Line of credit, lease, or finance? A dealer breaks down what’s best for youBy Kijiji Autos
I’m Lawrence Romanosky from Porsche Centre Calgary. If you haven’t already, please check out my Dealer Advice video where I make it simple to understand the basic differences between financing and leasing a vehicle.
If are you after a more detailed rundown of your options for paying for a new vehicle? You’re in luck, because in this article, I’ll give you a detailed look at how to choose between a line of credit, leasing, or financing.
Line of credit
The reality for most Canadians is that they will require financing of some kind to purchase a vehicle. If you decide to borrow money to make your purchase, you can source your own financing or go through your automotive dealer. Interest rates on various personal Lines of Credit (LOC) offered by banks vary considerably depending on the individual and their financial situation. They may also require a high monthly payment.
Automotive dealers have dealer agreements with many financial institutions – from all the large banks, credit unions, and the financing divisions of the manufacturers they represent. A good Finance Manager at a car dealership can shop around for the best rate for you, give meaningful guidance, and find the financial solution that works best for you.
Lease or finance?
Leasing offers some important advantages, but generally comes at a higher cost. A lease lets you accurately budget for expenses related to your vehicle. Also, by changing into a new vehicle more frequently, you will have the benefit of the latest technology and safety features. Because you are always driving a vehicle during the portion of its life where it depreciates the most, it is generally more expensive than financing and keeping a vehicle for longer. A lease is generally less flexible as well, and you can be charged for excess mileage or unexpected wear-and-tear.
Financing will generally cost less because the lending institution does not have the risk and expense of reselling the vehicle. Keeping a vehicle for longer means that the overall depreciation per year will be less than it would be when changing into a new vehicle more often. Also, financing offers more flexibility to pay down the loan earlier. A finance contract will include tax payable on the entire purchase price, whereas with a lease, you don’t pay tax on the residual value unless you purchase the car. Some provinces have very high taxes, so understanding the tax implications of your options is important. For more pros and cons of leasing vs. financing, check out this article.
What about incentive rates?
When automotive manufacturers compete or see excess inventory on their dealers’ lots, they offer incentives in various forms – these can be cash rebates or subsidized interest rates for lease or finance programs. Customers can often be offered a choice between a low rate or a cash discount. Sometimes these incentives are paid by the manufacturer, the dealer, or both. Knowing where the incentive is coming from can help you with your negotiations, especially since the incentives come from the manufacturer, the dealer may have additional room to move on the price by reducing their normal margin on the vehicle.
What to know before signing on the dotted line
Mistakes can happen so it’s a good idea to check the payment details on your own and then compare your results to those in the contract you’re about to sign. The more familiar you are with leasing and financing terms, and the numbers that make up the payment calculations, the better you will understand the contract that is presented to you. Always ask for a draft of the contract before you pick up the vehicle, to give yourself adequate time to review it. Once you’re ready and you need to know more about what to bring to a dealership when signing, have a look at this article.
What more do I need to know?
The most important things to consider are the overall interest cost and the flexibility of the contract. Also, estimating the depreciation of the vehicle throughout the term of the contract, and identifying at which points you are likely to have positive or negative equity, will let you know when you can trade your vehicle without having to pay a lump sum. Positive equity is the difference between the trade-in value of the vehicle and the amount you still owe; if the buyout of your loan or lease is less than the value of the vehicle then you have positive equity. Conversely, if the buyout is more than the value of the car then you have negative equity. To understand depreciation better and why it matters, check out this article.
Now that you have a better idea of the differences between leasing and financing when budgeting for a new car, head over to Kijiji Autos and find your next vehicle.
For a deeper dive into the structure and calculations behind automotive leasing and financing check out my video series where I explain these concepts in detail.
Easily find your next ride on Kijiji AutosSearch now
Deciding about a car warranty is the next step after your car purchase
Purchasing a car is a big investment, but the cost doesn’t stop there. What if something goes wrong and repairs are needed or parts need replacing? That is why you want a warranty, and you need to choose the best car warranty for your needs. What is a car warranty? A car warranty, or...
Everything you need to know about financing and leasing your next car
Shopping for your next car online is fun. Figuring out how to pay for your next car is not. When buying a vehicle, you have a few payment options for what is likely the second most expensive purchase you'll ever make: financing or leasing (or paying cold, hard cash if you have it). Not sure which...
How the right company car policy can save your business money
For companies of every size, there's lots of money to be saved by switching over to a new corporate car policy. It's important to factor in the needs of the company and employees to make a decision that's most financially and environmentally prudent. Your well-being remains our top priority.
A simple guide to understanding car financing
If it's your first time making a big purchase, you may need a quick run-through of how financing works. Your car dealer will be happy to make the complicated aspects of your loan agreement more understandable, but if you want to be prepared beforehand, we've got you covered. Your well-being...
How does leasing a car work?
Leasing is becoming more and more common. On the surface, it's easy to see the reason: It allows drivers to get into a brand new car for a lower up-front cost than purchasing it. Depending on your needs and preferences, it could be the right choice for you. However, it's important to know all of...
Everything you need to know to finance your new car
What’s the best way to finance the purchase of your new car? It depends on your personal circumstances, of course, but there are several options, each with its own advantages. Buying a new vehicle is a major investment for most people. In fact, it’s the second-largest purchase in a person’s life...
New car warranties: which one is right for you?
You’re sitting in front of the sales rep you contacted through the dealership’s ad on Kijiji Autos, and you’re all ears. You’ve been out for a test drive, and the rep has just finished reviewing the mechanical specs of the car you’re interested in. All that’s left to decide are a few final...
Should you buy or lease a new car? The advantages and disadvantages
You’ve found the new car of your dreams while browsing on Kijiji. You’ve done your research and the test drive, and you’re ready to take the plunge on a new car. Now the sales rep asks you the big question: Do you want to buy or lease the car? Both choices have their pros and cons. It’s your...