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Leasing a Car - Understand your legal rights

Understand your legal rights

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.

 

Leasing

Buying

Ownership

You don't own the vehicle. You get to use it but must return it at the end of the lease unless you decide to buy it.

You own the vehicle and get to keep it as long as you want it.

Monthly payments

Lease payments are almost always lower than loan payments because you're paying only for the vehicle's depreciation during the lease term (the amount the vehicle decreases in value due to use and wear and tear), plus interest and other finance charges, taxes, and fees.

Loan payments are usually higher than lease payments because you're paying off the entire purchase price of the vehicle, plus interest and other finance charges, taxes, and fees.

Early termination

If you end the lease early, early-termination charges can be almost as costly as continuing with the lease.

You can sell or trade in your vehicle at any time. 

Mileage

Most leases limit the distance you can travel, typically 20,000 to 25,000 kms per year. You'll have to pay charges for exceeding your limits.

You're free to drive as many kilometres as you want. 

Excessive wear and tear

You must maintain the vehicle in good condition, or you’ll have to pay excess wear-and-tear charges when you turn it in. 

You don't have to worry about wear and tear (though it could lower the vehicle's trade-in or resale value).

At the end of term

At the end of the lease (typically three to five years), you'll have to finance the purchase of the vehicle or lease or buy another.

At the end of the loan term (typically four to five years), you have no further payments and you have built equity in the vehicle.

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.