Buying A Car

Thinking about purchasing a car? Whether you are in school or graduated, buying a car is a big life event, especially if it is your first time.

When it comes to budgeting for a car, there are so many things to consider, which makes it exciting and daunting at the same time. Will you lease or buy? Will you buy it used or new? What are other costs associated with the process?

This page explores everything you need to know to get an economical and reliable car.

Lease or Buy?

One of the first things you’ll have to figure out is whether you’ll be leasing or buying. A lease is a contract that allows you to use a vehicle over a specified period of time. During this time, there will be lease payments based on the cost of the car minus the residual value; however, during this period, you do not own the car.

Who should lease and who should buy?
  • If you have the cash or don’t have to worry about qualifying for bank financing, you should buy.
  • Consider leasing if you don’t have the cash to buy up front, and your ability to get a loan is compromised.
  • If you need lower monthly payments, are a low-mileage driver and don’t want to worry about reselling the car, leasing is a good option.
  • You can always negotiate some of the terms of your purchase or lease, particularly if the vendor has excess inventory.

Below is a further breakdown of what you need to consider when making this decision.

Before making the decision to lease, here are some of the advantages and disadvantages to consider to ensure you are making an informed financial decision.


A leased vehicle is usually covered by a warranty for the duration of the lease.

You can change vehicles or simply return the car at the end of the contract without thinking about trade-in values, trying to sell or negotiating its value.

You will have lower monthly payments than buying a car on a loan.


There are yearly kilometer limits to the car and if surpassed, be prepared to face some hefty fees.

The vehicle must remain in tip-top shape! You’ll have some wear and tear fees if the car isn’t well maintained.

If you’re in a habit of leasing, you’ll always have that monthly payment. There are significant penalties if you decide to get out of a lease before the contract is up.

No pride of ownership.

Owning a car is more cost-efficient in the long term.

Calculating a Lease Payment

Let’s say that new car you want that costs $25,000 and you are placed on a three year lease. By going on this lease, you are agreeing to monthly payments for years. The value of the car will decrease due to depreciation (a reduction in the value of your car) at the end of those three years.

Let’s use a 50% depreciation rate for this example. This means the car would be worth $12,500 at the end of the lease (also known as the residual value). To determine the lease payment, you would take the original cost and subtract the residual value. You then divide that amount by the duration of your lease to determine monthly costs.

The Math:

$25,000 (original cost) – $12,500 (residual value) = $12,500

$12,500 / 36 months (3 years) = $347/month

You will also need to take into account interest rate and taxes when calculating your lease payments.

Note that all cars depreciate at a different rate (40%-60% at the end of 3 years is a good estimate) and lease durations can vary. At the end of your lease, you have the option to buy out the car at its residual value or find a new car to lease.

If you have decided against leasing, your other option would be to buy a car. If going this route, you will have to decide between buying a new car or a used car. Here’s a quick look at the advantages of both options.

Advantages of Buying New

Warranty: The best warranty package comes with new car packages. The warranty will detail everything that is covered and provides worry free driving for a period of time.

Technology: Air conditioning and power locks just don’t cut it anymore. Your new car could come with heated seats, self-parking or rear-view cameras.

Environmental: Newer cars tend to have higher fuel efficiency and better emissions standards than older cars.

Maintenance: Some new cars come with free scheduled maintenance for a limited time. This could save you a bit of money in the long run.

No Negative History: You will be the first to own the vehicle, meaning you never have to question if there has been any accidents or prior history associated with this car’s ownership.

Advantages of Buying Used

Price: The obvious advantage here is that used cars will be cheaper. You may even be able to look for a nicer model if your budget allows for it.

Insurance Rates: Used vehicles tend to have cheaper insurance rates.

No extra fees: If you decide to buy from a private party, you can avoid those hidden fees from dealers.

Competitive Financing: Both banks and dealerships will offer better rates if you decide to finance a used car. Banks will usually offer the more competitive rate of the two as dealerships often have promos for current year models only.

Selection: A wider selection of cars means you have more options and this can help you find the right car for your budget and style.

Zero Percent Financing v.s. Rebates

When buying a new car, you may come across dealerships that offer either 0% car loans or a cash rebate up front. So what’s the better deal? With the financing option, you won’t have to pay any interest for the duration of your auto loan. The cost of the car is simply spread out evenly each month. With the cash rebate, the original cost of the car is cheaper but interest will be accumulating (assuming you don’t buy the car outright of course).

The simple answer is to just do the math. Here is a calculator that can help you choose the best option.

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Tips for New Car Owners

Set a budget: Know exactly what you can and can’t afford. Don’t be tempted by the sales staff and end up with options or features you don’t need.

Monthly Terms: Some car makers are offering up to 84 month terms but beware: you are tied into the vehicle for seven or eight years and by then your needs may have changed. The car may be in need of costly maintenance and you may still owe more money than the car is worth.

Run a vehicle history report: Get a full history of the car. You’ll receive information about previous accidents, owners and everything in between. You can get a history report at Carproof.

Never sign an “as is” contract: Many used car dealers will mix that in with the other paperwork you’ll be asked to sign. As with anything that requires a signature, read before you sign. You should have at least 30 days to make sure the car is in good condition. If you sign an “as is” statement, once you drive the vehicle off the lot, anything that goes wrong is your problem.

Have your financing in place: Know your credit history! If you have a good credit score you can negotiate lower rates and have your loan approved before you purchase.

Know when to buy: The best times to purchase cars are typically in the last two weeks of December and between July and October.