Understanding car

loans and leases

Everything you need to know about financing a car from a dealer or private seller

Car ownership is a necessity for many Canadians, but buying a car doesn’t need to be stressful. If you need a car but don’t have the money to pay for it in cash, there are options available to you: financing or leasing. Here, we’ll cover some of the things to consider when deciding which payment option is right for you and some common terms you’re likely to come across when applying for a lease or loan, so you’ll be able to understand the process more easily. There’s also a car loan payment estimator, so you can get an idea of what your payments might look like.

Payment Estimator

Est. financing payment^ -/Weekly +taxes and applicable fees
Interest rate

6.99%

Vehicle price
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Trade-in value
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Interest cost
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Car Loan

Car loans

If you want to buy a car, but don’t have the cash to pay for it in full, you can apply for a car loan to help you pay the difference. Think of it like a mini-mortgage. In order to be approved for a loan, you must first apply for car financing from your bank, loan specialist or dealership. Financing gives you immediate ownership and the chance to build equity.

You can negotiate the length of your loan, monthly payment amount and the interest rate when you apply. Factors that can change your interest rate include your credit rating, amount borrowed and the province you live in.

Financing can be more expensive than lease payments and in order to qualify, you will need a sizeable down payment. See how much you could be paying with our car loan payment calculator.

If you don’t have the full amount to purchase a new or used vehicle, you can apply for a car loan from your bank or dealer to cover the difference so that you can purchase the car. Lenders offer different term lengths, monthly payments and interest rates.

Car finance payments are widely different, as they are based on several factors, such as the car’s value, the province you live in and your down payment value. You can find out what kind of rates to expect by entering your details in our car payment calculator.

If you have bad credit, you may be approved for a car loan from your dealer or non-traditional lender. Banks are less likely to approve bad-credit car loans. Having an individual to co-sign a car loan may also help you get approved.

It varies from loan to loan, but the best way to find out what kind of payments to expect is to use a car payment calculator. Inputting as many details as possible will give you the most accurate monthly payment information.

Interest rates fluctuate frequently, but the average low-end interest rate from a traditional lender is 4–5%. Car loan interest rates vary depending on several factors, including your credit score.

Pros & Cons of Financing a Car

Car Lease

Car leasing

If you need a car but don’t have the cash to buy it or to make the down payment for a loan, leasing a car is an affordable option. Car leases are long-term rentals that can last anywhere from a few months to a few years. Lease payments can be less expensive than car loan payments, and you save money on long-term maintenance costs as you are covered under warranty, and you won’t pay as much sales tax.

Leasing allows you to get behind the wheel of a brand-new vehicle every few years, but it’s not for everyone—especially those who travel long distances. There are some restrictions to a lease, such as fewer design options and a yearly kilometre limit. Handing over the car at the end of your term can be expensive if there is wear and tear or if you have surpassed your kilometre limit, but getting out of your lease term early can be costly.

Leasing also means that your monthly payments aren’t put towards ownership. At the end of your lease term, you may choose to lease a new model or buy for its remaining value.

Car leasing is essentially a long-term rental that gives you use of vehicle over a fixed amount of time, typically 2 to 5 years. At the end of your lease term, the vehicle is returned to the dealer. Your monthly payments include tax, interest and depreciation costs.

It depends on several factors, like the car’s value and the interest rate. If you lower your yearly kilometre limit, your car’s value at the end of the lease term will be higher, which will reduce your monthly fee. A car payment calculator can give you an approximate estimate of your monthly lease payments.

The lease vs. finance question depends on the individual. Car leasing is the best option if you don’t have a sizeable down payment and like to change cars regularly. But car leasing is not car ownership. Owning a car through financing gives you the freedom to customize your new vehicle and drive it as much as you want, but it also involves more maintenance costs.

Used-car leasing is possible but more difficult to find. It is typically offered on high-end luxury cars or specialty vehicles. Certified pre-owned leases are offered through some dealerships. However, leasing is done directly from the manufacturer.

There are many advantages of leasing a car in Canada. Leasing a car allows you to drive the newest models and avoid extensive maintenance costs. Leasing is also often the only available option if you don’t have a sizeable down payment. Short-term leases (less than 24 months) tend to be a cheaper option than financing.

Pros & Cons of Leasing a Car

Financing Glossary

The amount of interest that will be charged annually based on your outstanding loan amount. The APR is represented as a percentage and is applied to your monthly payments. The lender may not include all loan fees in their APR.

The origination fee (sometimes called the arrangement fee) is the amount your lender may charge you to process your loan application. Not all lenders charge this fee.

A contract between you and your bank, dealer or lending institution that formally lays out the terms of your loan. The credit agreement must be signed in order to complete the purchase of a vehicle. This is a legally binding contract.

The value that your bank or dealer is committed to lending you for the purchase of a vehicle. A higher down payment will lower the credit amount needed to buy a car.

Any fees associated with the principal amount borrowed from your lending institution. Credit costs can include interest rates and penalties for late payments.

The amount of cash you can pay upfront when you purchase a vehicle through financing. The higher the down payment, the less money you need to borrow.

The amount of money required as an upfront payment at the time of signing your contract for purchase or lease. This amount can include the down payment, dealership fees and taxes.

The amount of interest a borrower has paid by the end of the loan term. The interest cost is not including the principal amount borrowed from the lender.

An annual percentage of a loan that is charged to the borrower for the remaining principal amount. Interest is applied monthly to your loan payments.

How long it will take for you to completely pay off your loan, provided you make regular monthly payments. The term as an agreed-upon length of time between you and your creditor or dealership.

A monthly payment is the fixed rate on your car loan or lease. The monthly payment includes the principal, interest rate, taxes and any other agreed-upon add-ons. The monthly payment amount is based on several factors.

This acronym stands for the Manufacturer’s Suggested Retail Price. This is the recommended list price of the vehicle by the automaker. However, dealers aren’t obligated to sell cars at this price.

Also known as the salvage value, the residual value is the amount your car is estimated to be worth at the end of your lease term. This value is used by your dealer to determine your monthly lease payments.

The amount your car is worth when you leverage it to buy another car from your dealer. The trade-in value can be deducted from the price of a new vehicle. The trade-in value of your car will likely be lower than the retail value.

^Estimated payments are for informational purposes only and do not represent a financing offer or guarantee of credit. Estimated payments are calculated based on: (i) the Vehicle Price (which may or may not include freight, fees, license, insurance, registration and taxes); and (ii) the other information selected or provided by the user. Actual rates, terms and payment frequencies may differ or may not be available. Contact dealer for available financing options and complete details.