How does car financing work?
With the average new car in Canada costing upwards of $31,000, it’s no wonder seven out of ten new cars and trucks are financed. Vehicle financing is a major factor in purchasing a car, so it deserves a serious amount of consideration.
What is car financing?
Car financing allows you to purchase a car and pay it off in manageable instalments. Financing can be organized between either a bank of your choice and the dealership where you purchase your car, or from a car-financing specialist such as Auto Loan Solutions. There are a few crucial questions to ask yourself when considering who you want to finance your car. What can you afford? How long is the lease? What is the interest rate? How much will you really be paying?
You’ll want to make sure that no more than 20% of your paycheck will go to your car. This figure should include financing, insurance and general running costs.
The length of the lease is important to consider, because a long lease means more interest, which can end up costing you more in the end. For Ontario auto loans, a good length to aim for is three years or less. This also depends on your interest rate, so shop around for one that is low but allows you to pay it off quickly. This will determine how much you’re really paying for financing.
Before you can finance a car, there are a couple of things you’ll need to get in order; namely money, and a good idea of what car you want. Once you know what car you want, you can set yourself a goal and start saving. Keep in mind that car financing is available for both new and used cars.
Saving can be difficult, so here are some tips to help you along the way:
- Set up a savings account. Open an account that does not come with a credit card – make it as difficult to withdraw this money as possible. Select a high-interest bearing account and be rewarded for saving.
- Set up automatic weekly/monthly transactions into your savings account so that you don’t have a chance to spend before you save.
- Budget! If you look at your finances and find that you spend money on unnecessary things, cutting back can bring you much closer to your savings goal.
When considering value for money, people will often lean heavily to either the side of a new car, or the side of a used car. There are pros and cons to buying a new or used car, so consider everything before you make your purchase. A used car will have a much cheaper initial price and insurance will likely be less, but depending on its condition, may end up costing more when you consider its servicing needs. A new car will have a more expensive immediate price and loses a lot of its value as soon as you buy it, but comes with a warrantee and should present you with no surprises.
Negotiability is often overlooked or undervalued. Whether buying new or used, sellers are usually very willing to negotiate price.
The best advice of all is to do your homework. Research the car you want, and research who, and if, you want to finance it. With this information, you can’t go wrong.