With all of our intentions to save, as luck would have it, our car broke down. My husband and I know that our car hasn’t been in the best shape the past year but we’ve been avoiding buying a new one like the plague. Since we are looking to save money – versus fork out more – buying a car wasn’t one of our priorities. Unfortunately once you’ve got a couple of kids in Canada it’s quite difficult to avoid having a car altogether.
The last car we bought was used and we got it as we were able to negotiate a really good deal from a friend of ours. This time – and with all of the financing deals on at the moment – we have decided to buy or lease a new car. I’m hoping that my “good” credit rating will enable me to still be able to get the 0% financing rate. Before I hit the dealerships, I took some time to do a bit of research on the various options that I may encounter.
What to expect…
To get the best car financing offer, we both realize that we should be selecting a vehicle that fits into our budgets and one that we can provide some sort of down payment. In many cases, these two factors can increase the likelihood of approval – at the very least; they could improve the offer and will reduce our monthly payments. After doing a bit of digging, I found out that there are four main factors that determine how creditors decide to give people financing for vehicles:
- Vehicle selection: cost, age, and mileage
- Application information: employment, residence, and income information
- Credit history: information contained in your credit file
- Down payment: total of cash and trade equity
Monthly payments
With us trying to save money, this was one of the biggest concerns for my husband and I. Since we bought our last car outright, we’ve had no monthly payments and only had to worry about car insurance, gas and other maintenance costs. We were sure how an additional expense would fit into our savings plans and also into our current expenses. We thought it was worth it to find out more though. With new cars having full-service warranties, we liked the fact that we won’t have to worry about that side of it for a while. The last time we brought our car in, we ended up having to do repairs in the thousand’s anyway and it came at the worst possible time. At least with the added monthly payments, they’ll be planned and expected so we can build this into our budget.
The monthly payments we’ll have to make will be determined by three major factors – the amount we finance, the term of the contract and the rate we get (APR) if any. There are so many 0% financing deals I’ve seen advertised, so I’m wondering if one of us qualifies for this. At least then we wouldn’t be paying any interest on the vehicle.
To lease or finance?
Another thought that came to our minds was if we should lease or finance. My brother-in-law always leases his cars and swears by it. He loves that after the lease period you have the option to buy out the car or you can get a new one.
The decision of buying or leasing mainly depends on what’s most important to us. Car lease-versus-finance decisions must be made with your own lifestyle and priorities in mind. Leasing is often tailored to people who enjoy getting a new car every two or three years, want lower monthly payments, like having a car that has the latest safety features and is always under warranty. Also it is good for those people who don’t like trading and selling used cars, don’t care about actually owning a vehicle, have a stable predictable lifestyle, drive an average number of miles and properly maintain their cars. These people will also be fine with paying more over the long haul to get these benefits.
Financing works if you prefer to build up some trade-in or resale value (equity) and don’t mind the unexpected cost of repairs after the warranty has expired. Also this is a good route for people who are fine with higher monthly payments, drive more than average miles, prefer to drive your cars for years to spread out the cost, expect lifestyle changes in the near future and don’t like the risk of possible lease-end charges.
We still weren’t sure since the short-term monthly cost of leasing is going to be significantly less than the cost of buying. For the same car, same price, same term, and same down payment, monthly lease payments will typically be 30%-60% lower than loan payments. This is still true even when compared to 0% or low-interest loans. On the other side of the spectrum, the long-term cost of leasing is going to be more than the cost of financing, assuming we keep our vehicle until after the loan ends. If a buyer keeps his car after the loan has been paid off and drives it for many more years, the cost is spread over a longer term. Quite simply, the cost of buying one car and driving it for ten years is less expensive than leasing or buying four or five different cars over the same period. Therefore, leasing is always more expensive than long-term buying. However, will we want the same car in three years from now? I’m not too sure about that with our kids growing and how fast our priorities seem to change.
Decisions, decisions…there always seem to be so many. As a start, we know our budget and won’t go above that – that’s for sure. I guess that we will have to wait and see what deals we’re offered once we find that car that we love. Our plan is to start looking at cars online and then take our search to the dealerships for a few test drives. Then, we’ll make up our mind and see what offers are out there and take it from there. At least we now know what to expect when it comes to our car financing options in Canada.
