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Zero per cent financing can cost you more when buying some cars

Crimea, Russia - September 20, 2015: Mazda 6 car drive on road at daytime

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The national inflation rate was up a mere 1.5 per cent at the end of last year, and yet a recent report from Bank of Nova Scotia pegged the rate of price increases for cars and trucks at 5 to 6 per cent in the latter half of 2016.

A recent edition of this newsletter featured a blogger arguing that buying new vehicles is killing our finances. Since then, a few insights have emerged to provide some context for this trend. Price increases are part of it, and so is a change in buying patterns. Premium-priced trucks and SUVs are taking market share away from cars. Last year, vehicles sales in Canada reached a record high thanks in large part to SUVs and pickup trucks.

Buying cheaper vehicles is one solution, but so is taking a smarter approach to buying. Here's an article demonstrating how zero per cent financing can actually cost you more when buying some vehicles. The reason is that you miss out on certain discounts or incentives that would otherwise be available.

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Today's featured financial tool Chartered Professional Accounts Canada has published a book on how to survive the loss of a job.

Ask Rob The question: "I am considering borrowing against my home equity and investing in high quality dividend securities. My hope is that the portfolio will grow faster than the interest I pay on the home line while still experiencing appreciation on my home. Is this a sound investment strategy for someone who in in their 30s, has no RRSPs and has a steady job?"

My reply: "The numbers can certainly make sense for this type of investment plan, but remember to consider the emotional side of things. If we see a major stock market correction, dividend stocks would not be immune. If interest rates rise, we could see many dividend stocks falling in price. I'm more open to doing this sort of thing after a big market decline than after the kind of run-up we've seen for dividend stocks in the past five or so years. Note: On your taxes, you can claim interest paid on the line of credit if you use the money to buy investments that generate investment income like dividends."

Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length.

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