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Student Finances: Should I Buy a Car?

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Student Finances: Should I Buy a Car?


College is definitely not cheap; with tuition costs rising each year, faster than inflation. As young adults, there are many decisions to be made, from choosing your program, to the financial decisions.

Like any decision made, personal finance decisions made at a young age will definitely have an impact on your future. So, make sure to think twice.

Cost Analysis 

Many people think of a car as a one-time purchase, but unfortunately, it doesn’t work that way. Purchasing the vehicle is one thing, but maintaining it is another. Monthly costs include, insurance, gas, and maintenance.

Let’s use the 2006 Honda Civic DX as an example, since it is the top selling car in Canada, especially among youths. According to Canadian Black Book, the average asking price for this model is $7137.00.

The average Canadian drives 20,000 km a year – let’s take this number into consideration while calculating the costs of owning a vehicle. Using the CAA Car Costs calculator, the total Annual Cost is approximately $8329. This number includes gas costs (average: $1.20/litre), license & registration fees, insurance costs, depreciation and maintenance.

Opportunity Costs

$8329 is a lot of money to spend a year on a car, especially compared to the Bus Pass option, which is approximately $1440 a year; depending on the city you live in.

What if we were to purchase a bus pass instead and invest the rest into a mutual funds/stocks? That would equal a savings of $6889 a year, which is equal to $574.08 a month. Now, let’s see what happens if we were to invest that money each year for the next four years, using the same S&P 500 example as in Investment Strategy: Leveraging.

In this case, investing the initial car purchase of $7,137.00, and the monthly savings of $574.08 would lead to a total Future Value of $41,624.02 (at the end of 4 years).

Pros & Cons

There are many benefits to owning a car instead – it’s the convenience factor you’re paying for.

The whole point is to make sure the purchase is worth it – do you really need to buy a car? Is it going to help you to get from point A to point B, which is not accessible by transportation? If you’re buying a car – make sure it’s worth the investment. I.e., if it’ll help you to be more productive for your job – then go for it.

Cons would include depreciating costs, and expensive monthly car costs. And perhaps, that occasional speeding ticket if you’re a Fast & Furious type of driver. If you’re financing the car, make sure to include the interest costs.

Everyone’s situation is different – what I suggest is for you to create a table, comparing the pros & cons. Some cons would include the monthly costs for maintaining the costs of your car, whereas pros would include the convenience factor. Make sure to take the opportunity costs into consideration while this decision.


If you’re buying a car, stay within your means. Pre-plan, create a budget, and make sure you can afford it. But keep in mind; you can potentially save over $40,000 in four years if you wait until after graduation. It’s not a good idea to run up your credit card bill (interest rates are usually 19%+) for the monthly operating costs of the car.

A car is a depreciating asset after all. The decisions made now will have an impact on the financial stability of your future-self. Check out Student Life: Personal Finance, for more tips & tricks on how to handle your personal finances as a student. When buying a car, make sure it is an investment worth it – if the pros outweigh the cons, go for it.

Writer: Jelani Smith

Disclaimer: All investing can potentially be risky. Investing or borrowing can lead into financial losses. All content on Bay Street Blog are solely for educational purposes. All other information are obtained from credible and authoritative references. Bay Street Blog is not responsible for any financial losses from the information provided. When investing or borrowing, always consult with an industry professional.


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