April 15, 2014 | By: Laurie Campbell

That new car smell can include money if you’re smart about financial planning.

If you’re in the market for a new car, then you ought to be looking at the true value of your purchase well ahead of visiting the showroom. That means exploring the big picture and asking questions that can help with savings and financial planning. What’s the new vehicle going to cost you given today’s car loan interest rates, insurance rates, and the price of gas? Above all, how will payments for a new car affect your monthly budget? To answer these questions, make use of an online budget calculator. So what about car loan interest rates? Well, I spoke recently with a bank credit specialist and an automaker finance specialist and they provided some information of interest (excuse the pun). Current rates for vehicle loans vary widely among financial institutions and automakers depending on terms of payment and your creditworthiness. Right now, through automaker financing, expect to pay in the range of 0.9 to 1.9 per cent interest over 36, 48, or 60 month terms. Some dealers offer up to 84-month terms in the range of 2.9 to 4.9 per cent. Other automakers charge no interest at all. Some offer rebates, in which case crunch your numbers to ensure your rebate is providing value against interest and the price of the vehicle itself. Before you leap at what appears to be a deal, be sure you are indeed getting good value. Shop around to compare what other dealers are offering. Automaker financing is very attractive over bank financing.  Generally through banks, people with good credit can expect to pay anywhere from 6 to 8.6 per cent interest on vehicle loans covering shorter to longer-term payments, with 11 per cent usually being the topmost rate before you no longer qualify for the loan (this rate often applies to those with less than great credit scores). I emphasize that car loan interest rates are based on your credit score as well as on the term and the amount of the loan you seek. Longer-term loans cost more because a car’s resale value decreases significantly during the first few years, creating more risk for the lender to recover the loan’s value in the event of a default. Long-term loans lengthen the time before your car builds equity, or what you would receive after selling the car and paying off the loan. For example, with a 60-month loan, it might take some time before the car is worth more than what you owe on it. Shorter-term loans allow to build equity faster. Over a 36-month term, it’s possible to build thousands of dollars of equity quite quickly. If you are able, make a significant down payment on a new vehicle. Smart financial planning means the down payment – or car trade-in value – should represent at least 15 percent of the new vehicle’s total cost. On the plus side for bank loans, when you visit a dealership with a guaranteed loan in hand, you’ve got bargaining power, and there is no fooling around with numbers involving the common dealership sales tactic of muddling the vehicle price with financing costs. Still, as I say, automakers offer great rates. Sometimes you can get the best of both worlds between dealerships and banks by taking a rebate from the dealer and getting financing elsewhere, even if interest on the financing is higher than what the automaker offers. Again, the bottom line in the financial planning process is do your research on rates and offers. Use our budget calculator to save money first. Which brings us to other matters concerning new car costs, these being insurance and what you can expect to pay for gas as you go about your travels. Insurance rates are influenced by the type of car your drive. Obviously, new cars cost more to insure than older cars, and luxury and sports cars cost more than family sedans or compacts. Insurers consider a number of factors relating to the kind of car you drive. Statistics on theft, safety ratings, and claims history influence rate settings. Again, shop and compare.  Car insurance rates vary significantly simply because each insurance company takes an independent approach to assessing how much risk you pose as a driver. Consider the coverage that’s best suited to you, always ask about discounts, and think about increasing your deductible, which is what you pay before you receive insurance money for expenses related to a claim. Generally the more you pay on a deductible, the lower your premium costs. Gas costs for a new vehicle are always a consideration.  According to the Canadian Automobile Association (CAA), travelling by car is getting to be quite expensive. According to CAA’s arithmetic, the average annual cost to own and operate a vehicle hovers in the range of $11,000 a year based on all expenses associated with running a 2012 Toyota Camry, 18,000 km a year, with the cost of gas set to $1.29 per litre. For the whole story about your spending on a vehicle, know how the price of gas figures into the picture based on your driving habits. Looking forward to that new car smell? Let’s hope you smell the money, too, through smart financial planning and some thoughtfulness in your spending.


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