By Remitbee - Dec 18, 2020
When it comes to enjoying Canada to the fullest, getting a new car is probably high on your priority list.
Today we’re going to talk about all the basics you should know about getting a new car so that you can easily get where you need to go without having to rely on costly ubers or public transportation.
First, we’ll delve into the age-old dilemma “should I buy or should I lease?” by covering topics such as car loans and how exactly leasing works. Then we’ll talk about where you should be looking.
Let’s jump into it.
Should I buy or lease?
Most people will have this question cross their mind at some point when they start thinking about getting a new car. If there was a definitive answer, it wouldn't be such a widely asked question. The answer is that it depends on your current financial position, personal preferences, travel habits and a lot of other factors.
First, we’ll cover some things you should know either way:
Cosigner: A major factor in getting favorable loan or lease terms is your credit history. As a newcomer, this might work against you. Newcomers generally get stuck paying higher interest rates. One factor that could help you a lot is having a good friend or relative with great credit cosign on your behalf. Cosigning is basically a way for you to borrow part of someone’s credit.
With that in mind, let’s first cover your options when you decide to buy new.
What are my options when I buy new?
When deciding to buy new, you have two options: Pay in full or finance it through a car loan. Most people are not in a position to outrightly pay in full and if you are, it’s often the cheaper and simpler choice that you should go for. Because the majority of people aren’t in a position to pay in full, we’ll focus more on the option of financing.
To better understand if you should buy instead of lease, you need to have a good understanding of your two major options when it comes to car financing: dealership financing vs. bank financing. Car loans and interest rates: Dealership vs. bank financing
You have many options when it comes to choosing the best car loan. This means that though we will give you the basics, you should still do lots of research for your options in your specific area.
Here are some high-level things you should consider.
If you don’t have much of a credit history, it’s good practice to get pre-approved for a bank loan to help you negotiate with a car dealer. The more options you know, the better.
Keep in mind that dealership loans are often still through a bank, but the dealership acts as the middleman. This means they will often markup their price to account for their service. Let’s say they negotiated a decent 2% interest rate with a bank; they may quote you 2.5% instead and pocket the difference. They often will try to lure you with zero percent financing, but usually these are aimed at people with great credit. Suppose you’re a newcomer and don’t have a cosigner with amazing credit. In that case, you’re unlikely to get zero percent without other hidden fees or very strict terms.
On the other hand, when you go straight to a bank, you’re going straight to the source. This doesn’t necessarily mean that banks will give you better rates, as it depends on many factors which we’ll talk about in a bit.
Do your homework on banks and see which dealerships they partner with. The knowledge from this can help you bring up specific loan programs like certain newcomer programs that car salesmen might not bring up themselves.
Note: The exception to dealerships acting like the middleman is when they offer in-house financing which is often always costlier in the long run. Another major downfall of in-house financing is that it’s common for dealerships to not report your payments to credit bureaus As a newcomer, you might want to use this as an opportunity to build credit. Let’s put it this way— in-house financing is often a Canadian’s very last resort if nothing else works.
With that being said, let’s now look at some factors to consider when deciding between dealership financing or bank financing:
Now that you have a better idea of your financing options let’s explore leasing and how it works.
How does car leasing work?
Newbies to the car buying process often get leasing and financing slightly mixed up. Both offer ways of paying the cost of a car over a lengthy period. However, they’re very different.
Leasing generally is for the length of 2-4 years. It is very similar to leasing an apartment lease in that you pay a monthly rent to another owner. It’s essentially a long-term rental, so your flexibility in what you can do with the car is quite limited.
Instead of paying the price of the car, you’re paying the amount it’s said to depreciate over the length of your lease. For example, suppose a car costs $20,000 today and it’s projected to cost $12,000 at the end of your lease in two years. In that case, you will pay the difference ($8000) over the two years, plus interest and other fees like rent charge. You can buy out the car at the end of your lease term, but this is rarely the cheaper option vs. just financing the car.
Let’s now sum it all up:
Pros & cons of car leasing
Pros & cons of car financing
Where to find new cars:
The smartest way to begin your search for new cars is online. Search online for car dealerships nearby, go to manufacturer’s websites, and even be mindful of advertisements. Websites offer an objective way to review cars without the influence of a car salesman. Some popular websites in Canada are the following:
As a rule of thumb, do a good amount of research before taking your first step into a dealership.
From deciding between buying and leasing and between dealership financing or bank financing, you have many options when it comes to purchasing your first new car in Canada. Doing proper research could easily save you thousands. As you can see, there are pros and cons to every option, do your research, save money, and good luck!