A client approached me with this question the other day. Ahh, the age-old question that really doesn’t have a “right” answer. There are pros and cons to each option that make it very personal to your situation. That said, there are things to consider that may help make the decision given your own circumstances.
Ask yourself how often you replace your vehicle. If it’s not often, then you may want to consider purchasing/financing. If you prefer replacing your vehicle more often (i.e. every 4 years), then it may make sense to lease and accept that you will have a perpetual car payment.
What the are financing details? If the rate is higher than 5 – 6%, then it may make sense to purchase the vehicle with cash. If the rate is closer to 4% or less, then I would consider investing the money (i.e. TFSA). You’re likely to average a higher after-tax rate of return on your portfolio over the financing rate. Your current cash flow would determine how much you would need to put down to lower the periodic payments.
Do you prefer to drive a newer vehicle? Leasing may be ideal for you as long as you anticipate driving less than the prescribed kilometres. Lease rates are typically less than financing rates, so if you were to lease, it makes sense to put the least amount of money down to get the periodic payments to a comfortable level and invest the remainder.
If you are in this position and would like to talk out the particulars, don’t hesitate to contact us at the office.
