By: Christine Ibbotson
A vehicle purchase is a major financial expense for the vast majority of people. Figuring out a way to fund the purchase in a way that doesn’t break the bank or damage your financial future can be daunting. This week, the Money Lady weighs in.
Dear Money Lady,
I want to buy a new car and was wondering if you had any advice on whether to finance or lease.
Sincerely,
Doug XXXX (New Car Buyer)
Dear New Car Buyer!
Buying a new car in January or February is a great idea since these are historically the slowest months for car sales and dealerships are more willing to be flexible on pricing to move product. According to the Canadian Car Dealers Association, about 60 per cent of buyers lease their vehicles, leaving the other 40 per cent of buyers either financing or paying cash.
Leasing or financing: what is better? On my website, I have a detailed monetary comparison of the two, but my recommendation would be to finance your purchase if you plan to keep your vehicle long-term. Here are some tips to keep in mind.
1. Finance your purchase through the car dealer not your local bank. Dealers have much better financing options. Getting a car loan from your bank will often cost you more since the rate will be much higher unless you can negotiate a low rate line of credit.
2. The general rule-of-thumb for all Canadian car dealers is a markup on new vehicles of about 7-7.5 per cent. You can usually get 3-3.5 per cent off the list price when you are negotiating and if you have a trade in – make sure you keep this separate and get at least three per cent off plus the trade-in value.
3. The best time to haggle with a car dealer is at the end of the month when they are wanting to get their sales in to meet quotas. Buying a car at the beginning of the month could force you to pay an extra 0.5 per cent. So, think like a car salesman, get a little savvy, buy at month end and push for your price.
If you are leasing, keep these tips in mind when you are negotiating with your dealer.
1. Same mark-up applies for leasing new versus buying so try to get the price down by three or four per cent off the sticker price even if you plan to lease. It will make a difference in your monthly payment.
2. If this is your second lease from the same dealer you have loyalty power. You should be getting one per cent off the current financing rate for being a repeat customer (this is standard in the leasing business. Make sure you get it!)
3. The fees to be paid on a returning lease should be paid by the dealer if you are leasing again. Don’t get nickeled-and-dimed here on the minor repairs to the car or the fact that your tire tread might be lower than their three-millimetre minimum. Again, return it and haggle at the end of the month to get a better packaged deal – they will absorb these costs to get another lease on their books.
4. On a returning lease, one thing they may not budge on is the mileage. If you are over your original agreed package, they could charge you approximately $0.30 for every kilometre over. If this is your first lease, make sure you get enough allowable mileage in your package so that you are not over when you return the vehicle.
Good Luck and Best Wishes,
Money Lady
Written by Christine Ibbotson, Author of “How to Retire Debt Free and Wealthy”. Chris is a Canadian financial planner, chartered investment manager, insurance broker, commercial and residential mortgage broker, estate planner and taxation expert, with more than 25 years in Canadian banking.
Follow her on Facebook and Instagram. If you have a money question, please email on her website, AskTheMoneyLady.ca.
