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What is the best way to pay for your car?

You've found a car that meets your needs and fits your budget. The only decision left is how to pay for it. Is it better to pay cash, lease or apply for financing? Each option has its own advantages and drawbacks, which is why it is important to make an informed decision.

Paying in cash

Advantages:

• No interest costs or financing charges
• No monthly payments weighing on your budget
• You are free to do what you like with the car
• Reselling is easy when you no longer need it

Drawbacks:

• Be careful not to drain your savings?keep some money set aside for emergencies.
• Paying cash means using the fruit of your labours to obtain an item that will depreciate over time. Is there a better way to use that money?

Leasing a vehicle

You can sign a lease agreement with a financing company or a vehicle manufacturer.

Advantages:

• A practical solution if you like to change cars frequently
• Normally, your car is covered by a warranty for mechanical issues
• No risk to the car's resale value due to a problem found in a specific model or a model's poor reputation. The vehicle is returned at the end of the lease regardless of its market value

Drawbacks:

• You will probably be limited to 15,000-20,000 km per year, and going over this limit could result in high usage fees. Consider your driving habits carefully before taking this route.
• The lease may require that you hold more extensive auto insurance than you currently do.
• If the car you lease shows excessive damage or wear and tear, you must assume the cost of restoration work before the end of the lease to avoid penalties.
• Any modification to the car is generally prohibited.
• You will have nothing when you return the car to the dealership. You may choose to buy the car at its residual value upon expiry of the lease, but this value is often inflated.
• It can be difficult to cancel a lease.
• You may have trouble finding a lessor if your credit history is not good.

Financing a vehicle

You can get the necessary financing for a vehicle from a credit union, car manufacturer, financial institution or finance company. Certain loan contracts include such attractive features that they are almost as advantageous as paying in cash.

Advantages:

• You pay for your car with borrowed money, allowing you to hold on to your cash reserves.
• You own your car at the end of the contract.
• Many lenders offer extended loan periods that lower your monthly payments to the same level as a lease payment.

Drawbacks:

• If you decide to sell the car without having paid off the loan, the process may become difficult and require the creditor's participation.
• May require a substantial downpayment, as opposed to a lease agreement, which usually doesn't.
• Monthly payments usually higher than a lease payment would be. This may have more of an impact on your day-to-day budget than a lease or a cash payment.