In Canada, there are lots of decisions to make when you’re buying a car. There’s so much to choose from! You can buy anything from new or used, domestic or imported! You also have the choice of how you pay for the car; you can buy it outright, finance it with a car loan, or lease it.
If you’ve done your research and decided that a new car is right for you, the next step is to understand how buying a new car works. Once you understand it, you can be strategic with your negotiations and purchase.
How to buy a new car in Canada
A car is a big purchase, one of the biggest you’ll make in your life. To help you navigate the process, here is a walkthrough of all the steps you go through:
- Plan. Determine what you can reasonably afford and what you will get for your money. This involves considering items like depreciation, taxes, insurance, reliability, registration fees, and fuel economy.
- Research. The next step is to research the car you’d like and what will work for your lifestyle. Google and YouTube is where most people start.
- Find the Car. You want to find a good deal at a car dealership nearby, manufacturer’s websites, third party listings, and advertisements. As a general rule, you shouldn’t walk into a dealership before doing at least a little bit of homework on the type of car you want.
- Test and Inspect. Before making any car purchase, it’s good practice to inspect and test the car. After all, you want to make sure the car doesn’t have any defects or other issues by looking it over and giving it a test drive.
- Buy. Once you find the exact car you want, it’s time to negotiate the purchase price with the seller and get your payment together. This is where you must decide to buy outright or apply for a loan and pay for the car with monthly installments.
- Prepare to Drive. Now that the car is yours, you will need to get insurance, ownership registration, and license plates.
- Drive. Once everything is approved and paperwork is signed, you can now drive your car off the lot and enjoy!
Getting pre-approved for a car loan is the easiest way to buy a car in Canada
Going through all the steps mentioned above to buy a car is a lot of work, and it takes a lot of time. Luckily there is a faster and easier way to successfuly find a new car that fits your budget and your lifestyle.
By getting pre-approved for a car loan you will know exactly what your budget is, so you can avoid wasting time researching and shopping for cars that you won't be able to qualify for.
Companies like Canada Drives can get you pre-approved online, and will even connect you with a dealership in your area who has a selection of quality vehicles available within your pre-approved budget. So you can save time and energy by not having to do the searching yourself, and there is no fear of rejection when it comes to actually financing the car you want.
A quick guide to car pricing
New cars aren’t cheap, as you probably noticed! For this reason, understanding all the pricing and the nature of the new car business is extraordinarily helpful. It’s easy to get caught up in the moment and excitement of buying a new car, and you might make the wrong financial decision as a result. On top of that, pricing is one of the most important steps of the purchasing process. Let’s explore all the facets of how new cars are priced and the costs you will incur when making a purchase.
What is MSRP?
MSRP stands for the manufacturer’s suggested retail price, which is also referred to as the window sticker and list price. In other words, the MSRP is the price set by the manufacturer and is often the price that car dealers would prefer you pay. Although, for new car prices, Canadian car dealers tend to sell for much lower than the MSRP. The only time a dealer would be adamant about selling a new car for the MSRP is for high-end vehicles that are in demand with little supply.
The MSRP doesn’t include sales tax or additional dealership fees. In a way, these fees are hidden because they’re not reflected in the MSRP so you don’t know what the final price will be. This is important to consider when budgeting. In Canada, sales tax is easy to determine. Goods and Service Tax (GST) is 5% which is set by the federal government. On top of that, you will also need to pay Provincial Sales Tax (PST) which varies by province or territory. Look up your region’s PST rate to determine what you will pay. As for the additional dealership fees, you will need to inquire with your car dealer about the exact fees.
What is a down payment?
A down payment is a percentage of the car’s total price that is paid upfront as a part of the initial purchase. Usually, the down payment percentage is between 10% and 20%. The more you put down, the less you have to finance.
Down payments add up to a lot of money and aren’t a requirement, but it definitely goes a long way. By making a down payment, you often pay less interest, offset depreciation, get approved quicker and easier, access special deals and have lower monthly payments. The larger the down payment, the more you can take advantage of these benefits.
As mentioned, down payments aren’t a requirement. This is good to know because not everyone can afford the hundreds of dollars that make a down payment, nor do they have the time to save up for one. If a down payment isn’t right for you, consider getting a co-signer or working on boosting your credit score before applying.
Negotiating a new car price for the best deal
Obviously you want to get the best new car deals Canada has to offer, otherwise, you wouldn’t be here! The question becomes, how do you obtain a great deal? Fortunately, when negotiating a new car price, Canada has a lot of flexibility and options. Let’s take a moment to understand the business of selling new cars before we discuss getting a great deal.
Car dealer’s aim to sell new cars for the MSRP, but the MSRP isn’t what they paid to get the car. The car dealer actually paid a lower amount known as the factory invoice or invoice price. Of course, the car dealer wants to profit on the sale, which is the difference between the MSRP and the factory invoice price. Knowing what the car dealer paid for the new car you want is a great starting point for negotiating price and getting a great deal. Before heading to the dealership to negotiate, do some research on the price to the car dealer to ensure you’re prepared to discuss pricing options.
Another thing to consider when looking for a new car deal is the applicable factory rebates. Factory rebates further lower the price that car dealers pay. After you figure out the factory invoice price, deduct any factory rebates from that price to determine the true price the car dealer paid.
Now that you understand how the pricing and profiting of new car sales works, it’s time to negotiate with car dealers. Keep in mind that car dealers aren’t going to settle for breakeven. They’ll want to profit a little, but they’ll very likely settle for a price less than the MSRP. Car dealers usually aim for a 10% profit, that’s a good starting point for your negotiations. Negotiating is entirely possible, you just need to have the appropriate information to play your cards right!
What about manufacturer incentives?
Manufacturers offer incentives to car dealers that aren’t advertised or public information, as we saw above. On the other hand, manufacturers also offer incentives directly to the consumers which are heavily advertised. Manufacturers offer these incentives to consumers to stimulate sales. Examples of incentives you might see are low financing or leasing rates and cash rebates. These incentives can help you get a better deal, make sure to do some research so you know what manufacturer incentives are out there.
When is the best time to buy a new car in Canada?
When it comes to purchasing a new car, timing really is everything. Car dealerships adjust the pricing of their cars throughout the year for various reasons. November is the best time to get the cheapest new car in Canada. This is because car dealerships are making room for newer car models that are coming in over the next few months. Therefore, they’re trying to get rid of “older” inventory. Even though these cars are considered “older” they’re still brand new and have never been driven, you’re just taking advantage of the sales season in November!
In addition, at the end of the month, car dealers will be pressed to meet their monthly sales quota. Because of this, the salesperson will be more inclined to give you a deal to meet their quota on time.
Last but not least, keep an eye out for purchase incentives around special events such as Boxing Day or Black Friday. Car dealerships get into the spirit around these holidays just like other companies do!
Buying a new car is a lengthy process that requires patience and lots of consideration. Below are some additional tips and tricks to consider during the process.
- Reach out to multiple car dealerships to understand the competitive pricing first hand. There’s nothing wrong with getting multiple offers from different dealers!
- Before anything, consider your budget and what you can realistically afford. If car dealers aren’t working with your budget, be prepared to walk out and find a better deal. Getting pre-approved financing can help you stay on a budget as well.
Car dealers tend to get customers to focus on the monthly payment, not the actual car price, to close the deal. Stay focused on the total car price, other incentives can be discussed after the car price is agreed upon.
New cars versus used cars
If you’re determined to enjoy that brand new car smell, then go for it! But if you’re on a budget, the pre-owned car market is a cost-effective solution that you should explore. There are excellent savings to be made on used cars versus brand new cars.
Here are the advantages and disadvantages of new vs used cars.
New Car Advantages vs Disadvantages:
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Advantages |
Disadvantages |
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Brand new cars come with a warranty that helps with maintenance in the first few years. |
Depreciation is a killer with new cars, the minute you drive it off the lot it loses significant value. You will never get back the lost money from depreciation either. |
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You will benefit from the latest technology with new cars, such as ideal gas mileage, lower emissions and fancy entertainment systems. |
New cars are expensive. You can benefit from some of the manufacturer incentives and lower interest rates, but it doesn’t change the high price. |
Used Car Pros and Cons:
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Advantages |
Disadvantages |
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There’s no need to worry about a big depreciation hit with a used car. The previous owner took the hit for you! |
Lack of reliability and functionality is a concern with older used cars. You don’t really know how the car will perform until you buy it. |
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Used cars are more affordable, and just as reliable as a brand new car if well maintained |
Repairs and maintenance costs might be more frequent than with a brand new car. |
Can I get a new car with no credit or bad credit?
Getting a brand new car with no credit or bad credit is challenging, but not impossible. In order to get a brand new car, you may need to jump through some hoops such as paying higher interest, go with an alternative lender, put more money down upfront, work on your credit score to get better terms or get a co-signer with good credit.
Looking for a great deal?
Buying a car that is 2-3 years old can often result in the best deal. Typically a car of this age will still have low milage and will be in great condition, and often it will still be covered by the original warranty - so you don't have to worry about any repair costs in the near future.
The most important difference is that you will avoid the depreciation cost that comes with a new car.
The average depreciation rate for a new car in Canada is 20%, with another 15-20% each following year. So buy purchasing a car that is just 2 years old you could save over 30%!
If you are financing a car it is wise to get pre-approved for your car loan first. This is an easy way to figure out what your real budget is, and will allow you to shop with confidence and save time by only looking at cars you know you qualify for. There is nothing worse than spending weeks researching and finally finding a car you love only to get rejected in the finance office.
Canada Drives can get you pre-approved online for a quality used car today. It's free to apply and only takes a couple minutes to complete the online application. Get pre-approved here.
