Choose Your First Vehicle With Lifestyle in Mind
Before you choose your first vehicle, think about your lifestyle needs and your
financial situation.
"If you're in the market for a vehicle, you should think about how you will use
it, the expected mileage, and how long you will keep it," says Kerry Butler, CA,
Managing Partner at Collins Barrow in Orangeville.
If you're single, self-employed and frequently travel to see clients, your best
vehicle choice will be different than that of a mother of five children who
drives to a local part-time job. It will be different again if you're a
construction worker who hauls heavy-duty tools to work every day.
Many first-time vehicle purchasers are new graduates who typically have a
reduced budget," says Desmond Reynolds, EVP and CFO, Curomax Corporation in
Mississauga. "Used vehicles in good condition offer significant savings compared
to new vehicles. Many manufacturers and other suppliers offer extended
warranties that enhance the used-vehicle life."
When it comes to financing a vehicle, Reynolds says it's best to shop around and
determine the best financing source for your circumstances. "Rates typically are
connected to your credit worthiness which for a first-time buyer could be an
issue. Most banks do offer first-time buyer programs and incentives. So a good
rule of thumb is to start early and maintain a good credit history."
Butler says to put down as much as possible and pay off the car loan as soon as
you can, unless you are getting a very good finance rate such as 0 per cent.
"Even then, you should ask the car dealer if you would get a better deal paying
cash up front. Sometimes the no-payment, no-interest scenario hides the fact
that a higher cost is buried in the price of the vehicle."
"If you need a vehicle for your business, there are also tax deductibility
issues to consider," says Reynolds. "If your employer requires you to have your
own vehicle and not a company car, you could receive substantial tax deductions,
including the cost of maintenance, gas, insurance, minor repairs and portions of
the purchase cost of the vehicle, depending on your individual situation. To
deal with this, the employer signs a T2200 Tax Form issued by the Canada Revenue
Agency. To benefit from any tax deduction, the most important thing is to
maintain accurate records required by the Canada Revenue Agency on the business
usage and related vehicle expense."
Another common quandary is whether it's better to lease or buy. "From a tax
deductibility perspective, over a ten-year period, the difference is negligible
but there are other considerations," says Butler.
"I think there are more benefits to buy than to lease, if you can. Buying offers
more flexibility. You can sell the vehicle if you get into financial difficulty
and you are not locked into a maintenance schedule at the dealership. It's
always wise to choose a vehicle with a reputation for longevity so you will be
able to use the asset long after the payments are complete.
"If you lease, you are committed for the term, expected to comply with the
dealership's maintenance schedule, and the cost goes up if you do more than
20,000 kilometres a year. Alternatively, leasing is a great option for someone
who wants to drive a new vehicle every three years or so, and there are many
lease and lease-look-a-like products available for first-time buyers," advises
Butler.
For further information, contact a Chartered Accountant.
Brought to you by the Institute of Chartered Accountants of Ontario.
Brought to you by the Institute of Chartered Accountants of Ontario.