What is the total cost of ownership for a car?

Are you tired of lugging groceries home and taking public transit? If you’re thinking about buying a car, you should first understand the total cost of owning one.

According to Statistics Canada, shelter is our largest household expense at 29.2%. And while the cost of food is making a close run for second place, it’s actually transportation – which accounts for almost 20% of household spending. The cost of car ownership can be more expensive than you might think so we thought we’d make it easy on you and break it all down.

Here’s a rough breakdown of the cost of ownership for a car:

• Depreciation: 24%
• Interest: 20%
• Gas: 19%
• Parking: 19%
• Insurance: 10%
• Maintenance: 8%

Let’s break this down so it all makes sense.

What is the cost of your car payment or lease?

According to data from Statistics Canada, the average selling price of a new car is currently $45,454 plus tax. Combined with data from J.D. Power, which shows the average APR on 84 and 96-month financing has risen to 5.67%, the average brand-new car costs somewhere around $667 per month to finance.

Assuming you’ve got at least some money for a down payment, your monthly cost will be lower. Paying enough upfront to cover the tax on an average new car brings the payment down to $590 per month. 

While recent supply chain issues have limited the amount you can save by buying used, there are still some deals to be had. The website cargurus.ca pegs the average price of a used car in Canada to be about 25% lower than buying a new one, at $34,254. Since interest rates on used car financing tend to be higher (around 10% - 12% for those with good credit), the payment on an average used car is likely to be around $520 per month.

Whether you go with the average used car or a cheaper than average new car, let’s assume $520 per month for this analysis. Over the first five years of the 8-year loan, an average of $217 of each payment is devoted to interest.

Note: The monthly payments to lease may be lower, but read our leasing vs. buying a car guide to determine the best course of action for your situation.

• Car finance payments: $520/month
• Interest: $217
• Principal: $303

What is the average cost of depreciation? 

While most people see their car payment as an expense, it’s actually only the interest portion of your payment that costs you money. The rest repays a loan and is used to build equity in your car, much like you build equity in your home by paying off your mortgage.

Unfortunately, a car is a depreciating asset, and depreciation actually costs more than your car payment – even while used car prices remain sky-high.

To investigate depreciation in 2022, let’s investigate a vehicle commonly available at the average new vehicle price of $45,000: a 2022 Dodge Ram 1500 Classic. At the time of writing, 119 are listed on Autotrader in Canada within five hundred dollars of $45,500.

After two years, 2020 comparable models are selling for a range of $33,000 to $40,000 – a depreciation of $5,500 to $12,500 or 12% to 27%.

Comparable five-year-old trucks range in asking price from $25,000 to $35,000 – a total depreciation over 5 years of up to $20,000 or 44%. Let’s split the difference and say your average new car will be worth $30,000 after 5 years – losing an average of $3,100 or 6.8% per year. That works out to $258 per month.

• Depreciation: $258/month

What is the average cost of gas per month?

As of 2019, research by the International Energy Agency reported the average fuel consumption of a new car sold in Canada to be 8.6 litres of gasoline equivalent per 100 km. 

While data on how far Canadians drive since the pandemic is hard to find, Natural Resources Canada uses an estimate of 20,000 km per year for its Fuel Consumption Guide. That works out to 385 km per week, which feels right for a daily round-trip commute of 40-50 km plus some driving to get groceries, visit your parents, or take your dog to the vet.

These estimates work out to 143 litres of fuel consumption per month. At the current national average gas price of $1.397/litre, your average new car will burn $200 per month in gas. Based on 2022’s peak price of $2.097/litre on average, you’re looking at $300 per month for fuel. 

The cost of fuel can be much lower if you drive an electric vehicle. Canada’s most popular all-electric vehicle, the Tesla Model 3 is officially rated to use 14.9 kWh per 100 km travelled. Whereas the cost of hydro in Canada ranges from roughly 8c to 19c per kWh, an electric car would cost only $20 to $47 to power.

• Gas cost: $200/month

What is the average cost of car maintenance?

Statistics Canada says the average Canadian household spends $81 per month to maintain and repair vehicles, but that figure can vary drastically depending on your car.

If you buy a new car, you won’t have to worry much about repairs while it’s under warranty – typically at least the first 3 years or 60,000 km. During that time, your primary maintenance expense will be oil changes, at a cost of about $80 every 3 months. There will also be occasional extra expenses like fluid changes and brake repairs.

Once your car is out of warranty, you should set aside at least $100 per month in maintenance costs. This allowance should cover you for routine lube, oil, and filter changes, tire rotations, and enough money saved for any unexpected repairs.

A rule of thumb: If you start to spend more than $1,000 per year on maintenance, it’s time to start thinking about buying a new (used) car. You should think about taking the maintenance money and investing it into a TFSA or high-interest savings account to afford your next vehicle purchase.

• Maintenance expense: $81/month

What about car administrative fees?

The cost of registering and licensing your car varies by province and ranges from $60 to $200 per year.

If you live in Ontario, you will need to pay a $32 licensing fee to register a new (or new-to-you) car, plus $59 if you require a license plate, but there is no fee for annual renewals as of March 2022. Ontario’s emission testing requirements for older cars were cancelled as of April 1, 2019.

• Car administrative fees: $10/month

How much do you spend on parking?

If you live outside of a major centre, parking may not be much of a consideration. But if you live or work in a big city, it can be a major expense.

There are no recent statistics on parking costs in Canada, but a quick spot check with parking company Impark shows that spaces go for a range of $200 to $300 per month in Vancouver and Montreal, $200 to $400 in Toronto, and $200 to $500 or more in Calgary.

Your own parking expense will vary, but for this analysis, we’ll estimate $200 per month, which could be particularly low or high depending on where you keep your car when you’re not using it.

• Parking cost: $200/month

What is the average cost of car insurance?

A recent report commissioned by the Insurance Corporation of British Columbia (ICBC), while flawed, gives good insight into how much Canadians pay for car insurance based on their driving history.

For example, the report shows that a 40-year-old woman who had been licensed since age 16 and drives a 2017 Ford Escape would pay an average of $1,049 for BC car insurance, $1,895 for Alberta car insurance, and $1,509 for Ontario car insurance. It also shows a woman ten years younger with a recent at-fault crash and a 2019 Ford F350 would pay $2,065 in BC, $4,839 in Alberta, and $3,501 in Ontario. The study excluded Quebec, which has the cheapest car insurance in Canada. 

Of all Canadians, Ontarians pay the highest insurance premiums. The average policy now costs $1,659 per year, according to the Ontario government. Rural Ontarians pay much less, averaging $1,282, while Toronto-area drivers pay much more, averaging $2,214.

A weighted average using data from the website CanadaDrives.ca reveals that Canadians can expect to pay approximately $1,337 per year for car insurance, or $111 per month, depending on where they live.

• Car insurance: $111/month

What is the total cost of ownership for a car?

Across Canada, the total cost of ownership for a car is approximately $1,077 per month when you include all your car payments, gas, maintenance, and auto insurance costs.

Interest	$217
Depreciation	$258
Gas	$200
Maintenance	$81
Car administrative fees	$10
Parking fees	$200
Car insurance	$111
GRAND TOTAL	$1,077/month (or $12,924 annually)

Experts recommend that your car expenses should not exceed 15% to 20% of your monthly take-home pay. To own the average car as outlined in this article, you would need to make at least $64,620 after tax or about $90,000 in annual salary. You can figure out your net take-home pay on talent.com or wealthbar.com.

I compared these results using the CAA driving costs calculator which gives rough estimates on many cars. Because this article puts together many averages, I used the averagest example I could think of: a 2022 Toyota Rav4. The Limited all-wheel drive trim sells for $42,990 plus tax and fees and consumes 8.4 litres of gas per 100 km. 

The CAA calculator estimated the total cost of the remarkably average Rav4 to be $10,771 per year – just over $2,000 less than our example estimate of $12,924.

When it came to the big categories, CAA estimated depreciation to be much higher at $325 per month. It also pegged insurance 26% higher, at $140 per month, and it estimated maintenance to be about 50% higher at $130 per month.

The calculator came up with a similar figure for fuel costs but didn’t appear to factor in the cost of registration or parking. While it did present an estimated monthly loan payment, the total cost of ownership didn’t appear to consider the cost of borrowing. It also cheerfully displayed the environmental cost of running the car: 18,812 kg of carbon emissions.

How to save money when you buy a car

• Consider buying a used car to reduce the hidden expense of depreciation
• Choose a car that’s smaller, more fuel efficient, and more affordable
• Consider using ride-sharing or public transportation instead of buying a second car
• Increase the size of your down payment to reduce monthly payments and reduce the cost of borrowing
• Finance your car over a shorter term to save money on interest, or over a longer term to reduce monthly payments
• Save on routine maintenance like oil changes using local mechanics rather than the dealership
• Compare car insurance quotes online to get the best deal for your needs
• Bundle your car and home insurance together for a potential 10-15% savings

You can also offset the cost of owning a car by using your car to make extra income. Rent out your vehicle using Turo car rental or start driving for Uber or Lyft to make some money with your car – just make sure you have ride-share insurance in place.

Is it worth the cost of owning a car?

As a real-life scenario, my wife and I bought a new-to-us used car last year. We saved up and had a car to trade in, so we pay $0 per month for our car in terms of financing or leasing. The car is paid off. We don’t use the car that much, so our gas costs are minimal. Our car is still under warranty, so we aren’t setting much aside for maintenance. She walks to work, and I take public transit. We’ve been loyal to our car insurance provider for over 10 years, have clean records, take advantage of “membership” discounts, and bundled it with our home insurance to save even more. Our annual cost of car ownership is just over $4,000 per year and about $350 per month. We justified the expense.

In a different case altogether, neighbourhood friends of ours, with three kids, decided to try living without a car. They rent a car for road trips, buy groceries online, and use Uber more often. They wanted to try it, and so far, they show no signs of stopping yet. Their combined salary allows them to afford a car, but just like you, owning a car is a choice.

To take a page from my parents, owning a car is a privilege, not a right. At Ratehub.ca, we aim to help you make smarter financial decisions. 

Also read

Ratehub.ca's insurance predictions for 2023

Inflation and your car insurance – what you need to know

15 ways to get cheap auto insurance