The majority of Canadians finance or purchase their vehicle outright, with only 20% of drivers opting for a lease. The introduction of longer loan terms has a lot to do with that statistic. But can one still make a case for leasing a vehicle these days? Let’s look at the main pros and cons of leasing versus buying outright.
When does leasing a car make sense.
Car leasing pros.
- You’re always driving a new car. This may or may not be simply a matter of vanity. Certain jobs – in law and real estate, for example – come with the need to project an image of financial success, and a car is typically a reflection of one’s social status. So, while a lovingly restored 1975 F-150 pickup truck is a cool set of wheels indeed, it is going to look out of place when you need to show that urban townhouse with an exposed brick wall.
- Your payments are typically lower. This goes hand in hand with the previous point. In fact, leasing is a good way to get yourself more car than you could otherwise afford. Think of it this way: you’re actually paying for the car’s depreciation instead of its whole cost. Also, the required down payment is usually lower when you lease. If you need access to more disposable cash every month, even though the math doesn’t work out in your favor in the end, leasing may be for you. This depends on residual value and the financing options by vendors.
- Your car is never out of warranty. Note that you still need to be proactive about having routine maintenance and safety recalls done. Otherwise, no need to worry about mechanical gremlins; your car is always covered.
- You don’t have to worry about trading in or selling your car. That means no sweaty-palm negotiations with your dealership or prospective Kijiji buyers when you want to change vehicles. You hand in your keys and, assuming that the car is in good shape and you haven’t gone over the allowed mileage, you just move on to newer and shinier things.
Car leasing cons.
- It ends up costing you more. Maybe the math works out in the end for people whose car has an intangible value, like those in the above mentioned legal and real estate professions. For the average person though, a vehicle is little more than a depreciating asset that they can’t go without. In absolute numbers, buying a car outright and running it into the ground, as goes the saying, is the most financially sensible option.
- You could have to pay extra fees and penalties when you return your vehicle. Maybe you’ve underestimated the yearly mileage allowance you needed, or you landed a new job that’s three times as far as the old one right after signing your new lease. Or maybe your kid dragged a tree branch across the entire length of the car and you’ve put off having the paint touched up. Stuff happens, and it could cost you when your lease comes to an end.
- You don’t own a car at the end of your lease term. You’ll almost always have the option to buy your vehicle based on its residual value, and sometimes it might even make sense to do so if the residual value is set lower than the car’s market value. In most cases though, you’ll be handing in your keys before moving on to a shiny new model-year vehicle, in a never-ending cycle of upgrades and monthly payments. That’s not necessarily a bad thing.
In the end, the old leasing vs. buying debate is quite complex. It has tons of variables and no two situations are exactly the same. The most important thing is that you take the time to sit down and weigh the pros and cons so that you come to the right decision for you and your family.
