Buying a new car may be your second largest purchase after your house. It is common for buyers to borrow money to buy a car as very few are able to pay cash. In fact, most car manufacturers own financing companies so you don’t have to deal with a retail bank. Don’t be fooled by marketing strategies that offer 0% financing. There is no such thing as free interest. The interest cost is simply calculated in the purchase price, so it appears to be free but it’s not. Just try this, tell the sales representative that you want to pay cash and you will see an automatic reduction in the price.
Another challenge for most buyers is to keep the monthly cost of the loan to a minimum. Many will amortize the loan for up to seven years, which is a long time for an asset that will depreciate in value so quickly. After the third year of ownership the required maintenance to keep your car in good order will add to the monthly costs making ownership even more demanding on your cash flow. If you consider leasing your vehicle you are in effect only financing a portion of the purchase price. Consider structuring your lease over a three year period, this way you are unlikely to spend much money on maintenance and repairs.
Another advantage of leasing is that you don’t have to finance the HST up front but instead only pay HST monthly. On a $25,000 car, the HST is $3,500. That alone may pay the first year of your lease.