Leasing is based on the concept that you pay for the vehicle’s depreciation during the time you drive it. When you lease, you are essentially renting the vehicle for a number of years. You have the option of making a down payment to reduce the size of your monthly payments, and pay a money factor, which is similar to interest on a loan.
The money factor is calculated by expressing the interest rate as a decimal, i.e. 10 per cent = .1, then dividing that number by 24. You can also get the amount by multiplying the money factor by 2,400 to convert it to an approximate annual interest rate.
Leasing may be for you if you like to drive a new car every few years, want to keep your payments lower, and don’t mind the restrictions included in most lease arrangements.
Buying a car may be more expensive initially, but you’ll end up with equity in your vehicle, i.e. an asset you can sell. From a dollars and cents standpoint, you are usually better off buying rather than leasing.
When you compare lease payments with loan payments, that monthly figure shouldn’t be your only consideration. Remember that at the end of a 36-month lease, you either give back the vehicle, or buy it out. The residual value owing on the vehicle is often quite high. You may have to finance the remaining amount over another three or four years, at which time, the vehicle maybe be six or seven years old when it’s paid off.
Use the federal government’s website to help you decide whether you should finance or lease with their calculator.
Lease agreements range anywhere from two to five years. A three-year lease may be the best option for a number of reasons:
Lease ads may look great. You might assume you can drive away in a brand new vehicle for $200 per month. Take a close look at the ad and read the fine print. What may appear to be the deal of a lifetime may not include GST. You may have to come up with a large down payment to secure an acceptable monthly payment. The lease term may also be much longer than what you are looking for.
Different leasing companies offer different deals. Don’t use monthly payments as the only comparison.
Just like buying a car, when leasing, almost everything is negotiable. There are a few things you should know before you commit to the deal.
Beware of looking at just the monthly payment. This is a common mistake. Before signing a lease, look at all the payments, including additional monthly charges as well as those added to the beginning and end of the deal.
Entering a lease agreement is like buying a car. It’s a legal, binding contract, so make sure you understand exactly what you’re paying for. Check for additional features that you may or may not have requested. Ask to have any unwanted extras removed and do not sign the agreement until you are satisfied.
Every lease includes a maximum number of kilometres you’ll be allowed to drive, generally 20,000-24,000 kilometres per year. If you drive more than your specified amount, you’ll be required to pay for going over the limit. If you think you might drive more than the specified mileage, ask if you can increase the allowance beforehand. You may be able to purchase or negotiate a higher mileage allowance and add the cost to your monthly payment.
Ask questions about how you can use the vehicle:
Ask about options for terminating the lease:
Many insurance companies offer insurance to cover the difference between replacement cost and what you owe on a lease. Contact your AMA Insurance agent to discuss coverage options for your leased vehicle. Be sure to ask about loss of use coverage and glass coverage. Also ask about replacement insurance, which waives the depreciation on replacement resulting from an insured peril within 30 months of the date on which the vehicle was delivered to you.
Most lease agreements do not allow you to buy the vehicle or terminate the lease before the term is up. Some lease companies charge from six-months to a year’s worth of payments for early termination.
You can find someone to assume the lease and take over your payments. Make sure your dealer allows this.
Check with the dealer to see what you owe and if you’re permitted to sell the vehicle.
Turn the keys over to the dealer and pay the balance. This is the quickest and most expensive option.
It’s not a good idea to modify a leased vehicle, mainly because it’s not yours. You are renting the vehicle. In the end, you’ll pay twice for modifications – when you buy them and when you are charged at the end of your lease agreement.
You’ll also be charged for damage to the vehicle in excess of normal wear and tear. Before you sign the agreement, make sure you understand the agreement’s definition of normal wear and tear. Get everything clearly written into the agreement so you’re not surprised by inflated charges at the end of the lease.