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Top eight tips for buying a car

  1. Don't automatically buy a new car every few years. If you take good care of your car, it can last longer, saving you money.
  2. Think about what you really need. Four cylinders are cheaper than six, and two-wheel drive is cheaper than four. These two options alone can save you thousands of dollars over the life of the car. Can you downsize and save money not only on the purchase price, but also on maintenance and gas?
  3. Consider buying a used car. New cars lose about 20% of their value as soon as you drive them off the lot. Finding a reliable, and affordable, used car may take a bit more work, but the savings can be worth it. See just how much you can save in: Who wants to be a millionaire? Why buying a used car pays.
  4. Go after the lowest price you can get. For example, negotiate for a discount. You can often get a better deal on cars at the end of the month. Why? Most salespeople get paid a sales fee when they sell you a car. They may be more motivated to sell at the end of the month so their monthly sales record will look good.
  5. Think about leasing a car if you don't drive a lot, or if you run your own business. Its not right for everyone, but it may lower your monthly costs. Learn more now about the pros and cons of leasing. You can also try this Lease or Buy Calculator from Industry Canada to see if leasing is right for you.
  6. Talk to your bank before you visit the car dealership. See who offers the best loans before you sign on the dotted line.
  7. Always read the fine print. Many car dealerships promote low cost financing or 0% interest rates. But the interest rates may go up after a few months. Or the term of the loan may be shorter. Be sure you can afford the higher monthly payments when they start. Learn more now.
  8. Don't assume 0% financing is better than a rebate. See how the two compare in Deal or no deal: Howie's story.
Whatever you do, don't put the down payment on your credit card. Credit card interest rates are often double the interest rates charged by dealerships and banks.
 

Who wants to be a millionaire? Why buying a used car pays

A new luxury car or SUV costs about $8,000 a year to own and run. If you buy a reliable used car, and minimize your driving by using transit, cycling, or walking, you can cut your car costs in half. Then you can invest those savings

If you invest $4,000 yearly, and your money grows 7% a year, in 10 years you'll have $55,266. In 20 years that grows to $163,982. If you bought your first car at age 20 and followed this plan, by age 65 you would be a millionaire! (Source: Victoria Transport Policy Institute
 

Deal or no deal: Howie's story

After weeks of shopping around, Howie has found the right car. It costs $20,000, but Howie plans to pay down $4,000 by trading in his old car. That means he has to borrow $16,000 to buy the new car.

Now the car dealer gives him two choices: 0% financing or a $2,000 rebate. Which is the better deal?

If Howie takes the no-interest loan: He will have to pay back $16,000 over three years. He wont pay interest, though.

If Howie takes the $2,000 rebate: He can pay that money down on the car and borrow less. He can get a loan for $14,000 from the dealer and pay 3.99% interest over three years.

With one of these choices, Howie will save more than $1,000. Which one? This chart shows you the math (Source: Capital One Auto Finance):
 
 
 
The no-interest loan
The $2,000
rebate
 Interest rate
0%
3.99%
 Cost of car
$20,000
$20,000
 Less trade-in
$4,000
$4,000
 Less rebate
--
$2,000
 Amount to finance
$16,000
$14,000
 Monthly payment
$444.44
$413.27
 Total cost
$16,000
$14,877.85
 Savings
$0
$1,122.15
 
 
It turns out Howie will pay less for the car over three years if he takes the rebate.