Throughout the month of May, AMVIC is raising awareness on the financial costs of buying and owning a vehicle.
Last time, the topic was about negative equity. This time the topic is on leasing. When shopping for a vehicle, you might consider the option to lease a vehicle instead of buying. However, with any financial contract, it is important to understand what you are getting yourself into.
Before you sign a lease, learn the language of leasing and understand all the terms of the contract.
There are two types of leases: closed-end and open-end.
A closed-end lease means you make no more payments at the end of the contract, unless the vehicle has been damaged by excess wear and tear. You may also have to pay a kilometre charge if you have driven a greater distance than the limit set out in the lease contract. At the end of the contract, you usually have the options to buy the vehicle, return the vehicle or lease a new vehicle.
An open-end lease means you agree to pay any difference between the retail value of the vehicle at the end of the lease and the specific estimated wholesale value of the vehicle in the lease agreement. Essentially, at the end of the lease term, if the vehicle is worth less than the retail value, then you pay the difference. On the other hand, if the retail value is more than the residual value, you get the difference. Before you sign the contract, ask how the retail and residual values are determined, keeping in mind that the business leasing the vehicle determines those values.
It’s important to know that there are other costs to leasing such as if you want to end the lease contract early and any outlined expectations on maintenance and repair. Ask these four important questions before you decide to lease your next vehicle.
Lease contracts must provide full disclosure in the terms and conditions such as:
- The full term of the lease
- Total cost of the vehicle
- Annual and total kilometre allowance
- Charges that will apply for damage and excessive wear and tear
- …and more!
Arm yourself with knowledge of your consumer rights and other useful tips by visiting amvic.org.
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