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 vehicle's 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 of which 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 pay for 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 both used and new vehicles, and you can resell and use the value of your vehicle 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 main ways to pay for a car, and each has its own pros and cons. Here’s a simple breakdown to help you decide which option works best for you:

Leasing a Vehicle

Leasing can be a good choice if the terms match your needs.

• Pros:
  • Lower monthly payments compared to financing, since you’re only paying for part of the car’s value.
  • Great if you like driving a new car every few years without the full cost of buying.
• Cons:
  • Since you don’t own the car, you’ll have to follow mileage and usage limits, or pay penalties.
  • It is harder to find leases for used cars, which are usually cheaper than new ones.

Financing a Vehicle

Financing (taking out a loan) is a popular choice for Ontario car buyers.

• Pros:
  • You own the car outright, with no restrictions or penalties on how you use it.
  • Perfect if you want to keep the car for many years while still having the flexibility of managing what you can buy and when you can end the loan.
• Cons:
  • Higher monthly payments than leasing with a longer term than a lease.

Buying Outright (Paying in Full)

If you have the cash, buying a car outright is the simplest way to avoid interest and extra fees.

• Pros:
  • You save money in the long run since you’re not paying interest.
  • Like financing, you own the car and can do whatever you want with it.
• Cons:
  • The upfront cost is high, which can make it hard for most people to afford.

Choosing What’s Right for You

It's crucial that you know your wants and needs ahead of time when buying a car. If you drive more than average, the kilometre allowance on a lease might be too restrictive or could cause you extra fees. But if you drive less and want a new car every few years, leasing could help you save on monthly payments. On the other hand, financing or buying a car outright makes more sense if you want to own your car for a long time without worrying about restrictions.