Leasing is an increasingly popular way for British Columbia consumers to obtain their vehicles. The main attraction is a monthly payment that is lower than when purchasing a comparable new vehicle. Leasing also offers low down payments and taxes calculated on the monthly installments rather than up front on the total purchase price. In addition, many consumers find they can afford a more expensive model or one with more options if they lease rather than buy.
However, it is important to also consider a number of other financial implications along with factors such as the amount of driving you do and how long you prefer to keep a vehicle.
This information will help you weigh the pros and cons of leasing a vehicle. A leasing contract is a legally binding document, read both front and back over carefully. Be sure you understand all the terms and conditions before making a commitment.
Full Disclosure Requirements
Motor Dealers that lease vehicles to consumers must provide:
- the retail selling price of the vehicle, the price on which the lease payments are based and the interest rate applied to the lease contract;
- all costs to the consumer, such as the down payment, trade-in allowance, security deposit, administration fees and all taxes, levies, fees and advance payments;
- details of payments, including the total number of payments, amount of each payment, payment dates, taxes on payments, and the total amount to be paid;
- all end-of-lease costs, including charges for extra mileage, late payment penalties, and any requirement to pay the cost of returning the vehicle in as good condition - as when the consumer first received it, apart from normal wear and tear;
- total cost of the lease;
- whether there is an option to purchase;
- the conditions attached to buy-out options;
- a statement of all warranties and guarantees and any insurance provided for, or required by the consumer;
- a statement of responsibility for maintaining and servicing the vehicle;
- the conditions and penalties for ending the lease early;
- a description of any restrictions on the consumer's use and enjoyment of the vehicle; and
- a complete description of the vehicle.
Understand the Conditions and Terms of your Lease Agreement
There are many different kinds of leasing arrangements. Dealers offer a wide variety of choices and options on both new and used vehicles. You must ensure that you understand all terms and conditions of the lease agreement, before signing the lease agreement. This includes any costs you may be responsible for at the end of the lease.
In all leasing arrangements you make periodic payments for the term of the lease. Lease payments are based on the vehicle's initial market value, its forecast value at the end of the lease and interest charges. When evaluating a lease agreement, add up all the charges including down payment and administration fees. Make sure your insurance coverage will fully compensate the leasing company in case of an accident, fire or theft results in total loss of the vehicle.
Consider possible penalties and additional charges for opting out of the lease early, exceeding kilometer limits, or for repairs beyond normal wear and tear on the vehicle. Consider how often you change vehicles. Due to long-term depreciation, leasing is more favorable for drivers who keep their vehicles for shorter periods of two to three years.
Be aware that at the end of the lease you may have no equity in the vehicle. If there is an option to purchase, you should look carefully at the amount you will have invested to own the vehicle. Have you considered what you will do about replacing the vehicle at the end of the lease?
On some leasing agreements, the vehicle is returned to the dealer at the end of the lease period and you have no further obligation except possibly for extra mileage or damage. However, other leasing agreements may ask you to "guarantee" the dealer a residual value for the vehicle at the end of the lease period.
Residual value is the amount the vehicle is expected to be worth at the end of the lease period and is specified in the agreement. Sometimes you may be able to buy the car for the residual value. Or if it is returned to the dealer and sold for less than the residual value, you may be required to pay the dealer the difference between the selling price and the residual value of the vehicle.
A leasing agreement is a legally binding document. Be sure you understand all the terms and conditions before you sign.
Before You Sign, Ask Some Questions
Existing rules governing lease agreements make it very clear to the leasing companies what information they must provide you. When reading a lease agreement, make sure you have answers to these important questions and calculate what they will mean to you.
- What is the total financial obligation of the lease, including the cost of all lease payments, plus all taxes, fees, and any down payments?
- What would be the total cost to buy the same vehicle and finance its purchase for that amount?
- What is the best retail price for the vehicle and what price is the company using as the basis for the lease? The difference between the market value of the vehicle at the beginning and end of the lease is one of the main factors in calculating monthly payments.
- What is the interest rate being applied to the lease and how does it compare with current loan rates for purchasing a vehicle?
- Is there an option to buy the vehicle at the end of the lease?
- Can you buy the vehicle during the term of the lease and are there penalties or additional charges if you do?
- Can you terminate the lease before the date specified in the contract and are there penalties or additional charges if you do?
- How is normal wear and tear on the vehicle defined and what is excessive wear and tear that makes you liable for an extra expense at the end of the lease?
- How is extra mileage defined and how much might you have to pay at the end of the lease?
- What are the associated fees you might have to pay for items such as insurance and administration?
You are Entitled to a One-Day Cooling-Off Period
The Motor Dealer Act Regulation provides for a one full business day cooling-off period. After you enter into a lease agreement with the motor dealer, you may cancel the lease without penalty within the one full business day (which includes a Saturday) that a motor dealer is supposed to physically keep the vehicle in their possession. For example, if you sign a lease on Tuesday and change your mind, you must notify the dealer of your decision to cancel on Wednesday. If you want to take possession on the vehicle immediately, you may waive this requirement in writing.
While you have the whole day to cancel, it's better to notify the company during business hours so you can obtain written confirmation from the dealer that your contract has been cancelled. If you choose to cancel after business hours, ensure you have proof that you notified the company before midnight.
Days the dealer is closed do not count as cooling-off days. Statutory holidays and Sundays also do not count. Therefore, if you sign a lease on a Saturday, Monday is considered the cooling-off day when you may cancel the contract.
As of July 1, 2006 consumers can now waive this requirement in writing. However, if you choose to waive this right make sure you understand and are satisfied with the terms and conditions of the lease agreement.