![]() ![]() At $9,998, it’s the cheapest new car you can buy in 2020. Let’s look at a different example, the new Chevrolet Spark. Leasing a car: When the interest rates aren’t outrageous “The money saved should go to paying off debt with higher interest rates, like a credit card.”ģ. “You’ll end up paying a smaller share for your use of the vehicle,” points out CAA-Québec’s automobile expert, Jesse Caron. That reduces the amount you have to finance, which should lower your monthly payment even more. That way, the residual value – or “buy-back” – will increase. Need to save even more? If you don’t expect to drive 20,000 kilometres annually, ask your dealership to lower the yearly allowance. Here are the cheapest new cars you can buy in Canada.10 Tips on how to buy your new car smarter.But if the $251 monthly lease payment is the most a consumer on a tight budget can afford – and the $388 per month to buy the car too much – leasing may not just be the better option, but the only one. Last month, March 2020, the DX-trim Civic with manual transmission was offered with a higher lease rate (1.99 per cent for 60 months) than purchase rate (0.99 per cent, again for a five-year term). Let’s take for example Canada’s best-selling car for the last two decades, the Honda Civic. Leasing can also help if you’re on a very limited budget, when lower monthly payments can mean the difference between getting a new car or not. Leasing a car: When your budget is extremely tight “In fact, leasing is just another way of borrowing, the difference being you have a balance at maturity.”Ģ. “When rates are similar, leasing and purchasing become two equivalent financing options,” explains Éric Brassard, financial planner with Brassard Goulet Yargeau of Québec and author of Finance au Volant. But sometimes – rarely – the lease rate might be similar, if not better, than the purchase rate. However, leasing generally involves higher rates than purchasing. Interest rates vary widely, depending on the brand, model, model year and, of course, depending on the buying or leasing terms. Lease vs buy cars Canada Photo by Andrew Burton / Getty Images Leasing a car: When the interest rate is particularly interesting For some, it could be a wise solution.īut not for everybody. That said, there is sometimes a logic to leasing, and financing a portion of the sticker price of a car you’ll use over the best years of its life. Article contentīut there’s much more than a monthly payment to consider when figuring out the real cost of acquiring a new car.Īnd although leasing conveys the impression a certain car may be more “accessible,” it doesn’t really reduce their cost at all - at the end of the lease term, those “low monthly payments” will have added up to tens of thousands of dollars spent on a vehicle you don’t even own. If you choose to own the car, you can eliminate that recurring monthly bill, plus you can always make some money by selling the vehicle later.This advertisement has not loaded yet, but your article continues below. If you return the car and take on another lease, you can keep your monthly payments low while getting to drive a newer model that you couldn't normally afford to buy. And if you finance the residual value rather than pay it in full, your costs are even higher.Īs you can see, your eagerness to own something at the end of the leasing period is a crucial factor. The total cost to own a vehicle after your lease ends is more than the total cost associated with a traditional auto loan, except in the extremely unlikely scenario that the value of R is near 0. Assuming you pay the residual value in full, the total cost to own a lease is the sum of all the monthly payments plus the residual value. If you lease a car and want to keep it at the end of the term, you have to pay the residual value (or finance it). Total Cost to Own EquationIf you buy a car by taking out a loan, the total cost to own the vehicle is the sum of all the monthly payments, which you can calculate by multiplying your monthly auto loan payments by N. The larger the value of R, the lower the lease payments per month. Usually R is a fixed percentage of the MSRP (the vehicle manufacturer's suggested retail price for the unit), often around 60%. M lease is always less than M buy, even when R = 0, although this is an unrealistic mathematical condition. Then the monthly payments for leasing and buying, M lease and M buy are Monthly Payment FormulasLet C be the net cost of the car to buy or lease, R be the residual value of the car at the end of the leasing period, N be the number of months in the lease or loan term, and X be the APR (percent). Purchase Price (Capitalized Cost) $ Down Payment $ Value of Any Trade-In $ Net Capitalized Cost $ (auto-filled for you) Residual Value $ Lease Term in Months Annual Interest Rate % Money Factor (auto-filled for you) ![]()
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