There are many reasons people lease their cars. For some, it’s the lower monthly payments. For others, it’s because they don’t like to pay cash for something that drops 20% in value as soon as they drive it off the car lot. Leasing isn’t the best choice for everyone, but it’s worth looking at in some cases.
How does leasing work?
With leasing, you pay for the use of a car over a set period of time. You never pay the full price of the car. That’s why your payments are lower than if you buy. Be sure how long you need the car. You can’t give the car back in the middle of the lease without penalties. You can buy the car for a set price at the end of the lease, or just return it. You have to maintain the car, but the warranty will likely cover most unexpected repairs. You may pay extra charges at the end of your lease for unusual wear and tear. For example, there may be limits about how many kilometres you can drive each year. If you go over, you could pay a big penalty. Make sure you read the fine print to understand all your obligations before you sign the lease.
Is leasing right for me?
Leasing makes a lot of sense for some people. For example, it may work very well for people who are in business for themselves. Advantages include:
- No down payment. This frees up money for other business expenses.
- Lower monthly payments than a car loan. This makes it easier to budget. And, you can lease a more expensive car than you could otherwise afford.
- Tax deductions. You may be able to deduct some, or all, of your monthly lease payment off your business income – up to $600 per month. Talk to your accountant to learn more.
- No major repair bills. Most leases run the length of the warranty, or less, so you are covered. If you have a longer lease than the standard warranty, you can buy an extended warranty.
- Less GST. You pay tax only on your monthly payments, not the full vehicle price. However, if you lease for several years, that tax can add up. It can end up costing more than paying the full GST when buying a car.
Remember: Compare your options carefully.
Leasing has become a popular way for people to finance their vehicles. However, it’s not right for everyone. Before you decide, check with your accountant to understand the tax rules for your situation.
Industry Canada’s Lease or Buy Calculator can help you decide which option is better for you. It compares your monthly payments and net total cost for each option.
Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca