Buying your first car

Buying your first car is exciting—but it can also be one of the biggest financial decisions you've made so far. It's easy to focus on the fun parts: the colour, features, technology, horsepower and that first drive home. But before you choose a vehicle, it's important to understand what you can actually afford, how you'll finance it and what ongoing costs you'll need to budget for. The right car isn't necessarily the newest, fastest or most feature-packed option. It's the vehicle that meets your needs without putting unnecessary pressure on your finances.

If you're planning to buy your first car, this guide will help you understand:

• How much car you can afford
• What costs to include in your car budget
• How car loans work
• The difference between buying, financing and leasing
• How your credit can affect vehicle financing
• Whether you should buy new or used
• What to look for during a test drive
• What to know before signing a vehicle contract
• How to prepare for insurance and other ownership costs

1. Start with your actual car budget

Before visiting a dealership or browsing vehicle listings, determine how much you can comfortably afford. The purchase price is only one part of the cost of owning a car.

Your budget should also account for:

• Car payments
• Insurance
• Fuel or charging
• Maintenance
• Repairs
• Tires
• Parking
• Registration and licensing
• Winter tires and other seasonal expenses
• Financing interest

A vehicle that looks affordable based on its monthly payment may cost significantly more once all of these expenses are included.

Consider the 20-4-10 rule

One useful budgeting guideline is the 20-4-10 rule:

• Aim for a 20% down payment
• Consider a four-year loan term
• Keep total vehicle expenses around 10% of your income

This is a guideline rather than a rule that works for everyone. Your ideal budget will depend on your income, existing debt, savings, insurance costs and other financial priorities. YNCU currently uses the 20-4-10 guideline as one way to help members think about vehicle affordability.

The most important question is:

Can I comfortably afford this vehicle while still saving for other financial goals?

If the answer is no, consider a less expensive vehicle, a larger down payment or waiting until your financial position improves.

2. Save for a down payment

A down payment reduces the amount you need to borrow. For example, if you purchase a $30,000 vehicle and put $6,000 down, you would need to finance $24,000 before applicable taxes, fees and other costs. A larger down payment can also reduce the amount of interest you pay over the life of a loan.

Before making a large down payment, however, make sure you're not using money you need for an emergency fund or other essential expenses. It's better to have a manageable car payment and enough savings to handle an unexpected repair or financial emergency than to put every dollar into the vehicle.

3. Understand your financing options

When purchasing a vehicle, you'll generally encounter three main approaches:

Buying with cash

If you have enough savings to purchase a vehicle outright, you won't pay interest on a car loan. However, using a large portion of your savings to buy a car may leave you with less money available for emergencies and other financial goals.

Financing with a car loan

A vehicle loan allows you to borrow money to purchase the car and repay the lender over time, usually with interest.

Your total borrowing cost depends on factors such as:

• Amount borrowed
• Interest rate
• Loan term
• Payment frequency
• Down payment
• Your credit history and overall financial circumstances

Don't focus only on the monthly payment. A longer loan term can reduce your monthly payment while increasing the amount of interest you pay over time. Compare the total cost of borrowing, not just the payment amount.

Leasing

Leasing is different from purchasing a vehicle with a traditional loan. Instead of borrowing money to own the vehicle outright, you make payments for the use of the vehicle during a specified lease term, subject to the terms of the agreement. Leases can have different requirements and restrictions, including mileage limits and potential charges at the end of the lease. If you're considering leasing, understand the full agreement—including what happens when the lease ends—before signing.

4. Shop around for your car loan

Don't assume the financing offered at the dealership is automatically your best option. Compare financing from multiple sources, including banks, credit unions and manufacturer financing programs.

Look at:

• Interest rate
• Annual percentage rate (where provided)
• Loan term
• Payment frequency
• Total interest
• Total amount you'll repay
• Prepayment options
• Any fees
• Conditions attached to the financing

Getting financing arranged before you start shopping can also give you a clearer idea of your budget.

Why consider a credit union?

Credit unions can be another option when comparing vehicle financing. YNCU currently offers vehicle financing for cars, trucks, SUVs and electric vehicles, with flexible payment schedules and terms of up to eight years on select vehicles. Current advertised rates are available on YNCU's vehicle-loan page and can change over time.

Explore YNCU vehicle loans and current rates

Online discussions also show that some Canadian consumers have specifically considered YNCU when comparing vehicle financing, particularly for EVs. That doesn't mean YNCU will have the lowest rate for every borrower or every vehicle. Your rate and approval depend on your circumstances, and the best financing option is the one that provides a competitive overall cost and terms that fit your budget.

5. Understand how your credit can affect financing

Your credit history can be an important factor when applying for vehicle financing. Before applying, review your credit report and make sure the information is accurate. If your credit history isn't where you'd like it to be, don't assume that buying a car is impossible. Speak with a financial professional about your options and understand how different financing scenarios could affect your total cost. Most importantly, don't stretch your budget simply to qualify for a more expensive vehicle.

A lender may approve you for a particular amount, but approval doesn't necessarily mean you should spend that much. Your personal budget should determine your price range.

6. Decide what you actually need from your vehicle

Before falling in love with a particular make or model, think about how you'll use the vehicle.

Ask yourself:

• How far will I drive each day?
• Will I primarily commute to work or school?
• Do I regularly travel long distances?
• Do I need room for passengers?
• Do I transport equipment, sports gear or other large items?
• Will I drive in snow and winter conditions?
• Is fuel efficiency important?
• Would an electric vehicle work for my lifestyle?
• How important are safety and driver-assistance features?
• Do I need towing capacity?
• How long do I expect to keep the vehicle?

Your answers can help narrow your search. For example, someone with a long daily commute may prioritize fuel efficiency, reliability and comfort. Someone who regularly carries equipment may prioritize cargo space. Someone living in an area with challenging winter conditions may place greater importance on winter tires and all-weather capability. Start with your needs, then look at features.

7. New vs. used: which is better?

There's no universal answer.

Buying a new car

New vehicles may offer:

• The latest safety and technology features
• Full manufacturer warranty coverage
• Greater choice of colours and configurations
• No previous ownership or driving history
• Potentially improved fuel efficiency

The downside is that new vehicles generally cost more, and depreciation can be significant.

Buying a used car

Used vehicles can provide an opportunity to spend less on the purchase price.

However, you'll want to pay close attention to:

• Mileage
• Vehicle history
• Maintenance records
• Accident history
• Previous use
• Remaining warranty
• Expected repair costs
• Tire and brake condition

A lower purchase price doesn't necessarily mean a lower total cost of ownership. A very inexpensive vehicle that requires frequent repairs may ultimately cost more than a somewhat more expensive, well-maintained vehicle.

Which should a first-time buyer choose?

Choose the option that best fits your total budget, needs and financial goals. Don't buy new simply because you're worried about used cars, and don't buy used simply because the sticker price is lower. Research the specific vehicle you're considering.

8. Research the vehicle before you buy

Once you've narrowed your search to a few vehicles, investigate them carefully.

Look for information about:

• Reliability
• Fuel economy
• Insurance costs
• Maintenance costs
• Common mechanical problems
• Safety ratings
• Recalls
• Resale value
• Warranty coverage

For a used vehicle, request a vehicle history report and have the vehicle independently inspected by a qualified mechanic. Ontario also recommends checking a vehicle's history and recall information before purchasing. When buying from a registered dealer, Ontario's Motor Vehicle Dealers Act provides specific consumer protections. One important point for Ontario buyers: there is generally no cooling-off period for a motor vehicle contract, so don't sign until you understand what you're agreeing to.

9. Take a proper test drive

A test drive isn't just about seeing whether the car feels good.

Pay attention to:

• Visibility
• Seating position
• Comfort
• Braking
• Steering
• Acceleration
• Noise
• Ride quality
• Technology
• Cargo space
• Ease of getting in and out
• Rear-seat space, if applicable

If you're buying a used vehicle, an independent mechanic's inspection can be particularly valuable. Don't feel pressured to make a decision immediately after a test drive. Take time to compare your options.

10. Negotiate the vehicle price—not just the monthly payment

One of the easiest ways to lose sight of the real cost of a vehicle is to focus entirely on the monthly payment. A salesperson may be able to make a vehicle appear more affordable by extending the financing term. Instead, ask for the full numbers:

Vehicle price + taxes and fees + financing cost = total cost

Compare the total amount you'll pay. If you're trading in another vehicle, make sure you understand its trade-in value and whether any remaining loan balance is being incorporated into the new financing. And don't be afraid to walk away if the deal doesn't fit your budget.

11. Read the contract before signing

This is one of the most important steps in the entire process.

Before signing, make sure you understand:

• Vehicle purchase price
• Taxes and fees
• Down payment
• Trade-in value
• Interest rate
• Loan amount
• Loan term
• Payment frequency
• Total cost of borrowing
• Warranty coverage
• Optional products
• Cancellation or return terms
• Any other charges

Ask questions about anything you don't understand.

In Ontario, vehicle contracts can be binding, so it's important to understand the agreement before signing.

12. Don't forget insurance and ongoing costs

Before you drive your new vehicle, you'll need appropriate insurance. In Ontario, vehicle insurance is mandatory, and you need proof of insurance to register your vehicle.

Your insurance premium can vary considerably depending on factors such as:

• Your age and driving history
• Where you live
• Your vehicle
• How you use the vehicle
• Your coverage
• Your insurance provider

Get insurance quotes before buying the car, not after. This can prevent an unpleasant surprise when you discover that the vehicle you chose costs significantly more to insure than another option. Also remember to budget for fuel or charging, maintenance, tires, repairs, parking and registration.

13. Consider an electric vehicle

If you're considering an EV, compare the total cost of ownership rather than looking only at the purchase price.

Consider:

• Purchase price
• Financing
• Charging costs
• Home charging setup
• Public charging
• Insurance
• Maintenance
• Range
• Battery warranty
• Your typical driving distance

YNCU offers dedicated electric-vehicle financing, with current rates and terms available on its vehicle-loan page.

See YNCU's current EV loan options

Because EV financing promotions and rates can change, check the current offer before making a decision.

A first-car buying checklist

Before purchasing your first vehicle, make sure you've:

• Set a realistic total car budget
• Saved an appropriate down payment
• Checked your credit
• Compared financing options
• Compared interest rates and total borrowing costs
• Researched insurance costs
• Compared new and used vehicles
• Researched the specific vehicle
• Checked recalls and vehicle history
• Test-driven the vehicle
• Had a used vehicle independently inspected
• Negotiated the purchase price
• Read the complete contract
• Confirmed insurance before driving
• Budgeted for maintenance, repairs and other ongoing costs

Frequently asked questions about buying your first car

How much should I spend on my first car?

There's no universal dollar amount. Start with your income, existing expenses, debt and savings goals. Consider both the purchase price and ongoing costs such as insurance, fuel, maintenance and repairs. The 20-4-10 guideline can be a useful starting point, but your personal circumstances should determine your final budget.

Is it better to buy a new or used car?

Neither is automatically better. Used vehicles generally have a lower purchase price, while new vehicles may offer newer technology, warranty coverage and potentially improved efficiency. Compare the total cost of ownership and choose the option that fits your budget and needs.

What credit score do I need for a car loan?

There isn't one universal credit score requirement for every vehicle loan. Lenders consider your overall financial circumstances, including credit history, income, existing debt and the loan you're requesting. A stronger credit profile may help you qualify for more competitive financing, but speak with a lender about your specific situation.

Should I get pre-approved for a car loan before shopping?

Getting financing information before shopping can help you establish a realistic price range and make it easier to compare dealer financing with other options. However, compare the full cost of each financing offer rather than focusing only on the monthly payment.

Is a longer car loan term better?

A longer loan term can reduce the size of your regular payments, but you'll generally pay interest for a longer period. Compare the total cost of borrowing before choosing a longer term.

Should I put 20% down on a car?

A 20% down payment is a common budgeting guideline and can reduce the amount you need to borrow. However, don't use money needed for emergencies or other essential goals simply to reach a particular down-payment percentage.

How can I get the best car loan rate?

Compare financing offers from multiple lenders, including banks, credit unions and manufacturer financing programs. Consider the interest rate, loan term, fees, payment schedule and total cost of borrowing. Your credit history and financial circumstances can also affect the rate you're offered.

Can I pay off a YNCU car loan early?

YNCU says that, in most cases, members can pay off a car loan early and make additional payments toward the remaining balance. Check the current loan agreement and terms for your specific financing.

Ready to buy your first car?

Buying your first vehicle doesn't have to be overwhelming. Start by determining what you can comfortably afford, then research the vehicle, compare financing options and understand all of the costs involved before signing. A little preparation can help you avoid an expensive mistake and make your first car purchase a positive step toward your financial goals. If you're considering financing your next vehicle, YNCU can help you explore your options.

Explore YNCU vehicle loans and current rates

This article is for general educational purposes and does not constitute financial, lending, insurance or legal advice. Loan rates, terms, eligibility requirements and vehicle financing offers can change. Speak with YNCU or another qualified financial professional about your individual circumstances.