Planning your budget for a used car is one of the most important steps in making a sound financial decision. In this guide, we explain everything you need to know about budgeting for a used car, helping you think beyond just the sticker price.
From estimating monthly payments to factoring in maintenance, insurance, and unexpected expenses, we provide actionable tips to ensure you get the best deal without overspending. Whether you’re buying your first car or upgrading to a more reliable option, this guide will give you the confidence to plan your purchase, find the right vehicle, and stay within your financial limits!
What is a Realistic Budget to Buy a Reliable Used Car in Canada?
A realistic budget for a reliable used car in Canada ranges from 10,000 to 25,000 $. This depends on factors like the car’s make, model, age, mileage, and condition. Cars under 10,000 $ are available but may require higher maintenance. Always budget for insurance, taxes, and inspection costs.
How to Set a Budget for Your Used Car
Setting a budget for your used car ensures you make a financially sound decision while finding the perfect vehicle. Here are our top tips to help you assess your needs, calculate expenses, and stick to your budget to avoid overspending or hidden surprises.
Step 1: Determine Your Monthly Budget
Start by assessing your monthly income and expenses. Use the 50-30-20 budgeting rule: 50% for necessities, 30% for discretionary spending, and 20% for savings and debt repayment. Fit car expenses, including your monthly car payment, within the 50% category. Use an auto loan calculator to estimate payments based on loan amounts, interest rates, and loan terms. A shorter term, like a 48-month loan, saves money on interest compared to a 60-month loan.
Step 2: Research the Purchase Price
When planning to buy a car in Canada, start by researching the average price of your desired vehicle. Utilize Canadian-specific resources like AutoTrader.ca, CarCostCanada, or CARFAX to compare sticker prices, dealer listings, and even auction prices. These tools provide valuable insights into what you can expect to pay in your region.
To avoid overspending, aim for a reliable car that fits comfortably within your price range. Be mindful of not just the upfront cost but also the long-term expenses, such as fuel efficiency, maintenance, and insurance premiums. Look into popular Canadian car rankings, like the ones published by CAA or Consumer Reports, for reliability ratings.
Step 3: Consider Financing Options
If you’re not paying cash, financing is a popular option for Canadians to afford a vehicle. Credit unions in Canada often offer lower interest rates on auto loans compared to traditional banks.
Exploring pre-approved financing is highly beneficial, as it helps you understand your loan eligibility, improves negotiating power at dealerships, and simplifies the buying process. Your credit score plays a significant role in determining the interest rate you qualify for—higher scores (700+) typically unlock lower APRs (annual percentage rates).
The Long-Term Costs to Consider for a Used Vehicle
The true cost of owning a pre-owned vehicle extends beyond the purchase price. Factoring in maintenance costs, insurance premiums, and potential repair costs ensures you’re prepared for the financial commitment. Careful planning prevents unexpected expenses from becoming a burden.
Gasoline
You should always plan for 1 to 2 liters of gasoline more than the average consumption announced by the manufacturer. Of course, we can’t predict the price of gasoline in the future, but we can consider that for regular gasoline you pay on average $1.60 per liter. So, to calculate the amount per year that you will have to pay to fill the tank of your car, you will also have to take an average of the fuel consumption ratings of the vehicle that you plan to buy.
We recommend the Auto123 website to help you estimate your expected fuel consumption. For example: the 2014 Honda Civic automatic consumes 6.7 liters/100 km and 5.0 liters/100 km (so an average of 5.85 liters/100 km). Let’s also assume that you travel an average of 15,000 km per year (which is what most drivers do). All this means that you will consume an average of 877.5 liters of gasoline per year. In short, it will cost you about $1,140.75 each year for gasoline for this car.
Registration
In Quebec, vehicle registration fees vary slightly depending on your region, but they typically range between $200 and $280 per year for most vehicles. While the base cost of registration remains consistent, certain factors can increase your total fees. For instance, if you need a new license plate, it will cost $2.40, while opting for a personalized plate will set you back $257.54, with additional management fees of $35.64 per year for maintaining the personalized plate.
If you own a “high-powered” vehicle, you’ll pay an extra fee annually. A “high-powered” car in Quebec is defined as one meeting two criteria:
- The engine displacement is 3.95 liters or more.
- The model year is 1995 or newer.
The additional cost depends on engine size:
- For an engine with 4.0 liters, the extra fee is $37.25 per year.
- Larger engines (e.g., 7.0 liters or more) can incur fees of up to $397 annually.
It’s important to note that these fees are based on engine displacement—the physical size of the engine, not the liters of gasoline the car consumes. While larger engines were once common in high-performance or luxury vehicles, advancements in technology have made smaller, turbocharged engines increasingly powerful and efficient. Modern engines can now deliver the same (or greater) performance using less displacement, thanks to innovations that comply with strict emissions regulations and enhance fuel efficiency.
Insurance
Again, insurance depends on the vehicle you drive (or will drive) and its year. A luxury vehicle costs more to insure. The insurance company, your credit history, your age, your demerit points, and your place of residence play a big role in the price.
Prices between different insurance companies are never the same, that’s for sure! A good technique to save money is to use the same insurance company as for your home. You should also contact at least three insurance companies to compare the quotes.
Repairs
This criterion is definitely the most difficult to predict. You may not have any repairs to do on your car, but you equally may have several to do. The only advice we can give you to avoid as many as possible: drive carefully and buy a reliable and durable vehicle. In fact, we have a guide to the best reliable vehicles. Go take a look!
We also advise you not to wait too long when there is a problem or a repair to be done on your car. Especially when it comes to mechanics or safety. On the other hand, you will understand that cosmetic repairs on the bodywork such as a dent or scratches are not urgent.
General maintenance
General car maintenance is really not to be neglected. This includes changing brakes every 5 years or 100,000 km, renewing tires (summer and winter), oil changes (engine and transmission), changing windshield wiper blades, air filter and cabin filter, spark plugs, timing belt, burned out headlights or bulbs, etc. It also depends on the car you have or are going to buy. Some models are more capricious than others and sometimes it is unfortunately the previous owner who has poorly maintained it.
Common Pitfalls When Setting a Budget for a Used Car
Avoiding mistakes when budgeting for a pre-owned vehicle is crucial to a smooth car-buying process. As professional vehicle inspectors, we at CarInspect have seen people fall for these pitfalls time and time again. From hidden fees to skipped inspections, these mistakes can turn a good deal into a financial burden.
Here are common mistakes to avoid:
- Underestimating Additional Costs: Many overlook registration fees, sales tax, insurance premiums, and documentation fees, which can increase the initial costs significantly. These hidden costs can derail your financial plan.
- Skipping a Pre-Purchase Inspection: Failing to get a professional pre-purchase vehicle inspection increases the risk of buying a car with undisclosed mechanical issues, leading to unexpected repair costs and higher maintenance costs in the future.
- Taking on Expensive Financing: Choosing a longer loan term, like a 60-month loan, may reduce the monthly payment but increases total loan rates and finance charges. A shorter loan, such as a 48-month loan, saves you money in the long run.
- Skipping a Vehicle History Report: Buying without a vehicle history report or checking the vehicle identification number (VIN) risks purchasing a car with undisclosed issues, leading to unforeseen repair costs and a higher real cost of ownership. Check out CARFAX’s website for a detailed vehicle history report.
Book a Pre-Purchase Car Inspection
At CarInspect, we make buying a used car in Quebec stress-free with our mobile pre-purchase inspections. Our expert inspectors come to you, wherever you are, to thoroughly assess the vehicle’s condition. From the engine and brakes to the body and interior, we leave no detail unchecked. With our detailed report, you’ll have all the information you need to make a confident purchase decision!