Should You Finance a Used Car? - Finance vs Cash vs Lease

Should You Finance a Used Car? - Finance vs Cash vs Lease

Purchasing a car is a significant financial decision that requires careful consideration of various factors, including how to pay for it. In Canada, many people face the dilemma of whether to finance a used car, buy it outright with cash, or lease it. This decision can have long-term financial implications, so it’s essential to weigh the pros and cons carefully. This article aims to provide Canadian car buyers with a comprehensive guide to help them decide if financing a used car is the right choice for them.


Should I Finance a Used Car?


Financing a used car can be a smart financial decision if it aligns with your budget and financial goals. It allows you to spread out the cost over time, potentially making higher-quality vehicles more accessible. However, it's crucial to consider the interest rates, loan terms, and the car's overall condition before committing to a loan.


Should I Finance a Used Car


Pros of Financing a Used Car


  1. Lower Initial Costs: Financing a used car means you don't have to pay the entire amount upfront, making it more affordable initially.
  2. Affordable Monthly Payments: You can manage your finances better with predictable monthly payments spread over a fixed term.
  3. Depreciation Advantage: Used cars depreciate slower than new cars, meaning they retain their value better over time.
  4. Variety of Choices: Financing can provide access to a broader range of vehicles within your budget, including higher-end models that might be out of reach if buying outright.


Cons of Financing a Used Car


  1. Higher Interest Rates: Used car loans often come with higher interest rates compared to new car loans, increasing the overall cost.
  2. Shorter Loan Terms: Lenders may offer shorter loan terms for used cars, which can result in higher monthly payments.
  3. Risk of Older Cars: Older vehicles may require more maintenance and repairs, adding to the overall cost of ownership.
  4. Equity Concerns: There is a risk of owing more on the loan than the car is worth, especially if the vehicle depreciates faster than expected.


Also Read: Best Way to Buy a Used Car in Canada


Finance vs Cash vs Lease


Criteria Finance Cash Lease
Upfront Cost Low (Down payment required) High (Full payment required) Low (Initial fees required)
Monthly Payments Yes (Loan repayments) No Yes (Lease payments)
Ownership Yes (Once loan is paid off) Yes (Immediate) No (Return car at end of lease)
Interest Rates Higher (For used cars) None None
Maintenance Costs Buyer’s responsibility Buyer’s responsibility May be covered under lease agreement
Depreciation Slower than new cars Depends on car condition Leasing company bears depreciation
Flexibility Medium (Depends on loan terms) High (No financial obligations) Low (Restricted by lease terms)
Mileage Limits None None Yes (Exceeding limits incurs fees)
End of Term Options Own the car Own the car Option to buy or return the car


Example for the Above 3 Cases


Let's consider an example of purchasing a used car valued at CAD 20,000.




  • Down Payment: CAD 4,000
  • Loan Amount: CAD 16,000
  • Interest Rate: 6%
  • Loan Term: 4 years
  • Monthly Payment: Approximately CAD 376
  • Total Cost (Including Interest): CAD 22,048




  • Upfront Payment: CAD 20,000
  • Interest: None
  • Total Cost: CAD 20,000




Assuming a 3-year lease on a similar used car.


  • Initial Fees: CAD 1,500
  • Monthly Payment: CAD 300
  • Total Lease Payments: CAD 10,800
  • End of Lease Option: Option to buy the car for CAD 10,000




  • Financing offers lower initial costs and manageable monthly payments, but the overall cost is higher due to interest.
  • Paying Cash eliminates interest but requires a significant upfront investment.
  • Leasing provides the lowest monthly payments and flexibility to switch cars, but you do not own the car at the end of the term unless you opt to buy it.


Final Thoughts


Deciding whether is it better to finance or buy a used car depends on your financial situation, preferences, and long-term goals. Your credit score and the availability of an auto loan can greatly influence this decision. Financing can make a higher-quality car more accessible with manageable payments but it comes with interest costs. Paying cash avoids interest and gives you immediate ownership but requires a substantial upfront payment. Leasing offers low monthly payments and flexibility but does not result in ownership unless you decide to buy the car at the end of the lease.


Consider your budget, financial stability, and how long you plan to keep the car before making a decision. Whichever option you choose, ensure it aligns with your financial goals and lifestyle to make the best possible choice for your needs. Evaluating the pros and cons of financing a used vehicle is crucial.




Is it better to finance a car or buy it outright?


It depends on your financial situation. Financing allows for manageable monthly payments and conserving cash flow, but buying outright avoids interest costs and gives immediate ownership.


Can you negotiate financing on a used car?


Yes, you can negotiate the terms of the loan, including the interest rate, loan term, and down payment. Shop around and compare offers from different lenders to get the best deal.


Is it better to lease or finance a car?


Leasing generally offers lower monthly payments and flexibility to change cars frequently, but you do not own the car. Financing results in ownership after the loan is paid off, which can be more cost-effective in the long run if you plan to keep the car.


Looking for affordable financing on a quality used car? Contact Tabangi Motors and let our experts help you find the best loan terms. Apply now and drive away in style!

Categories: Buying Tips