Just like in the U.S., Canadians have a few different options when buying a car. If you’re fortunate enough to have the cash, you can buy the car outright and not have to worry about making payments. However, most Canadians will have to borrow money from a bank or other lender to either finance or lease the vehicle.
It’s important to understand the benefits and drawbacks of each option before making a decision.
Car Loans – The Pros and Cons
Taking out an auto loan is one option when buying a car. There are two ways to get car loans in Canada:
Most dealerships in Canada can make loan arrangements through a lender. In most cases, you can apply for and receive a loan at the dealership to save time.
A car loan can be arranged through:
- A bank, credit union or other financial institution
- The financing division of the car manufacturer
- An independent finance company, such as one that specializes in car loans
Bank, Credit or Online Loans
If you prefer, you can take out a loan or line of credit through your own financial institution, rather than through the dealership.
If you have a strong relationship with a bank or financial institution, you may be able to get a better interest rate than what you could get with a dealer.
It’s also possible to take out online personal loans in Canada, which allows you to compare rates and terms before settling on a loan option.
The Pros of Auto Loans
- No restrictions – You can drive away with the vehicle that day, and there are no restrictions on how you use or customize the vehicle.
- Ownership – You own the vehicle, and when the loan is paid up, the title will be transferred to your name.
- No payoff penalties: You can pay the loan in full at any time without penalty.
The Cons of Financing
- Commitment: Financing is a long-term commitment. Loans span several years.
- Payments: Payments are typically higher with an auto loan compared to a lease.
Car Leases – The Pros and Cons
Leasing is similar to a rental. Leasing requires you to make regular payments for the use of the vehicle over a set period of time. Usually, leases last 3-5 years.
When the lease period is up, you will not own the vehicle. Some lease contracts will give the option of buying out the vehicle at the end of the term, but typically, this requires one large payment.
Leasing is often the preferred option when consumers want new cars more often and don’t want to be bothered with selling or trading in previously purchased cars.
The Pros of Leasing a Vehicle
- New cars: You have the option to drive a new car every few years if you qualify for a lease.
- Lower payments: Generally, lease payments are lower than auto loan payments.
- Purchase: Most leases give the option of buying the car, returning it, or leasing a new one.
- No ownership: You won’t own the vehicle when leasing it – unless you choose to purchase it outright at the end of the lease term.
- Additional fees: You may have to pay extra fees if the vehicle withstands excessive wear and tear.
It’s important to weigh the pros and cons of each option, leasing or financing, before making your final decision. Each offers its own benefits and drawbacks, but ultimately, it will come down to your personal budget and preferences. You may prefer to lease if you enjoy driving new vehicles every few years, but if ownership is your goal, financing may be your best bet.