Lease agreements are much more one sided than they appear
Is it better to buy or lease a car in Canada?
For the vast majority of Canadians, buying a vehicle is much more economical. While leasing a car does seem to take care of massive new vehicle depreciation, in the end the car must be returned. If close attention is not paid to the terms and conditions of the lease, one can end up owing money on top of losing the vehicle. Leasing a vehicle is a glorified, long term rental car. Leasing is for those who have the excess funds to pay the premium of new vehicle ownership every one to three years and should be reserved for that purpose only.
When buying, the owner is not protected from depreciation or repairs but by following our previous guide on questions to ask when purchasing a used vehicle there are ways to protect your investment.
What are the disadvantages of leasing a car?
Between the rapid depreciation and often excessive buyout terms, lease agreements are structured to make automobile dealers wealthy. While low monthly payments are used to attract customers, it is only when a savvy buyer reviews the T & C’s that they will most often walk away or turn to financing. There are often yearly mileage allotments that are not sufficient for heavy vehicle usage and we’ll outline damage claims in the fine print section below.
What is in the fine print of lease agreements?
Like we mentioned above, mileage provisions are most often not verbally communicated to the lessee by the dealer. Typical Canadian mileage provisions are 20,000 Km per year of the agreement. Beyond this, dealers can charge up to $1.00 per additional kilometer.
Damage or excessive wear is usually outlined by crippling penalties in most lease agreements. The worst part is the dealer documents the vehicle was delivered in pristine condition so literally anything beyond surface scratches can be pointed out in the final inspection which can amount to thousands of extra dollars. Some leases have clauses for non-write off accidents and some don’t. If the lease has an accident clause that uses market value vs. damaged value to calculate penalties, watch out. Prudent review of all terms in the lease agreement will outline all possible accident related fees and penalties.
There are often penalties for late payment or return as well. If you cannot make the payments, the vehicle will be repossessed within three months, typically. This would leave the lessee responsible for the total value of the lease, penalties for non-payment and also recovery fees. Some provinces also allow for legal action if the lease agreement is broken so not only would the vehicle be repo’d, the lessee would also be fully responsible for any amount owing.
When should you lease vs buy?
When you are looking to save some money on your insurance costs, buying would be a better option over leasing. Usually leasing a vehicle comes with a higher insurance requirement than buying. Collision insurance is typically a must for vehicles that carry significant replacement costs but when leasing it’s always a term of the lease.
Another reason to stay away from a lease; if you wish to customize the vehicle. A leased car would not permit any modifications whether it be to the stereo or performance upgrade you will be out of luck. Even if you wanted to install a washable engine/cabin air filter for a long-term lease it is another way the dealer can stick you with extra fees and penalties.
Why do dealers want you to lease?
Dealers put out incredibly low monthly lease payment promotions to attract new business and generate leads. The conditions are often meant to confuse buyers, with a salesperson waiting to manipulate them to sign without reading the fine print or move them into a totally different vehicle should they wish to finance. Lease agreements make dealerships millions of dollars, leaving hardworking Canadians to foot the bill. Don’t get caught in the vehicle leasing trap unless you have money to burn or a healthy company vehicle allowance.