Sometimes you might be eligible for discounts from your insurance company, based on the following criteria:

  • Low mileage car
  • Student status
  • Retired
  • Security systems
  • Clean driving record
  • Your occupation
  • Electric/low-gas vehicles

Check out how gender plays a role in car insurance rates

Is the cost of the policy within your budget? 

Ensure you aren’t paying for more than you need with your insurance policy. Budget accordingly, and make adjustments if you find the policy is out of your budget. 

Best Car Loan Providers in Canada

AmountInterestTerm (Months)
Loans Canada Logo - Bad Credit Loans Canada$500 - $50,000Up to 46.96%12 - 84Learn more
ClutchVaries8.49% +24 - 96Learn more
Canada Drives$500 - $35,00029.99% - 46.96%9 - 60Learn more
SkyCap Financial$500 - $10,00012.99% - 39.99%9 - 36Learn more
Carloans411$5,000 - $40,000Varies12 - 72Learn more
Canada Auto Finance$5,000 - $45,0004.90 % - 29.95%36 - 72Learn more
Eden ParkVaries11.9% +12 - 84Learn more
Splash Auto Finance by RifcoUp to $50,000Varies12 - 84Learn more

How to Save and Budget For a Car

Now that we’ve looked at all the costs associated with buying a car, you have enough considerations to inform your budget. Once you calculate your monthly costs (including monthly payments, insurance, gas, repairs and maintenance, registration fees, etc.), you can create an accurate budget for yourself. Make sure that your monthly income is enough to cover your monthly car expenses in addition to all of your other expenses, like food, living costs, additional debts – even a simple list of monthly expenses can help you visualize your budget. 

Ways to Track Your Budget

There are a few budgeting programs and apps that can help you stick to your budget, YNAB, Mint, and Quicken to name a few. However, you can also create a strong budget by just recording your expenses in a simple list or an excel spreadsheet. 

Experts recommend setting time aside to document a budget for your expenses. However, if you don’t have a budget, it’s wise to at the very least create a separate savings account for your car expenses. The separation adds an extra layer of protection so that you don’t spend the allocated money. 

Bottom Line

If you invest in a car for your main method of transportation, there are many expenses that can add. But if you budget accordingly and conduct enough research to ensure your car choices suit your needs, owning a car can be affordable and doesn’t need to be a financial burden. For those in the market for the best car financing to meet their needs, Loans Canada can help match you with a lender in your area. 

Chrissy Kapralos avatar on Loans Canada
Chrissy Kapralos

Chrissy is a Toronto-based communications advisor. With an English degree from the University of Toronto and editing courses under her belt from Ryerson University, she has continued her lifelong passion for writing and editing. In addition to working for Loans Canada on a variety of financial topics, Chrissy has a few years of resume writing and editing under her belt, and takes great pleasure in helping people find work that fits with their experience and passions. When she isn't working, you can find her practicing yoga, hanging out with her dog, reading up on financial and real estate news, or planning her next trip abroad.

More From This Author

Special Offers

More From Our Experts

https://loanscanada.ca/wp-content/uploads/2024/09/car-repossession-loopholes.png
Can You Get Your Car Back After Repossession?

By Jun Ho
Published on September 18, 2024

Are you afraid your car may be repossessed? Check out these car repossession loopholes you can use in Ontario to help avoid the repossession.

https://loanscanada.ca/wp-content/uploads/2014/06/in-house-financing-car-dealerships.png
In-House Car Financing, Is it Right For You?

By Sandra MacGregor

Is in-house car financing the right choice, or are you better off getting financing somewhere else?

https://loanscanada.ca/wp-content/uploads/2024/04/auto-theft-canada.png
Car Theft In Canada On The Rise: Are Your Protected?

By Maidina Kadeer, BA

The first half of 2023 in Canada saw 34,861 vehicles stolen. Protect yourself against car theft by choosing the right auto insurance.

https://loanscanada.ca/wp-content/uploads/2023/11/gifting-a-car-in-Ontario.png
Gifting A Car In Ontario: Everything You Need To Know

By Lucas Elliott

Gifting a car in Ontario? Learn who is exempt from taxes, how to transfer ownership, required documents, and tips for insuring a gifted car.

https://loanscanada.ca/wp-content/uploads/2023/10/Lemon-Law-1.png
Quebec’s Lemon Law: Ensuring Vehicle Quality and Consumer Rights

By Maidina Kadeer, BA

The Lemon Law protects consumers by shifting the financial burden of a defective vehicle from the consumer onto the manufacturer.

https://loanscanada.ca/wp-content/uploads/2023/08/G-license-test.png
What Is A G License Test?

By Lisa Rennie

Are you trying to getting your license in Ontario? Then you should find out what's on the G license test.

https://loanscanada.ca/wp-content/uploads/2023/07/Car-theft.png
9 Easy Ways To Prevent Car Theft

By Barry Choi

Car theft is on the rise in Canada so we have 9 easy ways to keep your car from getting stolen. No, keeping your key fob in your house won't

https://loanscanada.ca/wp-content/uploads/2023/07/Sell-Your-Car-With-Clutch.ca_.png
How Selling or Trading In Your Car With Clutch.ca Doesn’t Waste Your Time, Money or Gas

By Stefani Balinsky

When you sell or trade-in your car with Clutch.ca, you get a great price . Plus, they pick up your car, saving you time, gas. and stress.

Recognized As One Of Canada's Top Growing Companies

Loans Canada, the country's original loan comparison platform, is proud to be recognized as one of Canada's fastest growing companies by The Globe and Mail!

Read More

Why choose Loans Canada?

Apply Once &
Get Multiple Offers
Save Time
And Money
Get Your Free
Credit Score
Free
Service
Expert Tips
And Advice
Exclusive
Offers

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.

Koho Prepaid Credit Card