What your first car really costs

Nobody sells you a monthly cost. A dealer sells you a price, a lender sells you a payment, and the rest arrives afterwards, one bill at a time, from people you have not met yet. Here is the whole thing on one sheet, for the driver reading it: a G2 licence, under 25, no credit history yet, nothing saved for a down payment, sixty months. Nothing here is a quote or an approval. It is what the arithmetic says.

The cheap car

The loan on this car is the part everybody thinks about, and it is not the biggest line on the card. Insurance is, at $277 to $500 a month. Add the fuel, the oil changes, the tires you will need eventually, the plate and the permit, and a $12,000 car costs about $1,116 every month. That is roughly three times the loan payment, which is the single most useful thing on this page.

The nicer car

Ten thousand dollars more car, and about $1,546 a month instead of $1,116. The loan explains some of that gap and not all of it: a bigger vehicle burns more fuel, costs more to insure and costs more to fix, and Brampton is one of the dearest places in the country to insure a car. The windscreen price moved by ten thousand. The thing you live with moved by more than the loan did.

About that insurance number

One counter-intuitive thing while you wait for your full G: under 20, a G2 and a full licence cost within a few percent of each other, because age is doing nearly all of the pricing. Rushing the road test will not fix this number. Your next birthday will. The published bands by age are here.

What you need to earn to carry one

The calculator calls a car manageable when everything it costs stays under 15% of before-tax income. On that measure the $12,000 sedan needs about $89,000 a year, and the $22,000 crossover needs about $124,000 a year.

Those are large numbers for a first job and they are meant to land that way. They are also gross, while every dollar of the cost leaves your take-home. Under them the car is not impossible, but it becomes the main thing your money does, and that is better to know now than in month four.

The months you owe more than it is worth

A car loses value faster than a loan pays down, so for a while you owe more than you could sell it for. On the sedan that lasts about 29 months, and on the crossover about 29 months. It matters for one practical reason: if the car is written off in that window, the insurer pays what the car was worth and you still owe the lender the difference. Anything you put down shortens it, and every month past 60 on a longer loan lengthens it.

Five things that move this number

• Where the car sleeps. Ontario prices insurance by postal code, and the gap between the cheapest and the dearest city is bigger than most things about you.
• Which car. Insurers price the vehicle as hard as they price the driver, so get quotes on two or three specific cars before you choose one rather than after.
• Your age, more than your licence class. Premiums for a new driver fall sharply through the early twenties whatever licence you are holding.
• Anything you can put down. A down payment cuts the payment and cuts the months you spend owing more than the car is worth, which is the part nobody mentions.
• How long the loan runs. A longer term makes the monthly figure look kinder and makes the car cost more and stay underwater longer.

What will not help is cutting coverage to make the number fit. It is the most tempting lever here and the one that costs the most on the day it is tested, and a new driver is the person on the policy most likely to test it.