Your First Car in Canada: Owning or Financing a Vehicle?
To own, or not to own…This is a common issue when it comes to vehicle financing.
You have to decide whether to own or finance your first car. The answer is that it depends. One is not better than the other in all situations and it depends on the individual and their situation. When it comes to vehicle finance, leases and purchases are just two different methods of financing. One finances the use of the vehicle and the other finances the purchase. Each has benefits and pitfalls. When making a decision on car financing you have to look at the financial comparison and your personal priorities.
- Is having a new vehicle with no repair risks more important than long term costs?
- Are the long term savings more important than lower monthly payments?
- Would you rather have ownership in your vehicle then low upfront costs and no payment?
- Is it important that you pay off the vehicle and be debt free for a while, even if that means higher monthly payments?
It is important to understand that buying and leasing are two different things.
When you buy you are paying for the cost of the vehicle.
You make a down payment, pay sales tax in cash (or roll them into your loan) and pay an interest rate determined by the company. Then you make your first payment a month after you sign the contract.
With vehicle financing when you lease you pay only part of the vehicles cost, which is the part you use up when you’re driving it.
You don’t have to make a down payment, you pay sales tax only on your monthly payments and you pay a financial rate called the money factor which is similar to interest. You may also have to pay fees and possibly a security deposit. In the car financing you make your first payment when you sign the contract for the month ahead. When the lease is up you either return the vehicle or purchase it for a decreased value.
So when you are financing a vehicle leasing does not build equity, but buying does.
Leasing can be more complicated with residuals, money factors etc; it shouldn’t be taken casually. You have to be more careful and informed when you’re leasing. When we are talking about car financing if you enjoy driving a new car every few years and want lower monthly payments then leasing is good. If you want safety features, a warranty and don’t want to trade and sell and go through used cars finance then this is the option. If you don’t care about equity, have a stable life, drive average miles, maintain the car and are willing to pay more than leasing is for you.
However, if you don’t mind the higher monthly payments and want to build up trade in or resale equity, like the ideas of ownership, want to pay off your loan, don’t mind repairs, drive more than average, prefer to drive cars for years, like to customize, expect lifestyle changes and don’t want lease end charges then you will want to buy. If you are unsure you may want to check the numbers on a vehicle finance calculator and find out exactly which option is right for you and make sure you get guaranteed car finance.
Andrei Zakhareuski is the founder of Find-a-driving-school.ca. He has been writing for beginner Canadian drivers for several years.
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