Toronto Star

Should you lease or finance your next vehicle?

Length of term, interest rate crucial to making decision

- Bob Redinger

One of the most important decisions that car buyers will make is deciding whether to lease or purchase their vehicle.

There is still some misconcept­ion about the two forms of purchasing, which probably dates back to the days before full lease disclosure in Ontario. In the mid ’90s, the Trillium Automobile Dealers Associatio­n, working with the Ontario government, introduced plainlangu­age lease contracts, which are the standard lease contracts used today.

So, let’s examine the difference­s between leasing versus purchasing so that you can make an informed car-buying decision.

Let’s use the example of purchasing a $30,000 (plus tax) vehicle and assume that paying cash is not an option. In this case, the buyer would take out a loan to purchase the vehicle, which would be paid back in full along with interest charges, based on the terms of the loan agreement. Leasing With a leased vehicle worth $30,000, in effect, you are only paying for the portion of the vehicle that you are using and not the balance or residual value of the vehicle left over at the end of the term of the lease, usually three or four years. In this case, if the residual value is $14,000 after three years based on normal wear and tear, you would in effect only be making payments on the $16,000 difference (plus interest, profit and HST). The monthly payments would be lower than a regular finance payment.

Most standard lease agreements are based on driving approximat­ely 24,000 kilometres per year. Lease agreements can be written to allow for additional kilometres, but the monthly payments would be higher to reflect a lower residual value at the end of the lease. If you plan on driving considerab­ly more than 30,000 kilometres per year, financing may be a better option.

In most cases, depending on the lease agreement, leasing might require a security deposit, freight and preparatio­n fees, plus the first month’s payment. Financing a vehicle, on the other hand, usually requires a more substantia­l down payment.

Many purchasers with available cash wisely choose to pay off highintere­st debt or long-term commitment­s (credit cards, mortgages, etc.) or invest in RRSPs. Some customers don’t want to make a large down payment on a financed purchase and use up their cash reserves. Others may like the idea of handing over the keys to the dealer once the lease has expired, avoiding the hassle of selling their own vehicle. They may just like to end up with a new vehicle every few years. Financing People choose to finance their vehicles for a variety of reasons: they plan to keep their vehicles longer than five years; they are not concerned about the cost of repairs after the factory warranty expires; their cash flow is not a concern; the status of driving a new car is irrelevant or they have cash to cover the finance price, including HST.

By choosing to finance, you are required to pay the HST up front, which increases the amount borrowed and total interest you will pay. In effect, you are paying the government its full share of taxes on the vehicle in advance, rather than over time through monthly payments.

Leasing is a very attractive option for many consumers, but it’s not for everyone.

Interest rates may differ between leasing and financing, so make sure to compare the total cost of both before deciding.

Any sales and leasing consultant at any registered new car dealership in Ontario would be happy to provide you with a leasing versus purchasing price comparison based on your financial circumstan­ces and driving requiremen­ts. Bob Redinger is president of the Trillium Automobile Dealers Associatio­n and is a new-car dealer in the GTA. This column reflects the views and values of TADA. Write to president@tada.ca or go to tada.ca. For more informatio­n about automotive news and trends, visit carandjobs.com.

 ??  ??

Newspapers in English

Newspapers from Canada