How to Buy a Car in Ontario: A Step-by-Step Guide

By Arthur Dubois | Published on 29 Jun 2023

a white car on a street
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    So, you want to buy a car in Ontario? Whether you’re a first-time buyer or upgrading your current ride, don’t let the process overwhelm you. Relax, we’ve got you covered. This step-by-step guide will take you through everything you need to know to make smart and informed decisions.

    Understanding the car-buying process in Ontario

    Before you start browsing listings or visiting dealerships, let’s quickly look at how the car-buying process works in Ontario. This will help you avoid common pitfalls as you work towards your purchase.

    This is a significant investment, so do your research to wisely choose your vehicle, its source and your financing. Ontario has a robust car market, with plenty of options available to buyers. To get started, you can use online resources to research different models, features and price points. Obviously, you should take some time to read reviews and compare prices to find the right car for your needs.

    Setting a Budget

    First, begin your car-buying journey by creating a budget. You’ll need to determine how much money you can afford for a down payment and monthly installments. At this point, be realistic about how much you can afford to spend on a car. Remember, you’ll have additional costs beyond the sticker price, such as insurance, gas, maintenance and driver’s licence.

    In Ontario, you must insure your car in case you end up in a collision with costly consequences. On average, Ontario drivers pay $1,656 per year or $138 per month. However, annual car insurance premiums can range from $1,300 to $2,000. Typically, drivers under 25 and seniors face higher fees since  statistically they have more collisions.

    Unless you invest in an electric vehicle, you had better plan for the cost to fuel up. GasBuddy.com calculates that, on average, Ontario drivers cough up $2,098 for gas. The larger the vehicle, the bigger the bill. This ranks as the second-highest expense for car owners, after depreciation. To estimate gas prices for any car you consider, try the CAA car-cost calculator.

    To maintain a driver’s licence in Ontario costs $90 for a five-year renewal. However, if you need to secure a licence, you face a string of expenses that add up to $159.75. If you don’t get your G2 licence on the first try, you pay $53.75 for each subsequent attempt.

    Then, of course, you can plan to spend $800 per year on maintenance, plus the interest you pay on any loan. And when you buy a car in Ontario, you pay an additional 13 percent in harmonized sales tax. When setting your budget, factor in these additional costs to ensure you can afford the car in the long run.

    New vs. Used Cars

    Should you buy a new car or a pre-owned one? Ultimately, each choice presents unique advantages and disadvantages. New cars command a higher initial cost, yet they usually come with a comprehensive warranty and require fewer immediate repairs. However, used cars, despite potentially requiring more maintenance over time, typically present a more economical upfront choice.

    Depreciation has significant implications in this comparison. A new car can lose its value rapidly in the first few years, especially in the initial year of ownership. A new vehicle depreciates between nine and 11 percent the moment it leaves the dealership. Thus, with a $30,000 new car, you essentially forfeit around $3,000 on your inaugural drive home.

    After the first year, new cars devalue about 20 percent from the original purchase price. This trend continues at a rate of 15 to 25 percent per year until the five-year mark. Overall, this results in an overall depreciation of about 60 percent of the initial value within the first five years. 

    On the contrary, opting for a used car can circumvent a significant portion of this rapid depreciation. After all, the car has already dropped in value. Moreover, car insurance for a used car generally costs less than a new one, thereby adding to the potential savings. However, it’s important to note that used car loans tend to carry higher interest rates.

    Leasing vs. Buying

    As another option, you could lease a car for a monthly fee over a specific period of time. This can get you on the road if you cannot afford the upfront cost of a new or used car.

    However, leasing a car means you won’t own it at the end of the contract’s term. You’ll also face limits on how many miles you can drive each year, owing additional fees if you go over.

    Buying a car in Ontario, on the other hand, means you’ll own it outright once you pay off the loan. You’ll also have the freedom to drive as many miles as you want.

    Researching Your Options

    Naturally, you’ll begin your search for a car with some research. Luckily, you’ll have plenty of online resources available to help you find the right car for your needs. Take some time to research different models, features and price points. This will help you establish a budget and narrow down your options.

    When researching your options, consider your needs and preferences. Do you want a car that is fuel-efficient, spacious with advanced safety features? Do you need a car that can handle rough terrain or inclement weather? By answering these questions, you can narrow down your search parameters to meet your specific needs.

    As you start to envision the car you want, you can turn to some online guides for more details. The Kelley Blue Book searches makes and models, even ones near you, to compare prices. Once you put in your postal code and choose specific features, it generates prices and ranks fuel economy.

    If you prefer to dive into a book on the topic, pick up a copy of Car Buying Guide 2022 (the latest edition available). It takes an in-depth look at different makes and models for you to compare. As a bonus, author Wilton J. Snowden shares negotiating tips for men, women and first-time buyers. 

    To make sure you factor in all the costs associated with your purchase, check the Ontario Motor Vehicle Industry Council’s portal. It enforces the Motor Vehicle Dealers Act on behalf of the Ministry of Government and Consumer Services to protect consumers.

    Preparing Necessary Documents

    Once you’ve done your research and established a budget, it’s time to get your paperwork in order. In Ontario, you’ll need to prepare several documents before you can purchase a car.

    Obtaining a Driver’s License

    If you’re new to driving or Ontario, you’ll need to obtain a driver’s license before you can purchase a car. This process can take several weeks, so start early. To obtain a driver’s license in Ontario, you’ll need to pass a written knowledge test, a vision test and a road test. You’ll also need to provide identification and proof of residency. 

    After you move to Ontario, you can use a valid licence from another jurisdiction for 60 days. Afterward, you need to acquire an Ontario driver’s licence. You can exchange your driver’s licence if you relocate from anywhere in Canada or the United States. These countries also have agreements to integrate drivers into Ontario’s system: Australia, Austria, Belgium, France, Germany, Great Britain, the Isle of Man, Japan, South Korea, New Zealand, Northern Ireland, Republic of Ireland, Switzerland and Taiwan.

    If you arrive from elsewhere, you may need to requalify. To begin this process, you’ll need to pay $106 and provide these documents at a DriveTest or ServiceOntario centre: 

    • your identification
    • previous licence
    • supporting documentation
    • an application for an Ontario licence 

    If you need to take a G2 road test, you must pay an additional $53.75 fee. Once you’ve obtained your driver’s license, you can start shopping for your dream car.

    Get your financial documents ready

    Now, you may feel ready to gather your income-related records together before talking with potential lenders. Depending on your situation, you could borrow from the car dealership or a financial institution. 

    If you plan to buy or lease, get prepared by having:

    • Government-issued identification
    • Proof of Ontario residency
    • Proof of income and employment
    • Car insurance
    • Social insurance number

    Of course, your borrowing history will play a big role in the next step. Therefore, always check your credit score before the dealership does. You can easily check your credit score for free in Canada.

    Your credit score assigns a number to your reliability of paying your bills fully and on time. Credit scores range between 300 and 900 the highest with 650 as the average score. Anything above this point will help you qualify for any type of car loan. 

    However, if you’ve had a sketchy past with debt, you can still bolster your credit rating before applying to buy a car in Ontario. You can always co-sign with a person with stronger credit or build up a reputation by using a secured credit card. 

    Obviously, a lower credit score  makes it much harder and more expensive to buy a car in Ontario. After all, the lender may see you as more of a risk. As a result, they typically ask for consent to check your score as part of a loan application. While insurance companies use the credit score to price car insurance premiums in many provinces, sellers cannot do this in Ontario.

    Finding the Right Car Dealership

    Now that you have all your paperwork in order, it’s time to start looking for a dealership. However, you will have many different dealerships to choose from. Yet, with a little bit of research and preparation, you can find the perfect car lot to meet your needs.

    Buying online or from a dealership?

    While 30 percent of Canadians research car purchases online, only six percent actually make their purchases there. However, a CARFAX Canada survey of 2,000 drivers showed that eight percent will do so for their next car.

    That means that more than 90 percent of drivers still go to traditional dealerships to look at and test drive cars. With such an expensive purchase, it makes sense to get a sense of how a car rides before you buy. 

    However, more people are trying out cars in person, then opting to buy online from platforms like Clutch. Clutch opened in 2017, calling itself Canada’s first online car retailer. The company belongs to the Ontario Motor Vehicle Industry Council (OMVIC) and sells more than 1,000 cars a year. Meanwhile, Tesla has been selling more than 1,000 cars a year in Canada since 2019.

    Picking a dealership in Ontario

    To land at a professional dealership in Ontario, start by reading online reviews and recommendations. Look for dealerships with positive reviews and a good reputation in the community. The most common sites, like Google, DealerRater and Yelp, have so many reviews that it makes it hard to skew them.

    When reading online reviews, take everything with a grain of salt. Some reviews may be biased or fake, so check different sources for a well-rounded understanding of a dealership’s stature.

    You can also ask friends and family for recommendations, as word of mouth serves as a powerful search tool. For more verification, refer to listings within the Ontario Better Business Bureau and make sure it is registered with OMVIC

    Comparing Prices and Inventory

    You should also compare prices and inventory across different dealerships. Don’t hold back from negotiating prices or asking for additional features or services. After all, you’re making a significant investment.

    When comparing prices, take into account any additional fees or charges that may get added on top of the sticker price. These can include taxes, registration fees and dealership fees.

    Also, consider the dealership’s inventory. Do they have the make and model you want? Do they offer a variety of options and packages? These important factors help you choose a dealership worth your time.

    Negotiating with Dealerships

    Speaking of negotiation, come prepared before you start bargaining with a salesperson. Do your research on pricing and features and arm yourself with a list of questions and concerns.

    When negotiating, be firm but respectful. Remember that the dealership also aims to make a profit, but that doesn’t mean you can’t find a fair deal. Walk in ready to compromise to find a solution that works for both parties.

    Finally, read the fine print before signing any contracts or agreements. Make sure you understand all the terms and conditions, including any warranties or guarantees. If you feel a salesperson has tried to dupe you, you can report their actions at this consumer complaints portal.

    By following these tips, you can find the right dealership for your needs and make a confident and informed purchase.

    Test Driving and Inspecting the Car

    Once you’ve found a dealership and a car that suits you, you get to enjoy a test drive and inspect the vehicle. This will help you ensure that it runs well and meets your needs.

    Test driving a car gives you the opportunity to get a feel for the vehicle and see if it’s the right fit for you. Above all, always schedule a test drive with the dealership before making a final decision.

    Scheduling a Test Drive

    Before you take a test drive, ask any questions you may have about the vehicle’s features, history or condition. This will help you ensure that you’re making an informed decision with all the information in front of you.

    It’s also a good idea to research the car before you go in for a test drive. This will help you have a better understanding of the car’s features and what to expect while on the road.

    Evaluating the Car’s Condition

    During your test drive, pay close attention to how the car handles, accelerates and brakes. Further, test out all the features, including the air conditioning, radio and navigation if applicable. Take note of any unusual sounds or vibrations, as these could signal a mechanical problem.

    Finally, evaluate the car’s overall condition. Check the exterior for any dents, scratches or rust. Likewise, inspect the interior for any tears, stains or odors. These issues don’t affect the car’s performance, but they can impact its value and your overall satisfaction with the purchase.

    Hiring a Mechanic for Inspection

    If you’re considering a used model, you can hire a mechanic to inspect the vehicle before you buy a car in Ontario. They can identify any potential issues or repairs that may be necessary. A mechanic can evaluate the car’s engine, transmission, brakes and other components to ensure they work well.

    These inspections typically take one hour and cost between $100 and $150. If you don’t know where to find a trustworthy mechanic, check with Car Help Canada or the Automobile Protection Association for pre-screened garages. Like OMVIC, these consumer protection groups encourage consumers to conduct a pre-purchase inspection before a purchase. 

    Any inspection station in Ontario, licensed by the Ministry of Transportation, will give you a safety certificate. That way, you can prove the vehicle meets the minimum safety standards. While this may seem like an additional expense, it can save you money in the long run. They can catch any problems early on, before they turn into expensive repairs down the road.

    Overall, test driving and inspecting a car mark important steps in the car-buying process. They can help you ensure that you get a car that meets your needs and operates in good condition.

    Securing Financing and Payment Options

    Assuming everything checks out with the car, next, you’ll set out to secure financing and set up payment options.

    Of course, you can always go through a bank or credit union. They may offer lower interest rates and more favourable loan terms than a dealership. However, shop around and compare rates from different lenders to find the best deal.

    If you don’t pay upfront in cash, you’ll need to apply for a car loan. Certainly, prepare to provide financial information, such as your income, expenses and credit score. Your credit score can have a big impact on the interest rate, so check your credit score before applying.

    Applying for a Car Loan

    When applying for a car loan, keep your budget in mind. Determine how much you can afford to pay each month and factor in additional expenses, such as insurance and maintenance.

    Next, consider the length of the loan. While a longer loan term may result in lower monthly payments, it can also mean paying more in interest over the life of the loan. Typically, you’ll need a monthly income of $1,200 to $1,800 or more to qualify for most car loans. 

    Shop around to find the best interest rates and terms. Don’t shy away from negotiating with lenders to try to get a better deal.

    Understanding Interest Rates and Loan Terms

    No matter what financing option you choose, always read the fine print and understand the interest rates and loan terms.

    Interest rates can vary based on your credit score and the length of the loan. A higher interest rate can mean paying significantly more over the lifespan of the loan.

    Loan terms can also vary, with some loans requiring a larger down payment or shorter repayment period. Make sure you understand all of these terms before signing any paperwork.

    Closing the Deal and Taking Ownership

    Assuming everything has gone according to plan, you can close the deal and take ownership of your new car. What an exciting time! However, stay focused and make sure everything is in order before driving off the lot.

    Reviewing the Sales Contract

    The first step in closing the deal is to review the sales contract carefully. This document outlines the terms and conditions of the sale, including the purchase price, financing terms, and any warranties or guarantees. Take the time to read through the contract thoroughly, and don’t hesitate to ask questions if you’re unsure about anything. 

    Ontario laws don’t provide a cooling-off period for motor vehicle contracts, so what you sign will be binding. It’s important to make sure you understand all the terms of the sale before signing the contract. 

    In addition to the purchase price, the sales contract may include other fees and charges, such as a documentation fee or a vehicle registration fee. Make sure you understand what these fees are for and how much they will cost.

    Transferring Ownership

    Once you’ve reviewed and signed the sales contract, the dealership will transfer ownership of the vehicle to you. This involves filling out paperwork and paying a transfer fee of $32. This fee covers the cost of transferring the ownership of the vehicle from the seller to the buyer.

    When transferring ownership, you’ll need to provide proof of insurance and a valid driver’s license. You’ll also need to provide the vehicle identification number (VIN) and the odometer reading. The VIN is a unique 17-digit code that identifies the vehicle, while the odometer reading shows how many kilometers the vehicle has been driven.

    Getting car insurance for your new vehicle

    Before you can register a vehicle in Ontario, you’ll need to prove that you’ve already bought insurance. Shop around to compare insurance providers that offer the coverage you need at a reasonable price. Legally, you must carry $200,000 of third-party liability in the event of a serious crash.

    When shopping for insurance, consider the level of coverage you need. Just like when you compare credit cards, ponder the features of your policy that you truly need. These questions may pop to the top of your mind:

    • What coverage is mandatory and what’s optional?
    • Do I need additional coverage options, such as collision or comprehensive coverage?
    • Do I need more coverage for a classic car, motorcycle or seasonal vehicle?
    • Should I bundle my car insurance with home or business coverage?

    Overall, these tips can save you money and make sure you have adequate coverage. 

    Registering the Vehicle

    Finally, you’ll need to register the vehicle at a ServiceOntario centre . This involves filling out more paperwork and paying a registration fee. The registration fee covers the cost of registering the vehicle and obtaining license plates.

    At the same time, you will get a vehicle permit, licence plate and perhaps a licence plate sticker. Subsequently, you will need to renew your licence plate or sticker each year or every second year.

    To register a vehicle, you will require:

    • your Ontario driver’s licence or your registrant identification number (RIN)
    • government-issued proof of identity 
    • a completed used vehicle information package 
    • proof of purchase, like a receipt or bill of sale
    • proof of insurance 
    • the original vehicle permit from seller with completed transfer portion
    • the plate portion of the permit

    Once you’ve completed this step, you’ll receive license plates and a registration certificate. Always keep these documents in a safe place, as you’ll need them to prove that you own the vehicle.

    Now, you’ve closed the deal and taken ownership of your new car. Celebrate by hitting the road and enjoying your new ride!

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    Arthur Dubois is a personal finance writer at Hardbacon. Since relocating to Canada, he has successfully built his credit score from scratch and begun investing in the stock market. In addition to his work at Hardbacon, Arthur has contributed to Metro newspaper and several other publications