Top Tips for Buying a New Car

Interested in tips for buying a new car? We've got you covered. Today, there are nearly 25 million motor vehicles registered in Canada, with Quebec and Ontario accounting for more than half. And while we’ve talked before about how you can save a bundle by giving up your car, the fact is for many of us, a vehicle is not a luxury—it's a necessity we can’t live without. If you're thinking about buying a new car, here are a few tips to make sure you do it right. 

Your Car Buying Strategies

For some people, a car isn't just a way to get from point A to point B. A car can offer adventure, represent freedom, and in some cases, reflect your personality. Trying to get the most mileage out of any vehicle is always good for our budgets (especially when it’s been paid off). However, if a car has become unreliable or unsafe, it’s time for an upgrade. And by upgrade, we don’t mean buying a vehicle that’s brand new with all the latest bells and whistles. It’s always best to choose a vehicle that’s a few years old and has some kilometers on it. After all, a brand new car depreciates in value the moment you drive it off the lot, so it’s really not worth paying top dollar for one. Let someone else do that, and then snatch it up a few years later or a few thousand kilometers down the road—now that’s how to buy a car!

Difference between leasing, financing and buying a car

The main difference between leasing, financing, and buying a vehicle is ownership. With a lease, you pay a fixed amount of money every month in exchange for using the vehicle, then at the end of the lease contract period, you have the option of either returning the car or buying it. With financing, your payments go towards owning the vehicle and then when it’s paid off, it’s all yours. Lastly, buying a vehicle involves paying for it outright, with no payments or loans, so you have 100% equity immediately. But of course, there are pros and cons to each option.

Pros and Cons of Leasing a Vehicle

One of the biggest benefits of leasing a car is the payments are generally lower than they would be if you were to finance it. That's because you’re only paying towards depreciation, not the full value of the vehicle. And if you're not a fan of long-term relationships, most lease terms are just 2-4 years, so you can trade it in for a different car or truck relatively often, swapping out models, colours, and more. Finally, since leases are relatively short, you often won’t encounter too many mechanical issues, as these are usually the early trouble-free years of a vehicle. Even if you do have a problem, you may be covered by a manufacturer’s warranty during the term of the lease.

But there are two big caveats to these pros. For one, leases have a mileage cap, so if you’re a road warrior putting tens of thousands of kilometers on a vehicle per year, you’ll want to be sure your mileage cap is high or you’ll wind up paying a small fortune when the contract is up. (And if there’s no cap high enough to match your expected mileage, financing is your best bet). Secondly, lease contracts include stipulations for wear, tear, and damages. So, if you tend to abuse your cars, this will come out of your pocket when you turn in the vehicle.

Pros and Cons of Financing a Vehicle

While monthly payments tend to be less when leasing, when you're financing a vehicle your payments are building up equity, eventually resulting in total ownership of the car. Once you own the vehicle, you can then drive it for a number of years, payment-free, which can eventually make up for the larger upfront spending. The longer you’re able to drive it, the less it ultimately costs you! Another plus to financing is there is no mileage limit, so you can hop on the Trans-Canada Highway and go from British Columbia to Newfoundland without worry.

The main disadvantages of financing a vehicle are related to the length of time you need to keep it to make it worth purchasing. Vehicles depreciate in value quickly, so if you plan to sell it as soon as you own it, you’re better off leasing. You need to plan to drive the vehicle for at least a few years after fully owning it to make the purchase worthwhile. Of course, by then you’re driving an aged vehicle, and you’re likely to experience more mechanical problems that can cost you a lot of money to fix—and any manufacturer’s warranty will have long since expired, so it’s up to you to foot the bill.

Pros and Cons of Buying a Vehicle

Paying cash to purchase a car outright can be a great option—if you have the financial means to do so. Paying cash means that you won’t lose one loonie in interest and you won’t have any monthly payments hanging over your head. Dealers are also often willing to accept much less money than the vehicle’s sticker price because they know they will have money in hand, without the worry that you may default on a loan. 

But there are negatives to this option. For one, most people can’t afford to buy a relatively new vehicle outright, so they may pay cash for either an affordable but very old car or one with heavy mileage, which is apt to suffer from mechanical problems at best, and safety issues at worst. A short-term car loan with a low-interest rate may also be a better option than paying thousands of dollars outright for a vehicle, when that money could instead be used to pay down high-interest debt or invested in income-earning opportunities. If you’re trying to establish credit, a car loan can also help in that department, so you'd be better off than paying cash.

Additional Car Buying Tips

Buying a new vehicle, especially for those of us struggling financially, can be stressful and requires a lot of thought. Below are a few other tips for buying a new car.

• Know what you need. Are you a single college student or a soccer mom with three kids? Your car needs will be very different depending on your lifestyle.
• Comparison shop. Don’t jump at the first deal you see. Visit multiple dealerships, speak with multiple dealers about your options, and search the internet. See at least five cars before making your final decision.
• Check a car buying guide. These can give you vehicle data (safety, reliability, etc.) that a dealer or private seller may not offer up.
• Test drive. Be sure you’re comfortable behind the wheel before you make a deal.
• Pay only what you can afford. Going above your means could result in financial hardship, defaults, or credit-ruining repossession. 
• Know the terms. As with any agreement, be sure to read the fine print before signing on the dotted line.
• Know the best time to buy a car. Between September and December is the best time to buy a new car, with November being ideal. This is when manufacturers may offer incentives for the previous year’s models to clear the way for new models.
• Negotiate. Wondering how to negotiate when buying a new car? Some people might feel intimidated, but dealers are used to it. Even if you think you’re getting a good deal, it doesn’t hurt to try to get a better one. Check out these tips for negotiating a car price from Canada Drives.

Debt Consolidation Programs and Car Buying

If you’re in a Debt Consolidation Program and the need for a new car arises, you may think there’s no way you’ll be able to lease or finance a car. But that’s not necessarily true. At Credit Canada, we’ve helped many of our clients by writing a letter of support to prospective lenders, advocating for their ability to lease or finance a vehicle and keep up with payments. Many times it works, especially if the client has demonstrated a responsible payment history or has been in the program for several years without an issue. 

Even if you're not enrolled in a Debt Consolidation Program, our certified Credit Counsellors are available to discuss your finances with you to help you determine if you can afford a new vehicle on your current budget. We can let you know whether to put the brakes on that purchase—or whether you’ve got the green light.