This is a controversial question, for sure. And my usual fast response: it depends. Car Loans, like any other kind of loan, have to be eventually paid off, but that is not the biggest deal because if you get a loan, is because you expect to. On the following article, I will give my overview and suggestions regarding this topic.
First Thing, Know Your Credit Score
This is vital.You need to know where you are on the 350 - 850 credit scale. Then, evaluate your options. Our partner agency, Borrowell Canada, offers a FREE Equifax Credit Score in only 2 minutes.
If your credit score is low, then you will need to seriously consider to build it up again. Interest Rates will be higher than usual and will make your alternatives very hard to accept. Refresh Financial has an amazing program for building up credit.
It cannot be compared to "the Mortgage case"
And I will use a simple example: the fact that you have the options to "rent" or "buy' a house, is kind of similar, but not the same as when you "lease" or "buy" a vehicle. You need to understand that from the very beginning: Real Estate needs aren't the same as Transportation needs, not even under "loan" terms. Both require capital, there are available loans and interest rates associated but are 2 completely separated fields.
Different Purposes and different "Behaviours" Over Time
You need a place to live, and people pay for it regularly every month. Either with a rent or a mortgage, you have to pay for it. You need a place to sleep, rest, have a bath, a place for cooking your food. You could manage to live without a car, but not without a shelter. This is why paying your rent or mortgage, is priority number one for any family finances.
Now, over time, on average, a Real Estate property should gain value. I say should as in most cases it does, but it is not an absolute truth. Cars never do, and that is an absolute truth. Any "investment" you make on a car, will depreciate with time, with houses it is pretty different.
Banks Loan Money for Both Needs
Because it is a business opportunity for them and a financial opportunity for us. But, as any loan, it should be carefully thought & studied. Just be aware of the difference between what a Mortgage is and a Car Loan is. The numbers are quite different, of course, but it is not the only difference between a house and a vehicle loan.
Why Going On a Car Loan?
Before jumping on the "car loan", you should ask yourself: "Do I really need a car?". Chances are you do, Canada is huge and while Bus/Metro lines on the main urban areas are pretty good, these are not as extensive as to fit beyond populated areas. I live in Downtown Montreal and the Metro works pretty good for me, but as soon as I need to go out of the island, that's it: I need a car.
Consider First the Manufacturer Programs
Well, cars aren't as expensive as properties are, but these are expensive too. This is why manufacturers have created financial institutions to massively offer loans (and it is a business opportunity for them too) to customers who want to acquire their products. Either for leasing or financing a vehicle, if you have an above average credit score that shows you up as a good person to lend, then they will give you the vehicle under your signed promise.
Now, I'm referring directly to the average case. A person with an average salary looking for an average vehicle. The average family household income in Canada is around 80,000 per year. If you suddenly decide to go after a 120,000 Tesla Model X, then we are talking about 2 different things. I repeat, the case I mentioned before, adjusts to an average scenario, not to the Telsa one.
The main benefit of manufacturers programs is that these are designed for new vehicle penetration strategies that require lower interest rates. This means that will be really hard for your bank to beat the offer a manufacturer can make you when you have a good credit score.
I would say that, in 95% of cases, it is worth to go with the manufacturer loan. Haven't you seen around the 84 months financing with 0% interest rate on selected Chevrolet models? Which bank you think could make that?
Your Credit Score is Low: Consider Both the Dealer & Your Bank
This is totally OK. Either if you just landed in Canada, had a few financial problems in the past or so, then going for a loan with the dealer itself or your bank will sound way better. Manufacturers may ask you to do a 20% vehicle MSRP downpayment.
I wrote an article about the main things you need to know about Doing a Car Loan with Bad Credit I strongly suggest you read.
It is Worth if the Vehicle is Worth
You have to be realistic. You may dream every night with a Ferrari, but if you can't afford it right now, you shouldn't jump into a hole for it. Be realistic and educate yourself financially to be able to do it in the future. Strongly evaluate options and the alternatives that will actually give you back the value you need.
If you are considering, let's say, an SUV, then explore the Cheapest SUV Options. If it is a pickup truck what you are looking for, explore all available alternatives. Don't be attracted directly by the first option you find, there are always a lot more out there.
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