Run the numbers
- Figure out how much you can afford to spend. Be realistic, and don’t go above that number. If you’re financing your purchase, remember that affordability isn’t just about being able to cover the payments, so do a bit of easy research.
- Check with your local bank or credit union. Determine their best rate before signing with the dealer. (Don’t compare with a friend; the rate you’re offered will depend on your situation, including your disposable income and how much other debt you hold.)
- Look at your options over the lifetime of the loan. What can you afford month to month? Which option will cost the least overall? For example, a dealer’s 0% purchase financing offer might not be as appealing as it seems. The repayment term is usually short — 24 or 36 months — and you likely won’t be eligible for any rebates. You can run your own comparisons with this Car Loan Calculator.
Think twice before leasing
- Leasing may look better on paper. The monthly payments are comparatively less than you’d shell out to finance an outright purchase of the same vehicle. But financial adviser Preet Banerjee cautions, “With leasing, some people get on a treadmill, perennially making a monthly car payment, and will never really own the car.”
- Leasing’s not for everyone. Jim Matthews of LeaseBusters warns, “If you drive an excessive amount of kilometres or don’t maintain your vehicle – or, conversely, if you rarely drive your vehicle – a lease might not be the best bet for you.”
Consider buying used
- A vehicle is a depreciating asset. It loses up to 40% of its value in the first three years. So if you buy a used car, the most expensive years of ownership will already be out of the way.
- Save money. A used 2010 Ford Flex LE with warranty rings in at $36,000, while a brand-new Ford Flex LE will set you back $51,000. Do the math – that’s $15,000 more!
Be smart about trade-ins
- Make more money by selling your old car privately than by trading it in. After paying for your trade-in, a dealer has to cover the cost of cleaning and touch-ups, and still make a profit when they resell.
- Negotiate the trade-in value of your old vehicle. If you still prefer to trade in because it’s less time-consuming, go ahead and negotiate. But only after settling on the purchase price of your new one. Dealers may give you a better trade-in price, then get that money back by inflating the purchase price of your new vehicle.
Read more of this story: Maxing the trade-in value of your old car>
A version of this article appeared in print in our April 2012 issue with the headline: Drive a Bargain (p. 60). Original artwork by Raymond Biesinger, fifteen.ca