Margaret Johnson

Credit Solutions

A column by Margaret H. Johnson. As featured on MyTelus.com and Shaw: Finance.

Margaret H. Johnson ACE, RQIC, has over 35 years of financial industry experience in both lending and collecting. She is an Accredited Insolvency Counsellor, Registered by Industry Canada.

 

Vehicle Leasing vs. Loaning E-mail
Why Lease a Vehicle?

 

Vehicle leases have become very popular over the last 10 years due to the increased cost of vehicles and the fact that more and more consumers are self-employed - even used cars are being leased.

A lease allows you to drive a better vehicle for considerably less money per month than if you tried to purchase it outright.

While it may make sense for the business owner to lease their vehicle – (as a lease can be used as a write off in the business) it may not make sense for other consumers.

What is a lease?

A lease is a financial arrangement to pay for the use of a vehicle over a specific period of time.

A leased vehicle is not the same as a rental vehicle – so do not confuse the two.

When you lease you pay for the part of the vehicle that you will use – which translates money wise, into the amount the vehicle will have depreciated by the time you turn it back in.

Whether you buy or lease, you pay for the depreciation. A vehicle does not know how it is being financed – it will depreciate by the same amount regardless of how you pay for it.

Therefore, depreciation is the most important factor in determining lease rates. So research the resale value of the vehicle that you intend to lease. The less the vehicle is expected to depreciate, the better the lease deal is for you.

The Pros and Cons:

There are pros and cons to vehicle leases as in all contractual agreements: Remember read the fine print before signing any contract.
  • Pro: Lease monthly payments are usually less than finance monthly payments – have the sales person “crunch” the numbers on the lease and purchase of the vehicle (be sure to include the same down payment, interest rate, term, etc) - Compare before you decide.
  • Con: People tend to lease “more” car than they may need just because of the perceived reduced monthly payment – without realizing that the more expensive the vehicle, the more expensive the repairs and the maintenance.
  • Pro: When you lease vehicles, you can change vehicles every 2, 3 or 4 years without worrying about the trade-in value of the car and without entering into the usual negotiations and possible disagreement over the value of your used car.
  • Con: Continuous vehicle leasing means the consumer will have a monthly vehicle payment forever.
  • Pro: When you lease new cars, you are always driving a relatively new, reliable, repair-free, and current style vehicle that is usually under warranty for the term.
  • Con: Lessees are subject to kilometre restrictions and loosely defined “wear and tear’’ conditions that could be costly at the expiry of the lease agreement.
  • Pro: Most accountants agree that people and businesses should purchase assets that appreciate and lease assets that depreciate. Vehicles most definitely depreciate over time.
  • Con: Most vehicles are built well today so that in many cases lessees may want to exercise the buy-back however, the buy-back amount may be too high and the lessee is compelled to give the vehicle back and continue leasing.
Buying versus leasing is no simple matter: So here are the simple goods:

When you buy, you pay a price based on the total value of your vehicle less your down payment. But when you lease, you pay for only the part of the vehicle that you use – in other words the value of the car when the lease begins minus a residual value when the lease ends.

Because you essentially pay only for what you use the monthly payments are lower than they would be if you purchased the vehicle outright.

So, the theory is that you can have a better-equipped leased vehicle for a lower monthly payment than if you purchased and financed the vehicle.

At the end of a “closed” lease – (one without an option to buy) – you have nothing, no equity and no car. So if you intend to keep you car for a long time – five years or more – buying is probably a better financial move.

If you want to drive a newer vehicle and like most of us have limited funds – leasing may be a good option for you –

Remember if you are in doubt speak to a credit counsellor to be sure you have all the facts before you sign on the dotted line.

Remember, if you are experiencing financial difficulties do not wait. Speak to a professional today.

Do you have a story that you would like to share about your experience with a debt collector? Email me – This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Margaret H. Johnson ACE. RQIC is president of Solutions Credit Counselling Service Inc. and Women and Money Inc. She can be reached by e-mail at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it  
Or call toll-free in Canada – 1-877-588-9491 
Phone: (604) 588-9491 Fax: (604) 588-9007 

© Solutions Credit Counselling Service Inc.

 
.

Back to top © 2000 - Solutions Credit Counselling Service Inc™ of BC, Canada LW