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Understanding your financing options before buying a new vehicle and the 3 important decisions to make about financing.

You’re going to have a few choices to make before you start exploring how to finance your new vehicle. Understanding your options is important — a little preparation goes a long way toward securing the best deal for your financial situation.

Buying or leasing

One of the first decisions when financing your vehicle is whether you’d prefer to buy or lease. A vehicle lease is similar to a long-term rental — you agree to “borrow” the vehicle instead of owning it and pay monthly fees for a set amount before giving it back to the dealership.

Your monthly leasing fees will generally be less expensive than an equivalent loan, which can help make your dream vehicle more affordable in the short term. However, you’ll be making these payments for as long as you drive the vehicle, which lowers its value as time goes on.

Buying a car also offers fewer restrictions — leasing agreements often include mileage limits and may charge extra if the vehicle is returned in worse condition than expected.

Getting the best deal on an auto loan

Many car owners rely on auto loans to finance their vehicles. When looking for the best deal on an auto loan, most of the conversation will be centred around interest rates (the fee your lender charges for the privilege of borrowing money from them).

Per Statistics Canada, the average interest rate for a car loan in Canada is approximately 7.25% as of March 2023 — you can use that as a baseline for what a good deal looks like. But it’s important to know that these rates can fluctuate based on your credit score. With a higher score, finding deals with low interest may be easier.

RBC’s Car Loan Payment Calculator allows you to easily calculate what your payments might look like before you make a commitment.

Find out how much you can afford before going to a dealership with RBC’s My Auto Affordability Tool.

Dealer or bank financing

When taking out an auto loan, you can choose between financing with your bank or your dealership. Both have their benefits. Dealers are usually more invested in getting the deal done, which means that the terms of a dealership loan may be more negotiable. For clients with good credit scores, some dealerships can offer 0 per cent financing options on newer models — meaning there is zero interest on your loan.

Financing with your bank can help with organization. Your bank may handle your other loans, which can help streamline your payments each month. A bank loan can also go towards any vehicle, while a dealership loan is usually reserved for a pre-determined makes and models.

For RBC clients, there is also the option of sending their loan money to their bank account or directly to the dealership.