If you’re looking at buying a car in Canada you have two paying options: through cash or through a loan. Prior to going either direction you’ll need to look at the advantages of each and which is right for you. You may assume it is always better to pay with cash instead of financing your car, but that is not always the case. So, before you go and plunk down a large sum of money or take out a car loan, here is what you need to know about buying a car in Canada.
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Questions To Answer Ahead Of Buying A Car
Prior to going into the dealership to buy a car (either through cash or with a car loan) you will want to ask yourself a number of questions. Some of these questions you’ll want to answer include:
- Can I afford to buy the car with cash?
- What kind of interest am I generating
Naturally, you need to determine whether you can afford to buy a car with cash or not. If you don’t have the available cash don’t even consider this option. And never think about selling off retirement assets or other investments in order to buy a car. Buying a car is not an investment. You buy a car because you need it, but due to depreciation on the vehicle as soon as you drive it off the lot you will never make your money back (unless you’re considering the purchase of certain highly collectable cars, but these are few and far between).
If you do have the available cash to spend on a new car you’ll want to consider some of the current financial information regarding your bank and then compare it against the specifics of a car loan you qualify for.
Bank vs Loan Specifics
Perhaps you have your money stored in a high interest savings account that generates 2.2% interest. Now, consider the kind of car loan you apply for. If you are shopping for a new car and you qualify for the low to no interest loan offered by the dealership you may be able to secure a car loan for under 2% interest.
This means by keeping money in your bank account you will gain interest on it over the four years of paying back your car loan. However, if you were to just take the money out of your bank account and pay straight cash, you won’t earn this interest. In this instance, it is actually a better idea to finance your car. Even though you have the money you’ll end up earning additional cash off of interest.
When It's Better To Buy With Cash
So you’ve already gone through whether you can afford to make a purchase with cash and you’ve already decided that you can. And you have gone through the specifics of your bank and know what kind of interest you are earning.
Now you need to consider the specifics of any kind of loan you might qualify for. If the financing car loan has a higher charged interest than what you’re able to earn through your bank you will want to pay for the car in cash. In this instance it will cost you more money through the interest on your car loan to finance the car, so do avoid paying more than you need to and purchase the vehicle with cash.
If It's A Question, It's Not A Question
If you think you can afford to buy a car with cash but you’re not fully sure, it’s no longer a question. You need to finance your car. Because you never know what might happen tomorrow or the next day, and if you’re already not sure about what exactly you can afford, you don’t want to take out a considerable amount of your savings only to lose your job the next day (or a few months down the road).
When it comes to this kind of substantial purchase you need to be completely sure you can afford it. If there is ever a question about if you can, the decision for how to pay for your car isn’t a question at all. You need to finance the car to give yourself some financial legroom.
Go With The Option That Works Best For You
There is no one-size-fits-all option when it comes to buying a new car. Ultimately you need to go with what works best for you. These are simply the specifics you should educate yourself on prior to going to the dealership or applying for a car loan. And if you need more information regarding the best option for your current (and future) finances, make sure to consult with a financial expert regarding what you can afford and what the best method of buying a car might be for you.