First, make sure you can really afford it.
"Calculate all your expenses and then prepare a budget to determine how much money you have available to buy and operate a vehicle," says Chartered Accountant Dirk Joustra, a Partner with Soberman LLP in Toronto.
Preparing a budget will help you determine how much you can afford to spend.
"You will have to decide whether you want a smaller, less expensive new vehicle, a demonstrator model; or perhaps a larger used car – the monthly payments could be significantly different, depending on what you choose," says Chartered Accountant Stephen deBlois, a Partner with Welch and Company LLP in Ottawa. "In the end, the amount of disposable cash you have will help determine what type of vehicle you can afford."
Don't forget to factor in all of the costs associated with vehicle ownership. "These include gas, maintenance, insurance, licence fees and parking," says Joustra. "Other possible costs are things like winter tires and membership in an automobile association."
Another decision is whether your first vehicle should be new or used. "New vehicles are more expensive and cost more to insure, but they are more fuel efficient, less likely to break down and some repairs are covered by warranty," deBlois says. "Used vehicles generally cost less to buy and insure, but you might be buying someone else's problems and will likely face more repair bills that are not covered by warranty."
And while buying a vehicle privately may be tempting, keep in mind that dealerships often provide limited warranties on used vehicles and they certify that the used vehicles they sell meet certain standards.
When you are ready to buy, a variety of financing options are available. "You can pay cash or arrange financing through the manufacturer or a financial institution," advises Joustra. Low-interest rate deals and rebates are sometimes available from the manufacturers. Leasing a vehicle usually means lower monthly payments, but you won't own the vehicle at the end of the lease period.
If you intend to use your vehicle for business, you can deduct the business portion of its operating expenses, interest and tax depreciation for income tax purposes. "Be sure to keep a daily log of kilometres driven for business purposes and copies of all invoices or your claim won't be allowed," advises deBlois.
The biggest mistakes made by first-time buyers include, "buying a car you can't really afford or one that is not suitable for your needs," cautions Joustra. The best way to avoid these pitfalls is to work out a budget and take your time.
"Review consumer reports for the pros and cons of various models and comparison shop to get the best deal," suggests deBlois. "Take various vehicles for test drives – don't buy the first one you see. Think your options over carefully before you sign on the dotted line."
"A CA can help you prepare a budget to determine what you can afford and can help with your calculations relating to financing," says Joustra.
DeBlois adds that it's also a good idea to talk to a CA if you plan to use the vehicle for business. "A CA can help you maximize your automobile expense claim when you file your income tax return."
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