THE NEW VEHICLE either purchase or lease, are supported by low interest rates and in the case of a lease low interest rates plus high residual values – what the car is worth at the end of your use. The math on a lease – you are paying the difference between the original cost of the vehicle less the residual value plus interest divided by the term. So in the case of popular vehicle with good resale value – residual – and low interest rate, you are paying relatively low payments compared to others. The Honda Civic is a perfect example proving this math. 2 cars with the same initial purchase price – one has much better resale value than the other – you are paying back less on the vehicle with the higher resale value. On top of this, the interest rate adds minimally to the math as it is usually very low – again Honda is .99%. The lease of a popular vehicle with good resale value and low interest rate presents best value. When you add the deficiency from the old vehicle it makes the value even better.
THE USED VEHICLE comparison is easy when you understand the lease math above. When you buy a used vehicle, the finance rate on purchase or lease is not supported and you are subject to prevailing bank interest rates which today start at 5% and go up from there. The age of a used vehicle, the type of vehicle, do have a bearing on the interest rate you will receive . The finance rules say the cumulative age of a vehicle to finance cannot exceed 7 years using standard rates. So a 4 year old vehicle can be financed for 3 years. If you are trying to target a monthly payment thinking the cheaper the vehicle – older – you may be faced with a higher payment as it is amortized over a shorter period plus at a higher interest rate. Compounding this is the higher interest rate you are paying on the deficiency portion of the loan/lease on used car.
THE MATH
The lease on a new Honda Civic Automatic LX as an example is approx. $280 per month including HST with zero down payment. Adding the deficiency from the old car will add approx $21 plus HST/$1,000 so this will add approx $71 to your lease payment on the new vehicle. So of approx. $350 you are driving a new vehicle full warranty and you are not locked into a long term finance commitment. If you do the math on a used vehicle, you will see to finance a $10,000 vehicle plus HST plus $3000 deficiency at 5% over 48 months would give you a payment of $379. Argument – once the used car is paid off I owe it! You will own at least an 8 year old car! Wow! What is that worth if you are only paying $10,000 for it now. How much will it cost to keep and maintain an old car on the road? New car has a general warranty for 36 months. Costs to maintain a newer vehicle is much less and more predictable than a used vehicle.
SUMMARY
My only suggestion regarding a vehicle is this: pay only for what you use and do that with a vehicle that presents best value INCLUDING cost to finance, operate, maintain and insure. Buying a used vehicle and trying to keep it affordable by stretching the finance term, maintaining the vehicle and eventually selling the vehicle – the only time you really know what a vehicle has cost you – is a very precarious endeavour. Very difficult to budget. Leasing a new vehicle allows you to budget and control your overall use costs and gives you a reliable vehicle but still allows you all the benefits of ownership if you do wish to keep the vehicle. Your options are completely open and your budget is affordable. Nice. Remember PAY FOR ONLY WHAT YOU USE!
Hope the helps? We can review in detail and get exact numbers to allow you to make an informed decision on a new vehicle. If you own your current vehicle and wish to use it as a down payment on the new vehicle, there is HST tax relief on the new vehicle. A cash recovery of the owned trade value is also available to you on a new leased vehicle.
