Hamilton Car & Automotive Leases
Leasing has become an increasingly popular way for Canadians to buy a new vehicle. It reduces worry about vehicle depreciation, and typically offers much lower monthly costs than borrowing for the car. In addition you only pay GST (and PST/HST, as applicable) on the monthly payments instead a lump sum when you buiy the car. As well, if you own your own business or work for yourself, you can write off the entire yearly cost of leasing, or at least, that portion applicable to your work.
With a car loan (for a vehicle worth, say $10,000), you borrow money from a lender that expects the entire amount to be paid off in say 3 or 4 years, so you must repay 10,000 plus interest, and at the end you own the car. You can choose to keep it, or trade it in on a newer vehicle, or sell it.
With a lease, the lessor keeps the car at the end, so you are paying back the difference between initial value and expected market value, plus interest on the whole amount. I the car is expected to be worth $3000 at the end, you only repay $7,000 of principal, and pay a bit more interest than with a loan.
One downside with leasing, is that once the lease ends, you have not built up any equity and you must hand over the keys to the vehicle. As well, maintenance guidelines are often very strict, and there are often penalties for excessive mileage or "excessive" wear & tear. Sometimes, you may even need permission from the leasing company to take the car out of province or out of country. Also, if you terminate the lease before the agreed-upon date, you may be liable to pay a substantial charge.
There are two types of leases:
- With a closed-end lease, you will pay a set number of payments over the duration of the lease. At the end, there are no additional fees except those covering damage to the vehicle during the lease term.
- With an open-end lease, you will pay the set payments, plus an additional cost representing the difference between the vehicle's actual market value and the expected value of the vehicle, as stated in the lease. (If the vehicle is worth more than its projected value at the end of the lease term, you are paid the difference by the dealer).
If you've read about the pros and cons and are still keen on leasing, here are the steps you should take.
- Select the model, color and make of car you wish to lease.
- You negotiate a fair price for the vehicle (just like with a regular purchase) and get a lease agreement in writing. In all cases, the lease must be arranged through the car dealership.
- Take the lease home to study before signing it. Consider having a lawyer look it over, to ensure there are no loopholes you're missing. They could be expensive.
- The dealer is required by law to show you a disclosure form that lists the actual amount that they paid for the car. Compare this amount - which will appear on the form as the gross capitalized cost - with the amount shown on the lease.
- Review all price differences, to see what costs have been added. Ask the salesperson to explain any costs you don't understand.
With a lease, you do not pay a deposit until you have signed the lease. And as with ownership, insuring, registering and licensing the vehicle is your responsibility. The manufacturer's warranty will cover malfunctions, but all non-manufacturing related repairs and regular maintenance (ie oil changes) are your responsibility. Maintenance guidelines under a lease are usually quite strict.
Finally, if you feel that you are getting a raw deal on your vehicle that cannot be addressed by the dealership and the problem is not covered under the terms of the lease, there is help available. The Canadian Motor Vehicle Arbitration Plan is a free program that will help you negotiate with a manufacturer over any defects in the vehicle. Unfortunately, the program is not yet available in Quebec.