Car financing options

Car loans

A car loan is a personal loan for the purchase of a car or other type of motor vehicle.

You may get a car loan:

with a dealership
directly with your financial institution

Car loans with a dealership

Most dealerships make car loan arrangements for you with a lender. In this case, you apply for and receive a car loan directly at the dealership.

When you visit the dealership, dealers arrange financing for you with:

a financing division of the car manufacturer
a financial institution, such as a bank or credit union
an independent finance company, such as one that specializes in providing car financing

Car loans or lines of credit with your financial institution

You may be able to get a car loan or line of credit with your financial institution instead of a dealership.

You may even be able to negotiate a better interest rate on a car loan or line of credit. That may be the case if you have a bank account, mortgage and credit card in good standing.

Car leases

Leasing a car is like a long-term rental. When you lease a car, you make regular payments for the use of the car over a set period. That period is typically 3 to 5 years. You usually make your payments to a financial institution. For example, a bank or a credit union.

You aren’t buying the car and won’t own it when the lease ends. However, you may be able to buy the car at the end of your lease term.

Leasing may be a good option if you like to change your car often. That way, you don’t have to sell or trade in your previously purchased car.

Dealerships typically arrange car leases. They usually include conditions and restrictions to the lease. Make sure you fully understand what they are before signing the contract.

Pros of leasing a car

Leasing a car may come with advantages, for example:

payments are generally lower than a car loan with the same term
you’re able to get a new car every few years if you qualify for a lease
some leasing contracts may include warranties for major defects and repair expenses
you may choose to buy the car, return it or lease a new one when your lease ends

Cons of leasing a car

Keep in mind that leasing a car may also come with disadvantages, for example:

you may end up paying more overall than if you had bought the car
you won’t own the car after your lease ends
breaking a lease before it ends may be very costly
you may have to pay extra costs, such as fees for excessive wear and tear

Rent-to-own plans

Some dealerships or car rental companies may give you the option of a rent-to-own plan.

Most rent-to-own plans are similar to car leases. You agree to make regular payments for a certain period. You make your payments directly to the dealership or car rental company. You then have the option of returning the car or buying it at the end of that period.

Learn more about rent-to-own plans.

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