Getting around is a daily necessity for most Canadians. But unless walking gets you everywhere you need to go, locomotion doesn’t come cheap.
Transportation is Canadians’ second largest expense after shelter costs, according to Statistics Canada. And shelling out for a car isn’t the kind of investment that will pay dividends down the road. Unless a buyer is in the market for a rare, vintage automobile, a newly purchased vehicle is guaranteed to depreciate immediately after it’s driven off the lot.
So, what’s the best way to buy a car and save money? Or is the smart choice not to own a car at all?
For those interested in purchasing a new vehicle, leasing and buying are the main two financing options. With leasing, monthly payments are made for a specified term, then the vehicle is returned when the lease is up. Lease payments are generally lower than when buying and less money needs to gotowards a down payment.
“A typical lease is three to four years,” says Anne Arbour, Toronto financial educator with the Credit Counselling Society. “That allows you to drive a new car every few years and not have a huge responsibility for repairs and maintenance [because] you’re driving it while it’s under warranty.”
Since lease payments are generally lower than a car loan, it can be a good choice for cash flow, Ms. Arbour says. Plus, it doesn’t require lessees to pay sales tax on the whole value of the vehicle.
Ms. Arbour notes that people often mistakenly think leasing is equivalent to renting.
“[With leasing], you are paying interest on money you’ve borrowed and a bit of the principal,” she explains. “But you never pay it off. There’s always a buy-out [option] at the end of the lease. Depending on how low your payments were, the buy-out can be substantial, if you decide to keep the car.”
Shannon Friesen is vice-president of dealer services for Canada Drives, a website that matches credit-challenged consumers with dealers that provide financing approval options.
She notes that leasing can have some disadvantages. For example, if someone drives a lot, they may exceed the allowable mileage in a lease and be required to pay extra. Cars need to be returned in the same condition as they were received, and lessees will be subject to early termination fees if they try to get out of a lease.
“With ownership, you don’t have to worry about mileage, you can modify the vehicle as you see fit and you can eventually get out of the constant cycle of monthly payments,” Ms. Friesen says. On the other hand, there are people who prefer to lease, she says, viewing it as a regular, ongoing expense like rent or a cell phone bill.
Interest rates for car loans and leases tend to be about the same, Ms. Arboursays. Owners may need to make car payments for six or seven years if they want to keep them low, but at the end they will have a vehicle that still has some value.
When weighing the pros and cons of leasing versus buying, take the time to calculate and compare the costs, she suggests. Don’t forget extra fees such as extended warranties, licensing and administration. Whether leasing or buying, decide in advance what make, model and features are on the wish list, and don’t be upsold on unnecessary features.
Timing a car purchase right can also save a few bucks, Ms. Arbour says. “Late summer and early fall – when the new models come out – can be a good time to buy because there is pressure to clear out last year’s models,” she says. “Or, towards the end of the month, when there are incentives for salespeople to add one more sale.”
For urban dwellers, it may be more economical to avoid the lease-or-buy question entirely. Options within cities include public transit, renting a car occasionally or ride-sharing services.
A 2018 study by the Canada Mortgage and Housing Corporation found commuting costs range from less than $200 per month in the City of Toronto to more than $800 per month in Greater Toronto Area communities such as Halton Hills and Clarington. Costs are $200 to $399 per month in nearer GTA suburbs like Pickering, Markham and Brampton.
The cheapest commuting costs, only $115 a month, occur where people can take transit, walk or bike to work.
To calculate a car-free transportation budget, factor in travel to work, trips to the grocery store, evenings out and medical appointments, Ms. Arbour suggests. Online calculators can help determine what ride-sharing options like Uber and Lyft rides will cost.
“If you live in the city and near transit, how often are you using a car?” Ms. Arbour says. “You’re paying for gas, parking and insurance, and it doesn’t make sense if your car is sitting idle most of the time. You can be in a ride-share, answering emails and not have the stress of driving in the city.”
For those who aren’t on a transit line and have to commute, riding with others can whittle down transportation costs.
For example, provincial public transport agency Metrolinx operates a Smart Commute program in the GTA and Hamilton areas to encourage people to tryout travel alternatives. Smartcommute.ca offers online car-pool matching a calculator to help would-be carpoolers figure out how much money they can save by making commuting a team effort.