History tells us that your home will likely appreciate in value. So every payment you make doesn’t simply disappear, it goes into sort of savings account that can and likely appreciate with time. But the vehicle you drive is the opposite of this. It literally depreciates the moment you leave the store.
That’s why some people choose to lease. You are given a scheduled payment amount plan for the number of years you choose to lease the car, and there are no issues as long as you bring it back in reasonable condition.
But not everyone understands the best lease plan for them. If you can pay for it via the manufacturer that guarantees to take the car back at the end – what’s known as a Closed-Ended Lease – that’s the one you want. An Open-Ended Lease is one where you are responsible for the residual or the remaining amount owed to pay off the vehicle.
The company offering you your lease assumes the risk if you get into an accident. That’s called Gap Protection and every lease sold by a manufacturer in Canada has this clause baked into the lease agreement.
Let’s apply to this to the scenario of one customer who pays cash or finances their vehicle versus the other who chooses to lease. Both customers take delivery of their vehicles, but 18 months later both are rear ended through no fault of their own. Both sustain $17,000 in damages and are deemed repairable by the insurance company. Both get a loaner cars for a few weeks, both get their vehicles back good as new, no problems other than no longer having a clean title.
The customer who paid cash or financed the vehicle doesn’t feel the pain of ownership until the time to sell or trade it in because at that point it no longer has a clean title. That means the owner will not get the same value as compared to an identical vehicle with no accidents.
The customer who decided to lease has it pretty easy when the lease matures and it’s time to return the vehicle to the dealership.
Lease end protection will not cover excessive mileage and it will only cover limited amounts of damage (to a dollar figure). Often it will not include tires.
Ultimately, leasing is designed to work in the customer’s favour.
The average annual kilometres driven by Canadians is 20,000-25,000. Anything over that would be considered high mileage. Conversely, 12,000-18,000 is low mileage.
I’m not suggesting leasing a vehicle if you do low kilometers each year. Although many manufacturers offer low kilometer leases, when compared to a 24,000-25,000 km annual lease program they can be rather expensive by comparison. That said, what you pay monthly should be commensurate to your monthly income and ideally a lease payment is a fraction of this.
Ultimately, the key to leasing is not just about your annual milage but more so your monthly budget. Most of the horror stories of leasing have to do with the same two scenarios: The first and most common is someone leases a vehicle that ultimately is far too expensive each month. The second is a lifestyle or job change that forces the driver to put way more mileage on than the original agreement. Unfortunately, you can’t change your lease contract once you start it.
For the customer whose job change has come with extra kilometres per year than anticipated, you have a few options. One is to simply do the math and see how many kms you’ll be over by the time your lease is up. This varies by manufacturer and of course by model. Let’s assume you’ve calculated you’ll go over your kilometre limit by 10,000km and your cent per kilometre charge is 20 Cents. Simply, multiply the .20 cents by 10,000 kms, that equals $2,000 owed at the end of the lease as a penalty for going over the agreed on limit. Figure out what you should save each month to cover the difference and know that if you planned for this from the start by paying a higher kilometre lease, you simply would have had higher payment anyway.
If on the other hand your excess kilometers go far beyond the annual maximum (say 40,000-50,000 kms per year) or far beyond your comfort zone, you can have someone take over your lease or use LeaseBusters, which costs $299 plus applicable taxes.
What’s the benefit for the person taking over a lease? Quite simply, a lower-term commitment. Many people don’t lease a vehicle because three or four years is too long. So why not take over a lease and have a vehicle with all the benefits of leasing with a term commitment far lease than a regular lease. Taking over a lease for 6 or 18 months can be far less costly than a two-year lease or long-term rental.
Ultimately, leasing is about the math of depreciating assets or tools that make your life convenient.
Steven Pigozzo has been in the car business for over 20 years as a salesperson, software trainer/implementor and for the past 14 years as a consultant to stores and their teams.
