Agency: Credit Counselling Service of Sault Ste. Marie & District
Making the Leasing Decision
A new car!! Youíve made the big decision, and now itís time to scour the dealerships to find your dream at a price you can afford. Deciding on the make, the model, the options and the right price used to cover most of the planning. These days, however, many people are adding into the new car equation the decision of whether to lease or buy.
Consumers are increasingly turning to leasing as a financing option, based in large part on the lower monthly payments leasing provides. While this is an important factor, there are a number of questions to ask yourself before you choose.
Is ownership important to you? When you lease a car, you pay to use it for a specific period of time, usually 36 months. When the contract (lease) is up, you do not own the car and have two choices. You can either buy it from the leasing company or give it back to them. If you do value ownership, then making larger monthly loan payments is likely to be less expensive in the long run. The car belongs to you, although the lender will have a lien against it until it is paid for. At the end of the loan, the equity in the car is yours. You can keep driving it or use it as a trade in on a different vehicle. Consider your driving needs, how they might change and how long you plan to keep the car.
How many miles do you drive each year? Most leases have mileage limits. If you exceed the limit, you are charged a per kilometre fee at the end of the lease. The number of kilometres and the rate can be negotiated before you sign the contract if you do a lot of driving. It is less expensive to arrange this before you sign rather than after the lease is up.
How much can you afford up front? As with buying, a trade-in or down payment affects the amount of the monthly payment. In leasing this is referred to as capitalized cost reduction and security deposit. The more you pay in advance, the lower your monthly payment. But the size of the monthly payment is not the only consideration. Remember in leasing you are only paying to use the car and you are expected to return it in reasonable condition at the end of the lease. Excessive wear and tear will be charged to you when you return the vehicle or your vehicle will be worth less than the amount you must pay if then you choose to buy it.
Will you want to get rid of the car before the lease term is up? If you do, you will be responsible for the balance of payments left in your contract, excess wear and mileage, and applicable taxes less any premium refunds on the insurance policy which you have prepaid. The car is usually then sold by auction and you will also be responsible for any shortage if the sale price is less than the residual value (predetermined value of the car at the end of the lease). If you bought the car, you can sell it as long as you pay off any remaining loan balance. Any equity is yours.
When shopping for a car, remember that lease terms are negotiable. You should shop for a lease the same way you would shop for a vehicle. Whether leasing or purchasing, remember to read any contract carefully and get answers that you understand before you sign. Leases are better for some while buying is better for others. Make sure you think through your own needs and your financial situation not just today, but for the next 36 months.
"Helping you manage your debt"is a series of articles provided by member agencies of the Ontario Association of Credit Counselling Services. All agencies provide a range of no or low cost services to help people solve their financial problems and improve their consumer and money management skills. For more information about credit counselling services in Sault Ste. Marie, please contact Credit Counselling Services of Sault Ste. Marie & District, 298 Queen Street East, Suite 2, Sault Ste. Marie, ON, P6A 1Y7 or visit our website at www.soonet.ca/ccs