Two people sit inside a car while a salesperson shows them features
Financial Literacy

First-time car buyer? Here’s what you should be budgeting for.

In another instalment of our ‘true cost of’ series, experts weigh in on what vehicle ownership entails, including maintenance and unexpected expenses

Two people sit inside a car while a salesperson shows them featuresOwning a vehicle costs more than just the monthly payment. Be sure to budget for all of the operating expenses, as well.

If improving your financial literacy is one of this year’s goals, CPA Canada can help sharpen those spending and saving habits. Past articles in this series explored the true cost of having a baby and becoming a pet parent. Here we’re leveraging the financial expertise of CPAs and other professionals to shed light on both the expected and unexpected costs of car ownership. 


When you start to shop for a car, there are a few initial decisions to make, including new or used and electric or gas powered. Another choice is whether to buy or lease. 

“If you talk about the difference, at the end of the day, purchasing is about ownership,” says CPA Ryan Hillstead, a partner with Grant Thornton LLP in Regina.

Regardless of whether you lease or own your next vehicle, or if it’s new or used, gas or electric, you’ll need to set aside a monthly budget for ongoing costs. 


One of the most obvious operating costs for a gas-powered vehicle is fuel. “Gasoline is quite an expensive and volatile commodity,” says Hillstead.

“Prices are obviously changing compared to a year ago,” says Kristine D’Arbelles, director, public affairs with the Canadian Automobile Association (CAA) in Ottawa. “Using compact cars as an example, driving 20,000-km a year, right now gas prices can add up to $2,000 a year on average.” 

There are online tools available, such as CAA’s Driving Cost Calculator, that can help you determine your likely monthly costs, based on the make and model of the car and mileage, including gas, depreciation, maintenance, license and registration, and insurance. 

Insurance is mandatory and can vary widely depending on the make and model of automobile and jurisdiction. Expect to pay at the very minimum $1,200 a year. If leasing a car, there may be additional coverage requirements, says Hillstead. “For example, my normal insurance policy doesn’t cover off certain things such as windshields. That might require a bit of extra insurance,” he says.

Add to that license and registration fees which average around $120 a year. 


“Maintenance can be all over the place,” says D’Arbelles. “The yearly average is about $1,000 for a compact car for scheduled maintenance such as oil changes, filter replacements, tire changes and wipers.”

Maintenance costs will be higher with a pre-owned vehicle, says David Robins, principal automotive analyst and head of Canadian Vehicle Valuations at Canadian Black Book in Mississauga. “With a used car, you are usually going to be higher up in the maintenance cycle, as some items, like brake pads and rotors, will be wearing out sooner and need replacement.”

If leasing a car, some of the maintenance costs may be covered under the lease agreement and you can ask for clarity about that at the time of purchase. While that may be the case, mileage penalties for going over the allotted allowance can be heavy, cautions CPA Lloyd Monteith of Monteith Enterprises Limited in London, Ont.

Hillstead notes that, more often than not, monthly lease payments will be less than other financing plans. “It’s a bit cheaper from a cash flow standpoint. But you don’t get the equity at the end.”

One thing to keep in mind with hybrid and electric vehicles (EVs) is that, while the sticker price may be higher, fuel and scheduled maintenance costs could be lower, given that they don’t require gas or oil and filter changes. “Instead of spending $2,000 a year on fuel, you’re probably spending less than a couple of hundred [dollars] for the electric bill, depending on where you are charging your car,” says D’Arbelles. 

Hillstead says he paid about a five-per-cent premium for his hybrid vehicle. “Like any accountant, I did my calculations to find the break-even point. It ended up being about four years.”   

Depending on the province, there may also be incentives that can mitigate the costs. Federal point of sale incentives for EVs, for example, range from $2,500 to $5,000. 

Buyers of electric vehicles should consider an EV charging station for the home, says Robins. Depending on what level of charging station you opt for, these run around $1,500 on average, plus installation. 


“The biggest cost in car ownership is actually depreciation,” says Robins. 

He notes that the vast majority of depreciation takes place over the first five years of ownership. “The next five years, the depreciation factor is far lower. That means the longer you can keep a car running on the road in good condition, the less you will end up spending.” 

Depending on your usage and location, parking fees can be anywhere from zero, if you live in a rural community, to a few hundred dollars a month in urban environments where parking is at a premium.

Also, be sure to factor in seasonal tire changes as well as interest on money borrowed, if you financed your vehicle purchase.   


Regardless of what type of vehicle and payment option you go with, remember to do as much research as you can and ask lots of questions. And, most importantly, plan for the unexpected and leave a bit of a cushion in your monthly budget. It’s the best way to ensure you drive happy.


Looking for more budgeting tips? Read CPA Canada’s helpful book, A Canadian’s guide to money-smart living

Plus, find out how much it costs to own a pet, and check out CPA Canada’s book, Babies: How to afford your bundle of joy, to see what expenses you can expect when you welcome a new baby.