Leasing a car

A lease is essentially an agreement to rent a vehicle for a long term. When you lease a vehicle, you pay to use the vehicle over a set period of time, typically three to five years. 

The advantages of leasing

On the surface, leasing can be more appealing than buying. Your monthly lease payments are typically much lower than the monthly payments on a car loan. Then, after enjoying the most trouble-free span of the vehicle’s life, you bring it back to the dealership and get another new one.

And there are other advantages to leasing:  

• there’s often no down payment required when leasing, or only a low one 

• taxes may be lower because they're based on monthly payments (rather than the purchase price) 

• you’re always driving a late-model vehicle that’s usually covered by the manufacturer’s warranty

The disadvantages of leasing

But there are drawbacks of leasing, too.

One is that the dealer owns the vehicle, not you. This means the dealer may restrict who can drive it. 

You may also have to follow — and pay for — a set maintenance schedule. 

And at the end of the lease, you haven’t built up equity in the vehicle the way you would have if you'd bought. The result is that leasing typically costs you more than borrowing money to buy a vehicle.

In deciding whether to lease or buy a vehicle, it helps to fully consider how the two options compare. 

Two types of leases are common: a straight lease and a lease with an option to purchase.

In a straight lease, you return the vehicle when the lease is over.

In a lease with an option to purchase, you can buy the vehicle at the end of the lease. The option-to-purchase lease can be either open or closed. In a closed lease, you pay an amount agreed on at the outset to buy the vehicle at the end of the lease.

In an open lease, you might have to pay more when the lease ends. At the beginning of the lease, the dealer estimates the vehicle’s value at the end of the lease, also known as its residual value. Monthly payments are based on that estimate. If at the end of the lease the vehicle is worth less than the residual value, you’ll have to cover the difference.

Under BC law, when you lease a vehicle, the dealer must disclose in writing the following information before you agree to a lease:

• a summary of costs and credits for any extended warranty due when you sign the lease

• all express warranties and guarantees for the vehicle made by the manufacturer or dealer

• who is responsible for maintaining and servicing the vehicle

• a description of any insurance, including types and amounts of coverage, that you must provide and pay for

• any limit on your use of the vehicle, including who can drive it and any requirement to get permission to take the vehicle outside of BC

• the amount of tax you're paying in every payment

• the cooling-off period (explained below)

You have one business day, after the day you sign the lease, to change your mind and cancel it for a full refund. During this “clear day” cooling-off period, the dealer keeps the vehicle. Some days don’t count as part of the cooling-off period: statutory holidays, Sundays, and days the dealership is closed.

If you're sure you don't want a cooling-off period, you can waive (give up) your right to it. You must do that in writing.

When you lease a vehicle, just as when you buy one, its cost is negotiable and based on a variety of factors. Here are some questions to keep in mind or ask the dealer as you negotiate the lease.

Leasing a car can seem like the cheaper option as compared to buying: monthly lease payments are typically lower than financing payments. But interest charges are usually higher on a lease. And at the end of the lease, you haven’t built up any equity. Take the time to calculate the full costs involved in leasing versus buying.

Before you sign the lease, make sure you read and understand everything on the page. Have terms you don't understand explained to you. 

If you don’t make your vehicle lease payments, the dealer may take the vehicle back (seize it) or sue you in court for the balance owing on the lease. 

Sometimes the dealer can do both. If the lease is seen to be a true lease, the dealer can seize the vehicle and sue you. If the lease is seen to be a security lease, the dealer must decide whether to seize the vehicle or sue. The courts have been developing tests that distinguish between these two types of lease. It’s best to get legal advice on how your lease might be characterized.

At the end of the lease, you have to return the vehicle to the dealer unless you have an option to buy it. The dealer will inspect the vehicle to make sure it’s safe to drive. 

Depending on the type of lease you have, you may owe additional money. If it’s open lease, the dealer will have estimated the vehicle’s residual value at the end of the lease. When the lease ends, if the vehicle is worth less than the residual value, you’ll have to pay the difference. 

If you have an option to buy the vehicle and you choose to buy it, it’s best to have the vehicle inspected. Under BC law, all dealers are required to make sure all leased vehicles meet certain safety standards before they sell them. Even so, to have a full picture of the vehicle's condition, it’s best to have it inspected prior to sale — even if the sale is to you. Who pays for this inspection — the dealer or you — depends on what the lease agreement says.