Buying Used Cars in Toronto: Additional Fees and the Monthly Payment
So, you've negotiated a price that suits you and your budget. But is that the price you'll be paying? Probably not, because the price you see on the tag and the price you negotiate is just the base price. You should expect some additional fees. This hub explains the usual additional fees and taxes when buying a used car in Ontario. Further down this hub, I'll also show you a useful formula for figuring out your monthly payment, if you're taking the financing option.
Additional Fees (Ontario)
Additional fees are not scams. You'll find additional fees in just about every used car dealer in Toronto, and in Canada and the United States.
Here are the typical additional charges when you buy a car in Ontario:
- GST (5%) and PST (8%)
- Administration Fee ($295)
- Emission Safety and Delivery ($495)
- License Plate ($125)
- Warranty Charge
Let's say you are purchasing a $10,000 car. What would be the total cost, if you were paying in cash?
Base Price: 10,000
Administration Fee: 295
Emission & Safety Test 495
GST (5%): 540
PST (8%): 863
After-tax subtotal 12,193
License Fee: 125
Final Total 12,318
As you can see, in Ontario, your $10,000 car will end up costing you just over $12,000. It's a big difference, so it's good to know these charges, and what they are.
The administration fee is just that, an administration fee charged by the dealership. The emission and safety fee goes towards the emission and safety test, which is required by the Ministry of Transportation of Ontario. The costs I have stated above ($295 and $495, respectively) are the general standard in used car dealerships in Toronto.
There is a 13% tax on the price of the car, the administration fee, and the emission safety/delivery fee. If you need a license plate, there is a $125 charge which includes the plate and a 1-year sticker. There is no tax on this.
You may want to shop around for warranties. Some dealers will give you a basic 2-year Powertrain warranty (for engine and transmission) for free, while other dealers may charge some money for it.
When you first see the price of a vehicle, and when you are negotiating, make sure the details are clear. Include or excluding taxes? Administration fees? The charges add up so you want to make sure you weren't negotiating for a different price than you thought you were.
Charges in addition to that of the negotiated price are common in used cars dealerships in Toronto as well as most other places. Wherever you are, just be sure you know the details before you seal the deal.
Financing: the Monthly Payment
With all these fees, you might not have enough money to pay it all with a cheque. Financing is a great option, allowing you monthly payments. The interest rate when you buy used cars is higher than new cars because new car dealerships usually do their own financing (so they can offer "0%"), also called in-house financing, while used car dealerships offer you financing from the bank.
The interest rate depends on your own credit history. It is true that you'll be able to get financing with "Good credit, bad credit, no credit!" but with bad credit, your interest rate will no doubt be much higher. If you have a good credit history, the bank may offer you a rate of Prime + 1. Many dealers advertise around 8.89%.
TIP OF THE TRADE: From experience, I have learned a simple formula for obtaining an approximate car payment, assuming an 8.89% rate and 0 down payment.
Monthly Payment = L / M + 50
L = loan M = number of months in term
Basically, you divide the amount of money you need to borrow, divide by the amount of months in your term, then add fifty dollars, for your monthly payment.
Above, I used the example of a $10,000 car, which adds up to $12,318 after taxes and fees. What would your monthly payment be? Here's an example, assuming 8.89% interest rate, 0 down, and a 5-year term
12318 / 60 + 50 = $255
It is not an exact formula, but it is very close and it more than enough for a general idea of your monthly payment. But of course, it will depend on the exact interest rate you can obtain.