Buying your first car in Canada: Insider tips from a salesperson

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Buying a car is a major financial decision, possibly the biggest purchase you’ll ever make besides buying a home. Monthly housing costs should not take up more than 32% of your gross household income. Your car budget, while much smaller, could still be as high as 10%. And with Canada’s increasingly higher cost of living, including rising prices for both used and new vehicles, shopping for a car today has some new challenges.

I’ve seen this up close. For half a year in 2021, I sold cars at a dealership in Toronto. What started off as a summer job between college semesters became a lucrative hustle that continued into my next school year as a journalism student. My customers were primarily newcomers to Canada and budget-conscious young individuals and couples. Like my colleagues, I used tried-and-true dealership sales tactics to sell more cars and maximize profits.

I was pretty good at it, too. Three months after getting my license to sell cars, I was named top salesperson for the month of August, having closed the most deals that month among an otherwise older, all-male sales team. Over time, though, I struggled with the fact that I was selling to people for whom buying a car may not have been the best financial decision—for example, customers with low credit scores and those who were simply unaware of the consequences of a seven-year loan commitment. Not having a good credit rating usually means paying higher interest rates on loans, and/or needing a co-signer to get approved. And the longer the loan, the more interest a buyer ends up paying.

So, now I’m sharing what I learned about selling cars so that you, as a first-time buyer, can make informed decisions at the dealership and get more value for your money.

The current car market in Canada

It used to be that you could walk into a dealership and drive out with a car, but business is not as usual in the automotive market right now. The pandemic’s ripple effects have left many dealerships with sparsely filled lots. This reduced inventory, driven by the global computer chip shortage and soaring demand for vehicles, has led to significant price hikes for both new and used cars. Many customers are waiting for months or even years for their vehicle of choice.

In September 2023, the average price of a new vehicle surged to $67,817—a record high, and a 19.4% increase from the same time last year, according to the AutoTraders Price Index. Meanwhile, the average price of used vehicles reached $39,155, a year-over-year uptick of 4.3%.

Use the chip shortage to your advantage

With cars scarcer than usual right now, you might be worried about getting a good deal. Don’t be discouraged by the chip shortage and other issues affecting the industry. You can still express your interest in that dream car and aim for a favourable deal. Dealerships facing uncertain vehicle availability might actually be more willing to negotiate because salespeople only get paid when a deal is done, so it’s in their best interest to sell you what’s in stock. That’s why, now more than ever, it’s important to approach the car-buying process with careful consideration and research.

Step 1: Identify your needs and wants

The first step in buying your first car is to determine your needs and wants. Consider the purpose of the vehicle and which factors—such as safety, reliability, fuel efficiency and space—are most important to you. Ask yourself questions like:

• How many passengers do I need to accommodate?
• Will I be using the car mostly for work, pleasure or family life?
• Are there specific features or technologies I need?
• Which features are “needs” and which are “wants”?

Salespeople use the term “feature, function, benefit”—what is the feature in question, what function does it serve and what benefit will it add to your life? Separating car features into needs and wants can help you zero in on one or two types of vehicles.

Step 2: Set a realistic budget

Setting a realistic budget will help you narrow down your options, prepare for price negotiations and make a financially sound decision.

A practical guideline is the 20/4/10 rule. To comfortably afford a car, you should be able to:

• Make a down payment of 20% or higher at the time of purchase.
• Opt for a loan term of four years or less.
• Keep total transportation costs, including gas, auto insurance and monthly payments, below 10% of your monthly income.

In addition, making a larger down payment up front means lower monthly payments and a shorter loan period. (Use a car loan calculator to try different scenarios.) A senior sales associate at my dealership encouraged his customers to commit to a monthly payment they knew they could comfortably make while maintaining a good credit rating.

Step 3: Research car brands and models

Finding the right car takes research. To get started, visit manufacturers’ websites and reputable car listing websites like AutoTrader and Carpages.ca to explore different brands and models. Read professional and user reviews to gauge a brand’s reputation for reliability, performance and customer satisfaction.

Once you’ve narrowed the field to just a few vehicles, research their market value, rather than relying solely on the manufacturer’s suggested retail price (MSRP). For used cars, you can use resources like Kelley Blue Book to determine fair market values based on a car’s condition and mileage. Kelley Blue Book also ranks cars based on five-year resale value.

Step 4: Decide between new and used cars

Once you’ve figured out what type of car you want and researched the going prices, the next decision is whether to buy new or used.

New cars: Purchasing a new car will give you the latest innovations, an original factory warranty and customization possibilities. However, new cars come with a higher price tag, and depreciation can be a big consideration. And, as mentioned earlier, you may have to wait several months for your car to arrive.

Used cars: Used cars have lower initial costs and reduced depreciation, and it’s usually cheaper to insure used cars. However, they may lack updated safety features, and lenders may be more concerned about potential breakdowns, repair costs and your ability to handle monthly payments, especially if your credit score is low. Higher perceived risk often means higher interest rates. If you find a used car you like, take it for a test drive and ask for its Carfax report, which dealerships often provide for free. If you’re considering a car from a private seller, you’ll likely need to buy the report yourself, for about $47. (Learn more about the differences between buying from dealers and private sellers.)

Salespeople can earn higher commissions on used vehicles. I’ve seen cars traded in for $10,000 and sold for more than double that, plus tax. The sales commission on new cars can be as low as $500; on used cars, they can be up to $5,000 or more.

Learn more about the pros and cons of new and used cars, and see MoneySense’s picks for the best used cars in Canada.

Step 5: Explore payment options

There are two primary avenues for car loans: bank financing and dealership financing. You can also lease your vehicle or save up enough money to buy your car outright.

Bank financing: Many banks and credit unions offer car loans at competitive interest rates. Compare offers from several sources to find the best terms and rates. Pre-approval from a bank or credit union can provide you with a clear budget and make your negotiations with dealerships smoother.

Dealership financing: Dealerships offer financing, often with special promotions. Carefully review the terms and compare the offers against those of banks and credit unions. Car salespeople earn commissions on dealership financing, so it’s up to you to ensure you’re getting a good deal. If you aren’t approved for dealership financing, the in-house finance manager might refer you to a bank that is a dealership partner. Remember, a finance manager is a salesperson, too. Again, do your own research to see if you can get a better offer elsewhere.

Leasing: Leasing means you’re renting the vehicle for a fixed period, making monthly payments and returning it at the end of the lease term without ownership—kind of like leasing an apartment. This can be ideal for those who want a new vehicle without the long-term commitment or sizable car loan. With leasing, you don’t build equity over time, so you can’t recover costs later by selling the car. However, there’s an exception: taking good care of the car and keeping the mileage low can make it worth more than expected when you return it, allowing you to apply this difference to your next lease—similar to having equity. If you love your leased car but want to skip added fees for wear-and-tear or exceeding mileage limits, you could purchase it at the end of your lease. Excess mileage can diminish the car’s value, possibly leading to a lower buyout cost if you choose to keep it—or incurring extra fees at the end of the lease, if you don’t.

Cash: Paying in full up front saves on interest, simplifies the buying process and grants you full control, customization and resale freedom. While you save up for your car, consider using a high-interest savings account or buying a guaranteed investment certificate (GIC) to safely grow your savings.

Step 6: Visit a dealership

As you enter the dealership, a salesperson will welcome you and ask some qualifying questions to understand your preferences, your level of interest and how much research you’ve already done. Salespeople vary in their approaches, but generally, they aim to discern if you’re a serious buyer or just browsing.

For instance, arriving with your spouse or partner signals that you’re probably considering a purchase, prompting the salesperson to dedicate more time and effort to helping you. But even if you’re just exploring the options, your prior research will equip you well for this conversation.

When the salesperson shows you a vehicle, they’ll detail its features and advantages. Stay attentive, but try not to reveal your excitement or enthusiasm. This can give you more negotiation leverage should you reach that stage in your car-buying process.

Step 7: Test-drive the car

You might be able to test-drive the car on the spot, or you can contact the dealership in advance to book an appointment.

During the test drive, pay attention to the vehicle’s features, functionality and driving experience. The salesperson—who will be in the passenger seat—can answer your questions as you drive.

Step 8: Negotiate the price

Negotiating the price of your first car is a crucial step in the purchasing process. There is usually some leeway for negotiation. Salespeople are ready for this. You should be, too—and it really helps to come prepared. Remember your list of vehicle needs and wants? This is when it comes in handy.

Some buyers come in with the mindset of pushing hard for discounts. But in my experience, seeking the lowest price won’t necessarily get you a successful deal. Successful negotiations occur when all parties involved achieve their desired outcomes. For you, this means getting a car that offers the best overall value. For the dealership and salesperson, it means maintaining a profitable business. Car salespeople typically get paid in commissions, so attempting to negotiate a price significantly lower than the MSRP may not be possible or well received.

Plus, keep in mind that the high demand for cars and low inventory at dealerships have made it harder for buyers to negotiate prices and interest rates.

Can you negotiate interest rates on car loans?

If a car is in stock, and you have a good credit score, you might be able to negotiate a good interest rate for your loan—the salesperson may be more willing to make a deal to sell a car already on the lot. On the other hand, dealerships can also mark up the prices of cars, and buyers may be willing to pay more for the convenience of getting one sooner. Doing your research is the only way to know if you’re paying a fair price.

Common car sales tactics to watch for

Upselling

The salesperson might attempt to upsell you on additional features and accessories. If you’re financing or leasing the car, they’ll likely focus on the monthly or bi-weekly payment increase rather than the total cost. They might say, for example, that adding features X and Y will increase your bi-weekly payment by just $15—about the cost of a Big Mac combo. (I’ve used this line myself, and yes, it worked.) Doesn’t sound like much, right? But consider whether the upgrade will fit your budget. Let’s say you’re fully financing a $30,000 vehicle in Ontario. The cost with 13% HST would be $3,390. If you signed a six-year loan with an interest rate of 7.48% and made bi-weekly payments, the total interest would be $8,222.21. If you added a feature or an upgrade that cost another $15 per bi-weekly payment, that would add $2,340 to the cost of the car, plus $641.33 in interest over the life of the loan.

“Good cop, bad cop”

While many salespeople are genuinely helpful, informative and valuable in the car-buying process, that doesn’t mean they won’t use psychological tactics to persuade you to buy. During test drives, I’d tell customers a little bit about the car and then focus on personal lifestyle questions that I could bring up later in the sales pitch. For example, if I found out that they commuted to work, I’d say something like “If you’re here, that means you don’t want to spend hours a day taking the bus to work and back, right? Let’s work together and write a deal today.”

Sales tactics might involve a coordinated strategy. For example, when negotiating with a customer, my sales manager and I employed a “good cop, bad cop” tactic where he would assume an aggressive attitude, while I had an understanding, sympathetic demeanour. My goal was to build rapport and gain the person’s trust, in contrast to my manager’s near-hostility. This was a technique I was taught by someone with more than 20 years of industry experience—and most of the time, it worked.

What can you negotiate besides price?

As part of your deal, you can ask about perks you want, such as complimentary oil changes for a year, car accessories, winter tires, window tints or all-weather floor mats. But if you want to attempt this, research the costs of these add-ons before you visit the dealership. (Read further tips on planning for a financial negotiation.)

It may be hard to trust your instincts during negotiations, as emotions and high-pressure sales tactics can cloud your judgment. However, thorough preparation can help you tell if a deal is too good to be true—or not good at all. Don’t hesitate to seek a second opinion. Above all, stay calm and confident, and be willing to walk away if you’re not comfortable with the terms of the deal.

Key questions to ask before signing a car deal

• What is the final out-the-door price, including all fees and charges?
• Are there additional warranties or protection plans added to the deal? Can I opt out?
• Can I see a breakdown of the financing terms and monthly payments?
• Are there prepayment penalties if I decide to pay off the loan early?
• Can I review all the documents and contracts before signing?

The best first car to buy

Buying your first car in Canada is an exciting milestone. By following these insider tips and navigating the car market with caution, you can make informed decisions and find the best first car to buy for your needs, preferences and budget.

If you have a particular car in mind and you’re not in a hurry, it’s worth thinking ahead by up to a year, if not more. And if you’re open to variations in colour, model or trim, this flexibility can work to your advantage.

You could also try seeking intel on upcoming shipments. Ask about the dealership’s expectations for new vehicle arrivals and whether they have one that matches what you want.

Set yourself up for success by conducting thorough research, setting a realistic budget, exploring financing options in advance, and protecting yourself against unethical practices. This can help you confidently buy your first car in Canada.

Read more about autos:

• Best EVs in Canada
• EV rebates in Canada
• Your complete guide to getting the best car insurance in Canada
• Canada’s auto theft crisis: What it means for your ride and your insurance
• Why is auto insurance so expensive in Alberta?