When you’re in the market for a vehicle, buying is not your only option. Many people choose instead to lease, which has both advantages and disadvantages, but might be ideal for your current situation. Let’s look at the pros and cons, as well as the process involved in leasing a car in Canada.
What is Leasing a Car?
First, let’s establish what leasing a car involves. It’s essentially renting a car for two to four years, and then returning it to the dealer at the end of that time period. Because you are not purchasing the car, but rather paying for its use for the contracted period, you do not gain any equity in the vehicle.
Advantages of Leasing
Leasing allows you to get a vehicle without having to spend as much money up front, and with lower monthly payments over the life of the lease. You may pay as much as 50% less every month than with purchase financing. That alone can make leasing very attractive.
Leasing also gives you the chance to always be driving a late-model car which is still under warranty, and has all the newest features. You simply trade in your current vehicle every few years for a new car when your lease is up. If driving a new car is a priority for you, this is a great way to achieve that goal.
Depending on your lease, the dealership may include regular maintenance such as oil changes as part of the deal. That can mean even more cost savings for you.
At the end of your lease, you will have the option of buying your current car for its residual value, or switching to a new vehicle under a new lease.
Disadvantages of Leasing
There are, however, some downsides to leasing that you should weigh when considering this option to car ownership. First of all, despite making monthly payments, you aren’t gaining any equity in your leased vehicle. When you return it at the end of the lease, you aren’t owed any money as you would when selling a used car.
In fact, you will probably find yourself having to pay money to the leasing company at the end of the lease! Lease agreements usually limit you to 20,000 to 24,000 km per year. If you go over that amount, you will end up paying between 7 to 15 cents per km. As well, if you return the car with any damages beyond normal wear and tear, you will have to pay extra.
While driving a brand-new car every two years or so may seem ideal, you don’t have the same freedom to modify your leased vehicle that you would with one that you’re buying. Anything like window tints, upgraded audio systems, or new wheels won’t be permitted under the terms of your lease.
Finally, once you’ve signed your lease, you’re pretty well locked in for the duration. If you’ve financed the purchase of a car with a loan, you can still sell that car and pay off the balance. However, with a lease, if you want to terminate it early, you will end up paying a substantial penalty.
There are some different leasing options available to you, so it’s worth taking the time to check out how you can get the deal that best suits your situation.
Leasing a New Car
Leasing a new car is the most common type of car lease in Canada. You go to a dealer and after making a down payment, have the use of a new vehicle for from two to four years. At the end of the term, you return it to the dealership, when you have the option of simply ending the lease arrangement, continuing the lease for a further term, buying it out for its residual value, or upgrading to a new model.
Taking Over an Existing Lease
Of course, sometimes a person decides that their lease is not right for them. There may have been a change in their circumstances, or they simply aren’t happy with their chosen car. As an alternative to paying hefty termination fees, they may be able to get someone to take over their lease for the remainder of the contract term.
Taking over a lease means fewer up-front expenses for you, as the original leaseholder would have paid the down payment and any start-up costs. You will simply be responsible for the monthly payments and the fees when you turn it into the dealer at the end of the contract.
Make sure that you give both the car and the lease agreement a thorough examination before agreeing to take over a lease. You may find yourself stuck with a big bill for excess mileage, for instance, if the previous lease-holder had racked up lots of kilometres.
Lease to Own
If you want to build equity in a vehicle, but can’t afford financing a purchase or have bad credit, lease-to-own is a hybrid solution to your problem. This is commonly offered with used cars. You make a small down payment, and then weekly or bi-weekly payments that contribute to your equity in the vehicle. At the end of the lease, you get the option of buying out the remaining equity on the car to complete your purchase.
How to Lease a Car in Canada
Just like when purchasing a car, leasing usually requires a pretty good credit score, so start by knowing where you stand. There are several different ways to check your credit score for free.
No matter what your credit score says, you have to know how much you can afford every month in a lease payment. Sit down and crunch the numbers. Don’t forget that you’re not just looking at what you’ll pay directly to the dealership, but how much you’ll need to pay in insurance and maintenance, as well.
Once you know how much you can afford, it’s time to match that up with possible vehicles. Consider what will work best for you and your family. Remember, once you’re locked into a lease agreement, you can’t easily terminate it, so you need to make a decision wisely.
Next, find a dealership that has what you want available. If you aren’t set on a specific make or model, that certainly gives you a wider selection to choose from. And just like with purchases, dealerships will have deals on leases. Shop around and see where you can get the best bargain.
Once you’ve been approved for your lease, don’t sign anything until you’ve gone over the entire agreement. Make sure you know up front exactly what you’re going to be responsible for over the term of the lease, as well as at its termination.
Keep up with the monthly payments and any required maintenance. At the end of the lease, go over the car thoroughly and make sure you aren’t returning it with any issues beyond normal wear and tear. Get it detailed so you don’t end up with an extra fee for cleaning.
Leasing isn’t for everyone, but depending on your circumstances, it may be the right choice for you. Carefully consider your options before making any decisions.