Leasing a vehicle

Consumers who choose to lease are generally driving a relatively new vehicle.

A lease is a contract by which one party uses a vehicle for a specified time in return for periodic payment. You return the vehicle to the company when the lease is over. This is essentially a long-term vehicle rental.

Initial questions to consider:

  • Do I really need a vehicle at this stage of my life?
  • Is it better for me to buy or lease?
  • What should I check when I’m leasing a vehicle?
  • Can I end a lease before the term is up?
  • How much insurance do I need and how can I minimize my premium?

Before you lease:

  • Learn the language of leasing. The terms used in a lease differ from those in a purchase contract. Search online for a leasing glossary or look at the terms to know on the Vehicle Purchase Worksheet.
  • Lease contracts are for a specified number of years. Terminating a lease early is usually extremely costly. The leasing company may require full payment of the lease. The ideal lease customer has a low risk of significant life changes that will influence their ability to meet the monthly payments.
  • Lease contracts must provide full disclosure of the following facts:
    • That the transaction is a lease
    • A description of the leased vehicle
    • The capitalized amount
    • The full term of the lease
    • Total cost of the vehicle
    • Down payment
    • Any other payments due
    • Annual percentage rate of the lease
    • Monthly payment
    • Amount, timing and number of payments
    • Residual value of the vehicle at the end of the lease
    • Total lease cost
    • Annual and total kilometer allowance
    • Cost of excess kilometers
    • Charges that will apply for damage and excessive wear and tear
    • Additional documentation or other fees
  • Lease terms may differ from one consumer to another based on credit history.
  • Monthly lease payments are subject to GST.
  • Lease consumers are responsible to pay insurance, registration and repair costs.

This Vehicle Purchase Worksheet is available for you to fill out when shopping for a vehicle.

Types of leases

There are two kinds of leases: closed-end and open-end. For both types, the projected depreciation of the vehicle is estimated and calculated into your monthly payment.

Open-end lease:

You, the lessee, will have to pay any difference between the retail value of the vehicle at lease-end and the residual value (estimated wholesale value) of the vehicle in the lease agreement. What this means is, 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. Keep in mind that the lessor (the business leasing the vehicle) determines the retail and residual values. Before you sign the contract, ask how the retail and residual values are determined.

Closed-end lease:

You usually have no more payments to make 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. Check the contract for the kilometre charge.

Basically, you have three options under a closed-end lease when it expires. You may:

  • return the vehicle;
  • buy the vehicle (if the lease has a purchase option); or
  • lease a new vehicle.

In general

When leasing, you are responsible for maintaining the vehicle according to the owner’s manual specifications, unless you have a full-maintenance lease. You are responsible for repairing the vehicle. If you fail to follow through on these responsibilities, you may be charged for excess wear and tear at the end of the lease term.

You are also responsible for paying the registration and insurance. Find out how much coverage you require.