Leasing a Car

How leasing is different from buying

The advantages of leasing

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

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 three or five years 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 are based on monthly payments (as opposed to 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 disadvantages to leasing a vehicle. 

One is that the dealer owns the vehicle, not you. This means the dealer may place restrictions on who may 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 had bought. At the end of paying off a car loan, you own the vehicle. At the end of a lease, you own nothing. The result is that leasing typically costs you more than borrowing money to buy a vehicle.

The federal government has a Vehicle Lease or Buy Calculator that enables you to compare the costs to lease or finance a vehicle, as well considerations to keep in mind in financing a vehicle. 

Deciding whether to lease or buy

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

Types of leases

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 have the option to 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 that is agreed at the outset to buy the vehicle at the end of the lease.

In an open lease, you might have to pay more money 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 will have to pay more. 

What the lease must include

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 are paying in every payment
• the cooling-off period (explained below)

You can change your mind

You have a one clear day "cooling-off period" after you sign the lease to change your mind and cancel it for a full refund. During this cooling-off period, the dealer keeps the vehicle. Some days do not count in calculating the cooling-off period: statutory holidays, Sundays, and days the dealership is closed. 

The one clear day cooling-off period after you sign a  vehicle lease goes until the end of the clear day. For example, if you sign a lease on Tuesday and change your mind, you must notify the dealer of your decision to cancel by the end of the day on Wednesday. While you have the whole day to cancel, it’s better to notify the dealer during business hours so the dealer can provide written confirmation that your contract has been cancelled. If you choose to cancel after business hours, make sure you have proof that notice was given before midnight.

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

What happens if I don’t make lease payments?

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 you have 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 is best to get legal advice on how your lease might be characterized. 

What happens when the lease ends?

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 ensure it is safe to drive. 

Depending on the type of lease you have, you may owe additional money. If you have an 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 will have to pay more. 

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 ensure that a leased vehicle meets certain safety standards before it is sold. To ensure this, it’s best to have the vehicle inspected prior to a sale—even if it is to you. 

Your lease agreement will specify who is responsible for the cost of inspecting the vehicle. It may be up to you to pay this amount, but only if you agreed to this in your lease agreement.