Leasing a Car in Canada: What You Need to Know

by Stephanie Wallcraft

Should you buy or lease your next new car? It’s a question that Canadian drivers have long been asking themselves. The lower payments and lack of commitment that come with a lease can be enticing, and for certain people car leasing is a great fit. However, it’s important to understand what you do and don’t sign up for when you choose this type of payment structure.

Here’s a look at the pros of cons of leasing a vehicle in Canada.

Opening new car door

What is a Lease?

The most important thing to understand about leasing is that you don’t own the vehicle at the end of the lease. Leasing a car rather than financing it is essentially the equivalent to renting a home instead of paying a mortgage: a lease is an agreement between you and an automaker to give you exclusive use of a new vehicle for a contracted period of time, usually two to five years, in return for a monthly fee. At the end of the agreement, the vehicle is returned to the dealer, final financial agreements are settled, and the lessor drops the keys and walks away with no strings attached and nothing to show for it. Some people see this as a good thing because they aren’t tied down to a vehicle long-term, while others prefer to own something once their monthly payments end and find that leasing isn’t a good fit.

Is Leasing a Good Deal?

It can seem to be since the leasing often comes with lower monthly payments than financing options, depending on the payment terms. However, those payments equate to you covering the cost of the vehicle’s depreciation, plus taxes and fees over the period you’re using it, sometimes while also paying a higher interest rate. At the end, all you have is temporary use of a car with nothing to own, sell, or use as a trade-in for your money spent. Plus, leases hold potential for surprise charges. An agreement with a leasing company will list a kilometre limit for how far the vehicle can be driven each year, and putting more kilometres on the car can result in hefty overage fees if you don’t buy a package to cover those additional kilometres in advance. You can also be dinged with surprise fees if the dealership finds evidence of damage or neglect when you return the leased vehicle.

Car driving from drivers view

How Do I Know if a Lease is Right for Me?

Consider a lease if:

  • You change cars often because you like to try new things. If you’re the person who always waits in line for the latest iPhone on release day, leasing a vehicle might be a good choice for you because it lets you drive the latest and greatest new vehicles without having to deal with a sale every few years.

  • You don’t drive a lot. Closing a lease can come with surprises expenses if you’ve gone over your kilometre allotment. If you’re very confident you won’t approach those limits because you drive infrequently and in predictable patterns, then leasing may make more sense. If you’re very sure you won’t come anywhere near the limit named in the lease agreement, you may even find that you can lower your allotment and have your payments reduced.

  • You don’t like dealing with the problems that can arise in vehicles long-term. By nature, leases cover the earlier part of a vehicle’s life, which tends to be the part before major issues come up and most that do are covered by warranty. It’s as a car gets older that it will need to visit the service department more often, so a steady rotation of leases can avoid some of those maintenance headaches that come with a used car or longer-term ownership.

2021 BMW 2 Series review look and feel

A Car Lease May Not be Right for You If:

  • You want the financial benefits that come from keeping your vehicle for longer. Once a financed vehicle is paid off, it can be driven for the rest of its usable life for just the cost of fuel, maintenance, and insurance. Plus, since you own that vehicle, you can sell it to gain a down payment to go toward your next one. Leasing a vehicle means you’ll always have monthly lease payments and you’re giving up the financial cycle that’s created through building equity, and that cycle becomes increasingly beneficial the longer you keep a car on the road.

  • Your driving patterns are unpredictable. If you’re the sort of person who likes to pick up and drive across the country during the summer or who often visits family members who live a distance away, you may find the kilometre allowances of leasing to be restrictive. A higher count on the odometer means that the vehicle comes back from its lease with a lower residual value, which is the dollar amount that the car is worth at any given point in its life cycle. Automakers price leases so that you’re covering that loss in residual value, not them. This means that no matter whether you buy additional kilometres up front as an add-on or pay them out at the end, making up the difference will be expensive.

  • You want to make any changes to the car whatsoever. A lease agreement will stipulate that the car cannot be modified and must be returned in the same condition in which it was supplied, apart from reasonable wear and tear. If you’re the sort of driver who likes to customize anything at all about your vehicle, then you’re better off owning it rather than risking extra charges at the end of your lease.

What Will I Need to Qualify for a Lease?

You’ll need to have an above average credit score, so it’s a good idea to check it yourself online before going into the dealership so that you know what you’re working with. You may also need a down payment, and it’s a good idea to provide one even if it’s not strictly necessary as it will increase your chances of being approved and lower both your monthly payments and the amount of interest you pay over the course of the agreement.

Magnifying glass with computer screen smallprint

What If I Need to Cancel My Lease Early?

Before signing a lease, read this disclaimer: getting out of it before the end of the lease term is not easy. You’ll either need to pay it out as stated in the agreement – which can be as much as paying the equivalent of every monthly payment still due – or you can try to find someone to complete a lease takeover with you. There are services that will help you make these connections, or you can seek out willing takers on your own through social media or online classifieds.

The person taking over the lease will need to be approved by the automaker’s financing arm, and you may also need to pay cancellation or other administrative fees. It also usually helps for the lessee to sweeten the deal for the person taking it over by offering an incentive such as covering a month or two of payments. That person will rightly be hesitant to move forward if you’ve already exceeded the average yearly kilometre allowance or modified the vehicle in any way, which is even more reason not to take on a lease unless you’re certain it’s the right fit for you and your lifestyle.

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