Leasing a Vehicle

Monthly payments are applied to the depreciation and use of the vehicle, not the actual purchase. At the end of the lease term, you can either return the vehicle or purchase it from the lessor.

You need to know the market value of your vehicle before you turn it in. Many times your vehicle may be worth more than your lease buyout and therefore you can sell it for more than you pay for it. On the flip side, your car may be worth less than market value and you have an opportunity to give it back and walk away. This leaves the lessor with an undervalued vehicle which they will sell or auction off at a lower price resulting in a loss of profit.

Monthly lease payments for the same vehicle are lower than financing payments.

Leasing often does not require a down payment. A down payment can be applied as a means of lowering monthly payments. Businesses typically choose zero down payments to increase cash flow.

Leasing typically requires the replacement of the vehicle every few years. Once your lease is over, you'll need to buy the vehicle, buy a different vehicle or lease another.

Early termination of the lease typically requires coming up with enough cash to buy the current value of the vehicle. Often you can trade your leased vehicle in for another or have someone assume your payments. You must become familiar with the fine print of your lease agreement.

If your leased vehicle is involved in an incident and becomes damaged, it must be repaired to dealer specifications (I.e. car accident or hail damage, etc.). On the bright side, you are not stuck owning a vehicle that went through significant repairs. You can turn it in and walk away. It can be very difficult to sell vehicles that have been in an accident or have a salvage title.

For some people, lease payments can seem endless. Once their current lease term is over, many people simply start a new lease on another vehicle. This can become a continuous cycle.

Leasing sets predetermined annual mileage limits, usually 20,000kms or 24,000kms per year. Any additional mileage is charged by a per/km bases. (i.e. $0.12/km for 10,000kms over your limit equals $1200.00. Could you buy a vehicle for $1200.00 that will last 10,000kms?)

Lease vehicles are usually covered under factory warranty for the duration of the lease.

Leasing requires the replacement of typical wear parts at the end of the lease agreement (tires or windshield may need to be replaced).

Monthly payments are applied to the actual purchase of the vehicle. Once the car is paid off, you're free to do as you please with it. You can keep it for the next 10 years or sell it. Buying allows you to keep the vehicle for as long or as short a period as you'd like.

Financing a vehicle usually requires a down payment. This can be in the form a trade-in or cash.

Monthly payments are higher than monthly lease payments because they're based on the total cost of the vehicle, not the depreciation.

A typical financing period is 36-72 months. After that, you own the vehicle outright with no more payments for as many years as you choose to keep it.

Maintenance is totally voluntary (you could risk voiding your warranty). While you should always keep your vehicle maintained for optimal performance and resale, there are no set requirements as there are with leasing.

Because finance periods usually extend beyond the typical manufacturer warranty period, maintenance costs during a four or five year financing period will be higher than with a two or three year lease.

There are no predetermined mileage limits, but higher mileage still causes greater depreciation.

There are no limits to modifications you can perform on a financed vehicle. If you like fancy wheels, you're free to put them on. (Be cautious, not all modifications increase vehicle value. Some actually decrease the value of a vehicle. i.e. custom paint that only appeals to you.)