A car is a large purchase for most people. If you’re thinking about buying one, know your options so you can find the best way to pay for it.
Four ways to pay for a car:
- Cash: You’ll likely pay less if you pay cash. Many people, though, can only make a small down payment.
- Bank loan: A lot of people borrow some or all of the money from the bank. They pay part of the loan back every month. If you want to do this, ask your bank how much they are willing to lend you. That way, you’ll know exactly how much you can spend on a car, and what you will pay every month.
- Dealer financing plan: When you buy your car, you can ask the dealer to arrange a loan for you. Ask for details from the sales staff. Dealer financing plans often cost more than bank loans, unless they’re offering special deals.
- Lease: When you lease, you don’t buy the car. You pay to use it for the length of the lease, which is usually four years. You still have to maintain the car, but your monthly payment will be lower than a bank loan. When the lease is up, you give the car back to the dealer or you can buy it for a set price. Be careful: there are often rules about things like how many kilometres you can drive without extra charges. If you drive a lot, leasing may not be for you.
Remember: Borrowing adds to the cost of a car.
If you don’t have the cash, look for the best deal you can get.
Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca