Do I need to make monthly payments when buying a new vehicle?

Unless you’re in the position to pay cash for a new or pre-owned vehicle, you’ll need to establish a payment plan to obtain that vehicle. Two options exist – taking out a loan or leasing. You can choose to pay monthly, bi-weekly, or even weekly when negotiating your deal.

How loans different than leases?

When you take out a loan, all of the money used to pay it off applies to your eventual ownership of the vehicle. The initial down payment and principal on the loan cover the total cost of the purchase. Lease payments, however, apply only to the use of the vehicle. The total sum of payments covers the vehicle’s depreciation over the time you drive it and is usually less than the outright price of the vehicle. At the end of a lease you are given the option to buy out the vehicle, but if you do not buy out the vehicle, you do not own the vehicle.

When is ownership transferred when purchasing a vehicle?

If paid by cash/certified funds, you assume ownership when all funds have been received by the dealership, the legal documents have been executed, and ownership is transferred to you. If financing is secured in the form of a loan, ownership of the vehicle is transferred to you when all documents have been executed and the dealership transfers ownership to you; note that the institution that provides the financing will most likely hold a lien on the vehicle until the outstanding balance is paid, which means you cannot legally transfer ownership until the lien is cleared. When a lease period ends you forfeit the vehicle to the lessor, unless the lessor offers to sell the vehicle afterwards. During the entire lease period the lessor maintains ownership and simply allows you to use the car. Ownership is only transferred if you chose to buy the vehicle after the lease terminates.

How are finance rates determined?

The size of monthly loan payments depends on the amount borrowed, the length of the loan, the interest rate, and other factors such as your credit history. Paying more money initially lowers the principal of the loan, thus reducing individual payments. At any period during the loan you may opt to pay off the principal in its entirety, at which point the title of the vehicle is transferred to you. Special financing rates may be available to you if the dealership is able to successfully negotiate on your behalf; most new vehicles often come with special finance rates like 0%.

Can I finance a used vehicle?

Yes, although the term of the loan can be dictated by the age of the vehicle. For example, a 1-year old vehicle can be financed longer than a 5-year old vehicle.

Will I be charged any extra fees to finance a vehicle?

The only additional charge to finance a vehicle is a small loan setup fee, usually around $75. Generally, offering a “cash deal” to a dealership will not result in a lower price. Whether funds for the purchase comes from the bank or from the customer, it is all the same to the dealership.

Is financing better than leasing?

The answer to this question depends on how you plan to use the vehicle. If you like the idea of driving a more expensive vehicle for a smaller monthly payment, leasing is a great option. However, if eventually owning the car is important, financing with a loan is the way to go.

Are there any restrictions when leasing?

Annual kilometers restrictions are a major limitation for customers who choose to lease. A typical yearly figure is between 18,000 and 25,000 kilometres. Beyond the established limit, fees accrue on a per-kilometer basis, usually in the range of $0.10 to $0.25 per kilometre. So if most of your driving is local, leasing makes sense. However, if you consistently tack on 500 or more kilometres a week, definitely look into a loan.

What are the benefits financing a vehicle rather than leasing?

Loans are also sensible for those who want to customize their vehicles, plan on keeping their cars for long periods of time, and plan to re-sell their vehicles to help recoup the costs of ownership or expenses of additional cars. For those who quickly wear vehicles out, loans may be safer bets as lessors often add “excessive wear” charges if the car is returned with wear over the limits established by the contract.

What are the benefits of leasing?

Leasing ensures that you’ll always drive a late-model vehicle, won’t have to pay for warranty-covered repairs, and won’t have to bother with re-selling at the end.


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