How to Reduce the Costs of Car Ownership

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How to Reduce the Costs of Car Ownership



If you're done walking through cold weather, carrying heavy grocery bags home, you may start considering the idea of car ownership. Car ownership doesn't come without its dilemmas, the biggest being how to afford it. With that in mind, let's take a look at how car costs add up and how you can bring them back down with a few simple tips.


How much can you afford?

It’s vital to know how much of a car you can afford. Knowing this will serve as your guiding light for all the steps that follow before you purchase. To understand what you can afford, use the 20/4/10 ratio. The down payment should be at least 20% of the purchase price, limit your car loans to 4 years or less, and your monthly payments should be less than 10% of your after-tax take-home pay. You can stretch your loan to 5 years or your monthly payments to 15% to buy a nicer or newer car, but you should do your best to stick within these limits, otherwise known as your budget.


If your aim is to buy a $20,000 vehicle, then you need at least a $4,000 down payment. To accomplish your goal earlier, make sure you’re using a high-interest savings account to save up. The accrued interest can help you achieve your car buying goal sooner and easier. 


New vs. Used

According to Edmunds, a car depreciates by 9% as soon as you drive it off the lot. A brand-new car will lose value exponentially faster than a used one, whose value has already been hit by depreciation.


If you're looking to save even more money by buying a used car, be sure to check out the used markets available from or Review the average selling price compared to the mileage on the vehicle, any dents or scratches, and look up recalls or common failure points with the vehicle. It’s always a good idea when looking at a used car to purchase a vehicle history report from a provider like Carfax Canada. These reports will let you know if the vehicle has been in any accidents or has any outstanding liens (i.e. money still owed) and where it has been registered.


This may seem like a lot of work, but your research will save you money because you’ll know a good deal when you see one and can confidently react quicker.


Buying vs. Leasing

A lease may cost you more money in the long run, but monthly payments are substantially cheaper. With leasing, your monthly payments can be 30-40% lower than getting a car loan for the same term, according to AutoForm, and you only pay sales tax on what you actually use of the vehicle's value over the term of your lease, not the sales tax on the total cost of the car.


If you’re trying to maximize your savings, leasing may be the option for you. Just know, once the lease is up, you’ll have to return the car or buy it outright. The downside, you’ll have spent money with nothing to show for it at the end of the lease and you may even have to pay a higher premium in car insurance. The lessor may want a little more protection on the vehicle and could demand higher liability coverage. They may also stipulate that both comprehensive and collision coverage be added on. 


Car insurance

It may be odd to think about early on, but buying a new car with insurance in mind is a smart move. Outside of your lease payments, insurance could be the costliest part of your purchase.


The price you pay for car insurance is determined by many factors - some of which are beyond your control. Your best bet is to research how the make and model of a particular car will determine how much you'll pay for insurance. The Insurance Bureau of Canada (IBC) puts out an annual list of how cars stack up against each other when comparing insurance pricing. It’s a useful tool that all prospective car shoppers should be aware of.


Finally, when you’ve taken ownership, it’s essential to compare car insurance - each insurance provider will weigh risk factors like demographics and driving history a little differently, so be sure to find the one suitable for your unique situation.


Gas mileage

If you’re looking for ways to save on car ownership, gas should be high up on your list. Fortunately, Natural Resources Canada puts out a yearly guide on the most fuel-efficient vehicles. They also give us five ways to reduce the amount of gas we're using:


  • ●Accelerate gently
  • ●Maintain a steady speed
  • ●Anticipate traffic
  • ●Avoid high speeds
  • ●Coast to decelerate


They go on to say that at 120 km per hour, a vehicle uses about 20% more fuel than at 100 km per hour. Buying a gas efficient vehicle can save you hundreds of dollars a year. 


Car maintenance

There’s a general consensus around car ownership that if you’re spending more than $1,000 per year on maintenance, it may be time to shop for a new (used) car. With that in mind, I set aside $100 every month to a savings account covering routine maintenance from lube, oil, and filter changes to tire rotations when they come up. This account, and its regular deposits, builds a nice padding for any significant expenses that unexpectedly arise and also gives me a nice cushion for a down payment on the next car I buy.



Even if you have free parking at home (i.e. a driveway or a designated space at your building), you’re going to pay for parking at some point. Event parking, hospital parking, dinner out parking - the list goes on. If you have a driveway or designated space at home, your best move is to use - it allows you to rent out your space when you're not using it. This can help cover some, if not all, the costs of parking, which can be significant savings. 


In summary

Using this list, I took a 3-year-old Toyota Prius for its gas mileage savings (cost ~$75/month) and the average used price was around $20,000. I followed the 20/4/10 rule, and my monthly payments are $333. I used to search for Ontario car insurance quotes and was able to find a rate that fit my needs and my budget for around $175/month. If I'm putting away $100 in maintenance, then my total monthly cost is $683.


By renting out my parking spot in Toronto, I can earn around $125 per month, when I look at the Spaceishare map. I can get my total car payments under $600 with this simple trick. It makes buying a car that much more affordable.