hundreds of different cars in a parking lot

Which type of vehicle is cheapest to finance and insure?

What does financing your car mean?

Financing your car involves creating a payment plan that allows you to drive away from the dealership with a brand new car. Over time, you will eventually pay to own this vehicle. Financing a car is different than leasing one. 

Leasing involves making smaller payments over a period of time to borrow a car you will eventually have to return; the dealership retains ownership of the vehicle and you have a different level of responsibility with it.

With financing, you’re taking out a loan for the price of the car, and paying it back to the financial institution over a set term, along with interest. Eventually, you’ll have the loan paid off and own the car outright.

Repairs and maintenance

Since you own the car you are financing, you will be on the hook for all repairs and maintenance costs. If you’re looking to finance a cheap, over-used car, this could put your costs up to what it would cost for a newer one, depending on how much maintenance and repair the beater-car would need over its lifetime. The vehicle's condition will have a great impact on its overall price, you just might not be able to see it at the beginning.

If you want to read more about the pros and cons of financing your car, click here. Did you know financing a car can actually increase your credit score?

Cheapest to finance

Pricing:

“Car pricing rarely consists of a car being offered at a certain figure and then being bought for that same figure. There are rebates, processing fees, interest adjustments, and other potential surprises that may alter the actual cost of a vehicle. An unbelievable price could be fool's gold if it comes with a brutal interest rate, and zero percent financing could easily leave you worse off if the car has an inordinately high markup or fee attached to it.”

The financing agreement you negotiate with your lender will determine how much you end up paying for the vehicle in the long run. The car itself (brand, year, model) will also influence how much or how little you will pay monthly and in total. It’s really up to you.

Down payments are beneficial because you end up owing less on the car. Those “zero down payment” offers nearly guarantee you'll pay more for the car by the end of your term than what it’s worth. Zero down payments equate to higher interest rates in most cases if you don’t negotiate.

Through car financing, you are the owner of the vehicle and the debt. Therefore, you’re allowed to sell or trade your vehicle at any time, and use the money from the sale to pay off the loan you used to purchase it initially.

Beware: used-vehicles depreciate in value every second.

Cheapest to insure

Whether your vehicle is leased, financed, or bought outright, it really makes no difference to insurance costs. Car insurance is something you can’t avoid, nor afford to avoid if something accidental were to happen, like an accident.

Insurance companies base your rates on a variety of factors, but exactly how you purchased your car is not one of them. If all factors were equal, a leased, financed or fully owned car would have the same insurance rates.

Gap insurance is a special coverage that will pay for the difference between what you owe on the car and what the insurance company is willing to pay-out should you get into an accident that totals your half-owned car. Gap insurance can be purchased on any vehicle, of any age.

All things considered, there are definitely cheaper locations for insurance. In fact, based on data from 2013, "the average Ontarian was paying $1,456 annually for auto insurance while the average Quebecer was paying just $715. That's a major disparity, and certainly one worth investigating before pulling the trigger on a car purchase."

So how can you get the cheapest insurance rate? Here are some factors that will affect your rates:

  • Driving record
  • How you drive, or how much you drive
  • Where you live 
  • Driving experience
  • Year, make, model of car

Aha! Since the year, make and model of your car does affect insurance rates, let’s see which would be the cheapest.

Forbes claims that SUVs, crossovers and minivans are generally the cheapest to insure. They fall into the family-car category, and probably benefit from the assumption that drivers with families are the best drivers in the world—precious cargo!

However, other analysts have used insurance rate calculators and found that compact, sedan type cars like Volkswagen Jettas, Golfs and Toyota Camrys are actually cheaper in Canada.

If you want to save on car insurance, stay away from bulky cars (*Ram 1500*), luxury vehicles with crazy mods, or racy sports cars. Or don’t. But those cars involve costlier repairs and specialized parts, thus increasing your overall insurance rate.

Your approach matters

So, at the end of the day, how you approach financing and insuring your car will change your prices. If you are strategic with insuring your vehicle, picking the right one (compact or family?) and living in a less populated or "risky" area, your insurance rate will reflect those variables. Additionally, the state of the car you buy will present either more or less maintenance costs.

Financing your car in a cheap way depends on who you get your loan from, what kind of down payment you can make, how high your interest is, how quickly you can pay that loan off, and what kind of car you pick.

“It will be those things that determine the true cost of a car purchase—not the amount you see written in giant numbers on a cardboard cut-out vying for your attention”