Leasing vs. Financing

Is it better to lease a new vehicle or finance one? While leasing could be the best option for one person, it might not be right for another. When you lease a vehicle, you purchase the use of that vehicle for a specified period of time. At no point are you the owner of the vehicle, yet you are responsible for the vehicle's maintenance, along with your auto insurance premiums and registration costs. You're also subject to a number of conditions regarding the distance you can drive the vehicle without penalty.

Is a lease right for me?

Ask yourself the following questions before making the decision to lease:

  • Do you want to own the vehicle? With a lease, you are not the owner. Rather, you pay for the use of the vehicle for a specific period. However, you are solely responsible for its condition. At the end of the lease, if the lessee is not satisfied the vehicle has been properly maintained, you could be penalized.
  • How far do you drive annually? Mileage limits are imposed by the lease agreement, and excess mileage charges can substantially increase the amount you owe at the end of the lease. So, if you tend to drive beyond the annual limits stated in the lease agreement - usually 25,000 to 30,000 km - you should consider conventional financing as your best option.

What you need to know

What's in a lease?

Just as you would negotiate the financing of a car, almost everything in a lease is also negotiable including:

  • Asking price
  • Residual value
  • Excess mileage charges
  • Purchase option price

As a down payment, most leases require the first month's payment and a security deposit equal to one monthly payment. This security deposit may or may not be refundable. You should also be prepared for some upfront charges, like air conditioning and tire taxes.

Here are some helpful tips to keep in mind when negotiating the terms of your lease:
  • Try to match the term of the lease with the length of time you plan to use the car - a two or three-year term is ideal.
  • Aim to keep the lease term shorter than or equal to the length of the manufacturer's warranty. This will assist in limiting the amount you may be required to pay in maintenance expenses.
  • Don't compare leases solely by the monthly payment. Since different leasing companies offer different deals, you should examine all the conditions and requirements - including the annual driving distance and limit, penalties for early termination and how 'normal wear and tear' is defined.