Financing a Car in Ontario

When you lease a vehicle, you enter into a contract with a dealership or leasing company that provides you with the use of the car for a set period of time. In exchange, you have a fixed monthly lease payment for the duration of the lease, and you are responsible for the insurance and maintenance. At the end of the lease, you can choose to buy the vehicle or return it to the dealer and then lease or buy a different one.

There are a few benefits to leasing a car:

• Lower Monthly Payments — you only pay for the depreciation in value of the car, not the full value
• Shorter Terms — leases usually don't last as long
• Newer Cars — you’re not buying the car, so you can choose to lease another new car at the end of the term

However, there are restrictions on what you can do with the vehicle during your lease, some that come with a penalty cost if you fail to adhere to them - for example, many leases include a limit on how many kilometres per year you can drive it. You also pay additional fees if you want to end the lease before it is finished.

When you get financing for a vehicle, you are getting a loan directly from a bank, dealership or credit union to buy the full value of the car. You can negotiate the length of time required to pay off the loan, the interest rate and monthly payments. Basically, if a car costs $10,000 and you only have $4,000 that you can pay right away, you ask for the rest of the $6,000 in a loan and in return they charge interest that is spread over the monthly payments for the duration of the loan.

Here are the benefits of financing a car:

• No Restrictions — because you're buying the car you own it and have no restrictions on how you use or customize it
• Early Loan Termination — at any point you can pay off the full remaining value of the loan with no extra penalty fees
• Flexibility - you can get a car loan for used vehicles rather than just new ones and you can resell and use the value to pay off your loan early

When you finance a vehicle, you get full ownership. You can drive it however much you want with no restrictions or additional penalties to pay. You can also sell or trade in the vehicle before the loan is over and use the value to pay off the rest of it without extra payments.

For some people, it is more difficult to get leasing or financing for a vehicle. This includes people who have bad credit due to previous bankruptcies or other financial difficulties, or people with no credit such as new Canadians who just immigrated to Ontario. The reason is because for both getting a lease and getting a loan, the bank or dealership will run a credit check. If you have a history of bad credit or have no credit history, they consider you a risk to fail to make your payments.

However, it is not impossible to buy a car when you have bad credit or no credit. You can improve your credit situation by opening bank accounts, getting a credit card or taking out a smaller loan and then making all your payments on time. This shows that you are trustworthy and can make your payments on time.

If you still have bad credit, there are a number of companies that offer "subprime" leases and loans if you have a pressing need for a car. These will have more restrictive conditions and higher interest payments because you are still considered a risk, but good financial companies will make sure to work with you to find a vehicle that you can still afford.

There are three different ways of buying or paying for a vehicle, each with their own benefits and drawbacks.

When you lease a vehicle, it is usually only worthwhile if the terms suit your needs:

• Pro — you usually have a lower monthly payment than with a loan and you only pay for a portion of the vehicle's value
• Pro — If you want to have a new car every few years, it allows you to do so without paying as much
• Con — you do not own a vehicle that you lease and if you do not meet the terms and restrictions you have to pay penalty fees that can be very costly
• Con — you cannot lease used vehicles which are less expensive than new cars

Financing a vehicle or taking out a loan to pay for it, is generally more appealing to car shoppers in Ontario. Here are the pros vs cons:

• Pro — you own the vehicle and do whatever you want with it without having to worry about any penalties
• Pro — it is more useful for people who want to own one car for many years but keep the flexibility of what they can buy and when they can end the loan
• Con — usually has higher monthly payments and a longer term than a lease

The only way to avoid paying interest and extra fees when buying a vehicle is to buy it outright, where you pay for the full value of the vehicle upfront. Here are the pros and cons of this option:

• Pro — you save a lot of money in the long term because you do not have to pay any interest in monthly payments
• Pro — like with financing, you own the car and have no restrictions or potential penalty fees with how you use or customize it
• Con — comes with a much greater upfront cost, so you need a lot of cash on you to buy most cars outright

It's crucial that you know ahead of time what your wants and needs are when buying a car. If you drive it more than the average person, you will have to worry about penalty fees if you lease it, for example. But if you're only going to use it sparingly and want to save on payments, you can constantly upgrade to a new vehicle every few years and save every month.