Wednesday, June 3, 2026
Learn how to avoid car debt in Canada with practical tips for saving, budgeting, and understanding the pros and cons of leasing vs. buying a car.
Cars are expensive, like REALLY expensive. A car is many Canadians' second-highest monthly cost, after rent or a mortgage. The cost hasn’t been helped in the past year with United States placing tariffs on auto parts, steel, and aluminium, which are used in making cars.
In response, the Canadian government placed counter tariffs on US-made steel and aluminum, as well as on a variety of American-made products that affect the auto sector as well. This means the cost of buying a car has gone up for Canadian consumers. With car prices climbing, it’s more important than ever to find ways to buy a vehicle without putting yourself into long-term debt.
The average new car in Canada costs $62,830 according to AutoTrader.ca’s 2026 Q1 price index.
That falls to $36,713 on average if you’re looking for a used car.
It should be noted that the average price includes all cars, including more pricey models. For example, a brand-new Honda Civic costs $39,283 on average, and a used one costs $17,888. These prices are each well below the average of both new and used cars.
Of course, that car isn't suitable for everyone. For example, the Ford F-150 pickup truck was the most searched vehicle in Canada and costs an average of $78,209 new and $43,905 used. That’s well above the average for both new and used vehicles.
Regardless of whether you’re looking to buy new or used, it’s likely going to cost you over $20,000 to get a vehicle of any sort.
Buying a car is one of the biggest financial decisions Canadians make, and very few people can pay $40,000 in cash for a new vehicle. That doesn’t mean there aren’t ways to reduce how much debt you take on when you buy a new vehicle.
Start planning years ahead if you can. Most vehicles last around a decade, so as you reach the five-year mark of your current car, you should begin to start thinking about saving for the next one.
It’s best to set a savings goal for your next vehicle. Even if you know you can’t save enough to buy a car outright, setting aside money will lower the size of your loan and make your monthly payments much more affordable.
One of the best ways to do this is to set up automated payments to a specific savings account. This way you don’t have to think about transferring it each month.
Setting aside only $100 a month for five years adds up to $6,000 you can put toward your next car. If you have extra money some months, from a bonus or tax refund, you could send a portion of it to this account to increase your savings faster.
Before you start car shopping, set a realistic budget that reflects both your needs and your financial situation. Many people look at cars first and then try to stretch their budget to fit what they want, but that’s how car debt can quickly get out of hand.
Think about what kind of car you actually need. Do you need a reliable commuter car, a family SUV, or a truck for work? We’ve seen how each of these options comes with very different costs. Buying more than you need can leave you with years of unnecessary debt.
When you create your budget, look beyond the sticker price. Factor in monthly insurance, fuel, maintenance, and registration. A car that seems affordable at first may strain your finances once all those ongoing costs are added in.
A good rule of thumb is to keep your car payment and related expenses under 15–20% of your monthly income. Sticking to this guideline helps you avoid overspending and gives you room to handle unexpected expenses.
If you already have a car to replace, selling it can significantly boost your down payment and lower how big a loan you’ll need on your next car.
Trading your car into the dealership is another option, as the dealership will give you credit toward your next purchase.
However, selling your car will often get you more money than the credit the dealership offers you. In many cases it’s the smarter financial move. Trading it in to the dealership is, of course, easier, though.
Using emergency funds to help pay for a car can be tempting. You have all this money saved already, so why not?
Generally getting a new car doesn’t qualify as an emergency. It’s something you’ve likely been thinking about for quite a while. For this reason it’s recommended that you avoid using any emergency savings for buying a new vehicle.
Your emergency fund can help you pay for car repairs that come up unexpectedly, but you should save for getting a new car separately.
What if instead of buying, you chose to lease your next car? Would it be cheaper?
When you lease, you essentially rent the vehicle for 2-4 years and pay only for the depreciation during that period, not the car's full value.
Lease payments are typically cheaper than loan payments for the same vehicle. A $50,000 SUV might cost $800 monthly to buy but only $500 to lease.
Leasing also eliminates major repair costs since most lease terms fall within the manufacturer's warranty period. You get to drive a newer, more reliable vehicle without worrying about expensive breakdowns or maintenance issues.
While cheaper per month, there are significant drawbacks to leasing.
Leasing creates a permanent car payment cycle. You never get to actually own the car. When you choose to buy a car, while it can cost per month, those payments eventually end. Leasing a car can be a never-ending treadmill of car payments.
Buying also allows you to sell the car if you choose to. You can’t sell a car you lease.
Many lease agreements include strict mileage limits, which set a maximum number of kilometres you can drive each year. If you exceed that limit, you’ll face costly penalties when you return the vehicle.
So, if you want to plan a long road trip, a leased car likely isn’t for you.
Leasing works for people who want newer cars, never drive too far at once, and prefer consistent monthly expenses. But it's not truly "saving money"; it's trading ownership for lower payments while maintaining perpetual debt.
If you are struggling to keep up with car payments, there are solutions.
Speaking with a BDO Licensed Insolvency Trustee can help you explore all your options and find the best way forward.
Our Trustees understand that anyone can face financial challenges, and they provide support without judgment.
Our Trustees can review your full financial situation, to help you find solutions that allow you to become debt-free. They can show you how a consumer proposal can lower your payments and allow you to keep your car as well.
Reaching out for help is the first step toward regaining control and reducing the stress of debt.
Wednesday, June 3, 2026
Learn how to avoid car debt in Canada with practical tips for saving, budgeting, and understanding the pros and cons of leasing vs. buying a car.
