If you’re considering financing your next vehicle, it’s important to understand how it works—and how it compares to other options like leasing. In this blog, we’re breaking down the basics of vehicle financing, from term lengths and down payments to how monthly payments are calculated. Whether you’re buying your first car or just need a refresher, these answers will help you feel more confident in your decision.
What Does It Mean to Finance a Vehicle?
Financing a vehicle means you’re borrowing money from a lender—such as a bank, credit union, or the dealership’s finance partner—to purchase the car.
- You agree to repay that amount over time, with interest, through monthly payments.
- Loan terms typically range from 36 to 84 months.
- Once the loan is fully paid off, you own the vehicle outright.
Unlike leasing, there are no kilometre limits or return conditions. You can drive as much as you like and customize the vehicle as you please.
How Do Loan Terms Impact Your Monthly Payment?
Your monthly payment is based on several factors, including:
- The total price of the vehicle
- Your down payment (if any)
- The interest rate you qualify for
- The loan term length
Shorter terms usually mean higher monthly payments but lower interest overall. Longer terms come with lower payments, but you’ll pay more in interest over time. It all comes down to what fits your budget and timeline.
Do You Need a Down Payment?
A down payment isn’t always required—but it can make a difference.
- Putting money down reduces the amount you borrow, which lowers your monthly payment.
- It may also help you qualify for better rates.
- If you’re trading in a vehicle, the trade value can often act as your down payment.
Some buyers choose to put $0 down and still get approved, especially if they have strong credit.
What’s the Difference Between Financing and Leasing?
Here’s a quick side-by-side:
- Financing: You’re buying the vehicle. Monthly payments go toward ownership.
- Leasing: You’re renting the vehicle. Monthly payments are typically lower, but you’ll return it at the end of the term (unless you choose to buy it out).
If long-term ownership, unlimited kilometres, and full customization are important to you, financing might be the better choice.
Can You Get Pre-Approved?
Absolutely—and it’s a great way to start your journey.
- Pre-approval gives you a clear idea of how much you can borrow and what your payments might be.
- At Birchwood, the online application is the same as in-store—just faster and more private.
- Many customers are surprised to learn that checking their eligibility won’t impact their credit score.
Plus, being pre-approved can save time at the dealership and give you extra peace of mind while shopping.
The Bottom Line
Financing a vehicle can feel complex—but with the right information, it becomes a smart and manageable step in your car-buying journey. Whether you’re exploring new or used options, figuring out the best term length, or debating between financing and leasing, it all starts with understanding the basics.
At Birchwood, we’re here to support every buyer—no matter where they are in the process. From first-time shoppers to experienced drivers, our goal is to make financing transparent, stress-free, and tailored to you.
