Buying a Car in Canada: A Guide for Newcomers

Buying a car is a big step, especially if you’re new to Canada.  And it’s not just about choosing a car—it’s about understanding financing, insurance, licensing and navigating all the ins and outs. While it’s pretty safe in Canada, you want to go into one of your most significant purchases with some know-how.   This guide will walk you through confidently getting on the road. Research Your Options Before making any decisions, investing time in thorough research is crucial.  You must be well-informed and prepared for the journey ahead.  Decide Whether You Want a New or Used Car  New cars are shiny and have warranties, but the manufacturer’s retail sales price (MSRP) is often inflated, and they lose value as soon as you drive them out of the dealership. Used vehicles, in comparison, cost much less and may need frequent repairs.  TIP: Be sure to get a mechanic to inspect your vehicle before buying used.  Here’s an example of buying a Toyota Rav4 – Canada’s most popular SUV – new vs. used.  Buying a Car: New vs. UsedNewUsedPrice (used could save you 30-40%)$35,000 – $40,000$25,000 – $30,000 (3-5 years old)Down Payment (typically 10-20% of the price)$3,500 – $8,000$2,500 – $6,000Borrowing Costs (dealers want to sell new cars and will incentivize you through lower rates)Lower interest rates (e.g., 2.5-4%)Higher interest rates (e.g., 5-7%)Maintenance costsLow for the first few years, typically covered by warrantyHigher; might need new tires, brakes, etc.Insurance CostsHigher due to the vehicle’s higher valueLower, because the car has depreciatedDepreciationLoses, on average, 20% of value in the first yearSlower depreciation; less risk of losing value quicklyWarrantyFull manufacturer warranty (3-5 years)Limited or no warranty (unless certified pre-owned)Fuel Efficiency (gas vs. hybrid)More efficient with the latest models and technologyIt may be less fuel-efficient, depending on the ageResale ValueHigher initial depreciation, lower resale in early yearsRetains value better after initial depreciation hitTechnology & Safety FeaturesComes with the latest safety and tech features like lane assist, backup cameras, etc.Older cars may have fewer advanced safety and tech features Think about what’s important to you.  If your work involves a lot of driving, you might prioritize fuel efficiency to save on gas.  If you’re a newcomer, you may pay more for insurance, and those monthly costs can eat up a lot of your vehicle budget.  Perhaps you’re more concerned about advanced safety features for your family and are willing to pay a higher price for the latest technology. Considering these factors will ensure you feel secure on the road. Where to Buy a Car in Canada  Here are a few standard options for where you can buy a car in Canada.  AutoTrader: A website with many new and used cars, offering detailed filters to narrow search results. However, some listings may need to be updated or from private sellers with less transparency. Kijiji/Facebook marketplace/Private sellers: A platform to easily find local used cars, often at lower prices than dealerships, but with a risk of scams or misleading listings from private sellers. Dealerships: On the side of many roads, you’ll see giant lots full of cars. Dealerships are a trusted option offering certified vehicles, financing, warranties, and consumer protection. Prices are typically higher than private sellers, with potential upselling. eBay Motors: An online marketplace offering various vehicles, often at competitive prices. However, it requires caution due to the potential risks of buying without seeing the car in person. Clutch: An online-only platform offering home delivery and a 10-day return policy, but with no physical location to inspect cars before buying. Canada Drives: A website for online car shopping with financing options and home delivery, though limited to specific regions in Canada. Car Auctions: There is a solid potential to discover lower-priced vehicles, but cars are often sold as-is with no guarantees, and auctions can be competitive. Best Times to Buy a Car: End of the Month/Quarter: Dealers often try to meet sales quotas and may be more willing to negotiate or offer discounts to close deals. End of the Year: As new models come out, dealers want to clear out the previous year’s inventory, so December can be a great time to find discounts on current models. Holiday Sales: Events like Black Friday, Boxing Day, and Labour Day are known for dealership promotions and sales. Winter Months (January-February): Car sales tend to slow during the winter, so dealerships may offer deals to attract buyers during this quieter period. End of the Model Year: As manufacturers release new models, dealerships are motivated to offer discounts on the outgoing models to make room for new stock. How to Get Your Driver’s License in Canada Depending on your previous driving experience and provincial rules, it can take as little as a few weeks (for those exchanging licenses) to 1-2 years (for new drivers going through the graduated licensing system).  You’ll have to contact your province’s ministry of transportation to take any of the below steps either before or after arrival.  Newcomers to Canada Can Get Their Driver’s License by Following These Steps: Check Your Provincial Requirements (1 day): Estimated Time: You can do this in a few hours online. Why: Each province has its own licensing rules, so it’s essential to understand what applies to you. Checking online will help you determine whether you can exchange your license or if you need further steps. Provide Proof of Previous Driving Experience (1-2 weeks): Estimated Time: Gathering the necessary documents from your home country and submitting them could take up to 2 weeks. Why: You must prove your driving experience, such as your driver’s license and driving record. If you can exchange your license directly, this could save you time, but you’ll still need approval. Take a Knowledge Test (1-4 weeks): Estimated Time: Depending on the availability of testing appointments, preparing for and scheduling the knowledge test can take a few weeks. Why: If you need to take the knowledge test, you’ll need time to study the provincial road signs and rules. Some provinces offer immediate scheduling, while others may have waiting periods for testing slots. Take a Road Test (2-6 months): Estimated Time: Scheduling a road test can take a few weeks to several months, depending on your province’s backlog of testing appointments. Why: After passing the knowledge test, you’ll need to schedule and pass a road test to show your driving skills. The waiting time varies based on your area’s demand for road tests. Get a Graduated License (If Applicable) (1-2 years): Estimated Time: If you’re required to go through the graduated licensing system, it can take 1-2 years to move from a learner’s permit to a full license. Why: Graduated licensing ensures that new drivers gradually build experience. You may need to hold a learner’s permit for a set period and pass additional tests before getting a full license. Pay Applicable Fees (Same day): Estimated Time: You can do this immediately after passing your tests. Why: There are fees for each test and for issuing the license, which you must pay before you receive your official driver’s license. Read more: Everything you need to know about driving a car in Canada Understand Car Financing: Lease or Buy, and Budgeting  When buying a car, you often hear if you’d like to lease or buy. Financing a car can seem confusing, but it doesn’t have to be.  When you lease a car, you pay to use it for a few years, then you either return it or buy it.  Buying a car means making payments over a few years. Once you finish paying, the car is entirely yours, so you can keep it or sell it whenever you want. Leasing is an excellent choice for those who like driving the latest models and want lower monthly payments. If you enjoy having a new car every two or three years and prefer always to have the latest safety features with a warranty, leasing offers that flexibility. It’s perfect for those whose lifestyle might change shortly or for anyone who doesn’t drive more than the set number of kilometres per year. However, leasing is best for people who are comfortable taking extra care of their car and do not mind switching vehicles regularly. Financing is better suited for those who want to fully own their vehicle and see it as a long-term investment. Financing is likely your best option if you prefer building equity through trade-in value or resale and enjoy the freedom to customize your car. You’ll also appreciate being payment-free once the loan is paid off. However, this option is ideal for people with stable lifestyles who don’t mind covering unexpected repair costs once the warranty expires and are comfortable with the possibility of selling or trading in their car down the road. Financing will require money up front and regular bi-weekly or monthly payments.  To make it easier for newcomers, you can get a car loan if you don’t have the total cash, which is a better option if you prefer to keep the car long-term. Many banks, like Scotiabank, offer an excellent program for newcomers that doesn’t require a Canadian credit history. You can get pre-approved for a car loan before you start shopping. This way, you’ll know how much you can afford, and it can give you negotiating power at the dealership. The dealerships may offer a loan as well.  Be sure to compare what company provides you with the better rates.  Buying a Car With No Canadian Credit History Don’t worry if you don’t have a Canadian credit score yet.  Some lenders, like Scotiabank, offer programs for newcomers who have no Canadian credit history.  Building a Canadian credit score is important, though. Make sure to pay your bills on time (like your car loan) and consider getting a credit card. This will help you in the future when applying for larger loans, like a mortgage. Read more: What newcomers need to know about Canada’s credit system How Much Car Can You Afford? While you may want a Ferrari, you may only have the budget for Mitsubishi Mirage, Canada’s cheapest car.   A simple rule to follow is the 20/4/10 rule:  aim for a down payment of 20%,  keep your loan term to 4 years or less,  and make sure your monthly payments don’t exceed 10% of your take-home pay. So, If you earn $65,000 a year, that’s about $52,500 after taxes or roughly $4,375 per month.  Based on this, you can afford car payments of around $437 a month, totalling close to $21,000 over 4 years (before taxes and interest). With a 20% down payment, you can buy a car priced up to $26,250, including taxes and fees. In 2024, the average car price in Canada is around $45,000. But don’t worry—many new and used cars are within your budget. Read more: How to budget as a new Canadian Buying Mandatory Car Insurance for Newcomers In Canada, by law, you need car insurance to drive.  In any accident, mandatory car insurance provides coverage for: Third-Party Liability: Covers damage or injury you cause to others in an accident. For example, if you rear-end another car, your liability insurance pays for their vehicle repairs and medical bills. Direct Compensation for Property Damage (DCPD): This covers damage to your car if you’re not at fault and the other driver is insured. For example, if someone hits your vehicle at an intersection, your DCPD will cover the repair costs. Accident Benefits (AB): Provides coverage for medical expenses, rehabilitation, and income replacement if you’re injured in an accident, regardless of fault. For example, accident benefits will help cover your hospital bills and lost wages if you’re injured in a collision. Uninsured Motorist: Protects you if you’re in an accident with an uninsured driver or a hit-and-run, where the driver leaves the accident scene. Example: If you’re hit by a driver who doesn’t have insurance, this coverage will pay for your injuries or damages. If you’ll notice, car insurance doesn’t protect your card.  For that, there is also optional yet highly recommended coverage.  Collision insurance covers damage to your car following an accident.  Comprehensive insurance: covers non-accident damage like theft, floods/fire, or those pesky parking lot accidents.  You can also add riders to your policy to cover rental cars, extra drivers, and more.  How to Save on Car Insurance:  Bundle Insurance Products: Combine your auto, home, or tenant insurance with the same provider for a potential 15% discount.  Increase Your Deductible: To reduce your annual premium, opt for a higher deductible (the amount you must pay in an insurance claim).  Install Safety Features: Equipping your car with anti-theft devices, like a car alarm,  or advanced safety features can reduce your premium. Track Your Driving (Telematics): Enroll in a usage-based insurance program that rewards for safe driving habits.  Pay Annually: Paying your premium upfront for the whole year often results in a discount compared to monthly payments. Keep a Clean Driving Record: Avoid tickets and at-fault accidents to qualify for lower rates. For example, a driver with no accidents or violations for five years could see a significant reduction in premiums. Install Winter Tires: In provinces where winter tires are required or encouraged, having them can reduce your premium. For example, using winter tires during the colder months in Ontario can lead to a 5% discount (In Quebec, winter tires are mandatory).  Where to Buy Car Insurance in Canada There are many car insurance providers in Canada. Most provinces offer private insurance, where you must buy car insurance from an agent or broker. You buy car insurance from the provinces of British Columbia and Manitoba.  Ontario, for example, is insured through private companies. You can buy directly from a company through an agent who sells on behalf of one company. A car insurance broker sells for many companies and can help you find the best rates from multiple providers for free (the insurance company pays the broker).  You can also use ‘aggregators,’ which have an online portal that allows you to compare car insurance quotes.  Your options are below.  Type of providerCompaniesPros ConsAgents/DirectBelair direct, Sonnet, Scotia Auto insuranceDirect relationship with the insurance company, often quicker service, online convenienceFewer options to compare, limited flexibility with rates or policiesBrokersbrokerlink.com, Cheep insurance, Square OneAccess to multiple insurers, personalized advice, more options for coverageCan be slower, additional fees may apply, not all brokers work with all companiesAggregatorsRatehub.ca, Rates.ca, lowestrates.ca, etc. Quick comparison of multiple quotes, free to use, instant resultsLess personalized, no direct relationship with insurers, may not show all available options You’ll Also Need to Get Your License Plate After getting insurance, your driver’s license, you’ll also need a license plate to put on the car.  A license plate in Canada is a metal or plastic plate with a unique number assigned to your vehicle, required by law to identify and track the vehicle on public roads. Generally speaking, you’ll get the license plate before you pick up the car.  Gather Required Documents: You’ll need certain documents to register your car and get a license plate, such as: Proof of insurance (your insurance policy or pink slip). Proof of vehicle ownership (bill of sale or previous registration). Your driver’s license. A completed vehicle registration application form (available at service centers or online). Visit a Service Centre: Visit your province’s licensing or motor vehicle service office (e.g., Service Ontario, ICBC in British Columbia, SAAQ in Quebec). Bring the required documents and be prepared to pay a registration fee. Get the License Plate: After completing the registration, you’ll be issued a license plate and registration sticker (where applicable). The plate will be linked to your vehicle and your name. Note: In most provinces, you’ll need to renew your registration and license plate annually by paying a fee and ensuring your insurance is up to date. When buying a vehicle in Canada without a license plate, you have a few options to drive it off the lot legally: 1. Temporary Permit (Trip Permit) Most provinces offer a temporary license plate or trip permit, allowing you to drive your car from the dealership or private seller to your home or a service centre for registration. Here’s how it works: You can apply for a trip permit at the dealership or at a licensing office (e.g., Service Ontario, ICBC). The permit usually lasts for a short period, such as 10 to 30 days, giving you time to complete the registration and get permanent plates. You will need proof of insurance to get the temporary permit. 2. Dealer Temporary Plates Many dealerships provide temporary plates when you buy a vehicle from them. These allow you to drive the car off the lot while your permanent registration and plates are processed. The dealership will often handle much of the paperwork for you, including applying for your official plates. 3. Transporting with a Tow or Flatbed If you don’t want to use a temporary permit or dealership plates, you could arrange for the vehicle to be towed or transported to your home or a registration centre. This is less common but an option if the other methods aren’t available. In all cases, you must have valid car insurance before you can get a temporary permit or drive your new car. Inspect and Finalize the Purchase When you find a car you like, especially if it’s used, make sure to get it inspected by a mechanic. This can help you avoid costly surprises later. You’ll also need to complete some paperwork. Make sure to bring: A valid driver’s license. Proof of car insurance. The bill of sale and other ownership documents. After buying, you’ll need to register your car with your province’s government and pay any related fees, including taxes. Extra fees and taxes to be aware of Sales Tax: In most provinces, you’ll need to pay provincial sales tax (PST) or harmonized sales tax (HST) on the car’s purchase price. The rate varies by province. For example, Ontario charges 13% HST. Vehicle Registration Fees: You must register your car with the provincial government. Registration fees vary by province but typically range from $50 to $150. License Plate Fees: If you need new plates, there’s a fee, which can be around $20 to $100, depending on your province. Dealer Fees: Some dealerships charge administrative or documentation fees to cover the cost of processing paperwork. These fees can range from $300 to $600. Inspection Fees: You may need to pay for a safety or emissions inspection for used cars, which can cost between $100 and $200. Conclusion Be patient and take your time to do the research and ask the right questions. Come back to this page often for reference.  And remember, programs like Scotiabank’s auto loan for newcomers can help you get the financing you need without the hassle of building credit from scratch.  Legal Disclaimer: This article is provided for information purposes only. It is not to be relied upon as investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia is not responsible to update this information. All third party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information. https://immigration.ca/buying-a-car-in-canada-a-guide-for-newcomers/