Leasing is a good
idea, but ask yourself these questions first:
Leasing is a good
idea if you:
 Want
lower initial costs. A lease down payment can be lower than a finance
down payment.
Want
lower monthly payments. Monthly payments are based on the portion
of the vehicle’s value that you intend to use.
Want
to drive a more luxurious vehicle. When you lease, you can drive
a new vehicle with more features and luxuries for about the same
monthly payment as a less-equipped financed vehicle.
Want
to drive a new vehicle more often. Lease terms are often shorter
than finance terms, allowing you to get into a new vehicle more often.
Want
to drive a vehicle during its most trouble-free years. Most manufacturers
can tailor a warranty to fit their lease program.
Want
to avoid trade-in obligations. With a closed-end lease, you can:
return your vehicle at the end of the lease term and walk away; turn
it and lease another vehicle; or buy it.
Want
to pay taxes only on your monthly payment – instead of financing
the lump sum of taxes, you’re taxed on the individual payment
you make each month.
When you lease:
Upfront costs may include first month’s payment,
a refundable security deposit, down payment, taxes and other charges.
Monthly lease payments are usually lower than traditional finance
payments because you’re paying for the depreciation of the
vehicle over the lease term, along with a borrowing charge, taxes
and fees. Annual kilometrage is 24,000 in a typical lease. You may
also buy more kilometers upfront or pay a set free fee for each kilometer
over the limit at lease end. Charges for excessive wear and tear
may be assessed at lease end. Maintenance and repairs ate your responsibility.
You do have to ensure the vehicle for the amount of coverage required
by your lease. And early end to your lease may result in termination
charges. You may be asked to pay an administrative fee to cover the
cost of preparing and servicing your lease. If charged, this fee
increases the carrying costs and must be included in the APR or the
total lease charges expressed as an annual rate.
In a Closed-End Lease:
You
don’t own the vehicle; you drive it for the lease term and
then either return it or purchase it at the predetermined price,
depending on the lease terms.
The
future value of the vehicle is not your risk.
Changing
your vehicle at lease end includes returning it to the dealer and
paying any end-of-lease costs. You can then choose to lease a new
vehicle or walk away.
GAP
protection is included in most closed-end leases.
In an Open-End Lease:
You
don’t own the vehicle; you drive it for the lease term and
then either purchase it or return it. If the market value of the
vehicle is less then was predetermined, you pay the difference. If
the market value is more, you may be entitled to the difference.
The
future value of the vehicle is your risk.
Changing
your vehicle at lease end includes returning it to the dealer, and
paying any end-of-lease costs and any funds owed based on the market
value of the vehicle.
GAP
protection may not be included.
Before you lease,
ask your dealer the following questions:
Is
the lease open-end or closed-end?
If
it is a closed-end lease, what is the guaranteed option-to-purchase
plan?
Is
there an administrative fee, and if so, how much?
What
are the allowable kilometers and what are the excess kilometer charges?
What
is the APR?
Is
GAP protection included?
What
is the Leased Vehicle Amount (selling price of the vehicle)?
Is
a down payment required?
Is
there a provision for early purchase?
Can
the lease be terminated early? If so, how are the charges calculated?
What
is the total monthly payment?
What
is the security deposit?
What
is the total amount due at lease signing?
What
is the total obligation?
What
is the term of the lease?
Can
I obtain a copy of the lease contract to read before making my decision?
What
are the warranty term and kilometer limitations?
Before you lease,
ask yourself the following questions:
What
will be the primary use of the vehicle?
How
many kilometers do I expect to drive per year for the next few years?
Do
I expect any lifestyle changes in the near future, such as a job
change/transfer, a house purchase or children? If so, will a lease
be adaptable to my needs?
Some terms you should
understand when considering leasing:
Lease: An
agreement under which the vehicle owner (lessor) permits its use
by a customer (lessee) for an agreed-upon period of time (term).
Lessee: The
user of the leased vehicle.
Lessor: The
owner of the leased vehicle.
Term: A
contractual period for which the lessee agrees to use and pay for
the use of the vehicle.
Lease
Rate: The interest rate used to compute the monthly lease
payment.
Leased
Vehicle Amount: This is the amount agreed upon by the
lessee and the lessor for the vehicle and any other items, such
as accessories, extra equipment, freight, applicable taxes (e.g.,
federal air-conditioning tax) and pre-delivery inspection. PST
and GST are not included.
Leased
Vehicle Amount Reduction: Cash or value of a vehicle trade
applied to the lease at the time of lease signing. These funds
are sometimes referred to as “down payment” (or capital
cost reduction) and reduce the lease’s depreciation and the
monthly payment.
Residual: The
estimated value of the vehicle at the end of the lease term, used
in the calculation of the monthly payment.
Depreciation: The
difference between the leased vehicle amount and residual, or the
amount assessed the lessee for vehicle use.
Administrative
Fee: Administration costs that are a direct result of
ownership of the vehicle by the lessor (e.g., insurance follow-up,
monthly handling of PST and GST, remarketing of returned vehicles
and GAP protection).
Guaranteed
Asset Protection (GAP): If an accident, fire, or theft
results in the total loss of the vehicle, auto insurance will cover
its fair market value, minus the deductible. Often, this settlement
is not enough to cover the financial obligation for which the lessee
is responsible.
With GAP protection, the lessee does not have to
worry about a gap between the lease contract obligation and the insurance
settlement.
All he or she pays is the insurance deductible,
provided that all of the contractual agreements of the lease have
been fulfilled prior to the accident or theft.
Purchase
Option: A lease agreement provision allowing the lessee
to purchase the vehicle at either scheduled termination or early
termination. The purchase option at lease termination is a fixed
dollar amount determined at the time of lease signing.
Security
Deposit: A refundable dollar amount paid by the lessee
to the lessor at the time of lease signing. This amount can be
used to pay all or part of the lessee’s excess kilometrage
or excess use charges, or other amounts owed at lease end.
Excess
Kilometrage: Kilometrage exceeding the allowed kilometrage
as outlined in the lease agreement.
Excess
Kilometrage Charge: A charge per kilometer that is assessed
for kilometrage driven in excess of the contractual allowance.
Excess
Wear and Tear Provisions: A section of the lease agreement
that establishes the lessee as responsible for the expense to repair
or replace vehicle parts which are worn or damaged beyond what
the leasing company considers normal.
Annual
Percentage Rate (APR): The rate used to compute the finance
charge expressed as an annual percentage. The APR is the annualized
interest rate when interest is paid at intervals other than annually.
Total
Lease Charges: The total lease charges are the total interest
and non-interest charges the lessee pays over the term of the lease.
These charges are comparable to the finance charges on an installment
loan.
Leasing may mot be
the answer if you:
Want
to own your vehicle.
Are
able to make a substantial down payment. A down payment for traditional
financing is usually required. The more you put down, the lower your
monthly payment. You may also trade in your current vehicle as part
of you down payment.
Want
to keep your vehicle for more than a few years. Once it’s paid
for, you can keep you vehicle as long as you wish.
Want
unlimited kilometrage. You’re the owner, so there are no kilometer
restrictions.
Want
to avoid wear and tear limitations. There are no restrictions when
you own the vehicle.
Want to make alterations to the vehicle’s
appearance. With ownership, you can make alterations to your vehicle.
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Financial
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