Personality plays a role in leasing or buying a vehicle
After numerous visits to your local car dealership to run your hand lovingly over the shiny new vehicle you’ve had your eye on, you’re finally ready to buy. The least expensive way to obtain a vehicle is to pay cash, but if you can’t afford to do that you still have a choice of financing or leasing. And that choice is dictated as much by your personality as
it is your wallet.
By Lorne Chase
The lifestyle you lead, or want to lead, will influence how you decide to pay for your new set of wheels. Jim Cochrane, president of Town + Country BMW in Markham, points out that some people “might not have the money to buy or finance a BMW, but they’ll lease so they can get into a higher end car.”
When you finance a vehicle, you are the sole owner. As with a mortgage on a home, you make monthly payments, with most of the payment going toward the interest at first rather than the principal. Eventually, you will own the vehicle outright.
With leasing, you rent a vehicle from a lessor – the financial arm of an auto manufacturer, a multinational leasing company or a car dealership – for a specified period of time. When your lease is up, you have the option of buying the vehicle for its residual, or wholesale, value at the end of the lease period.
“You may have a minivan right now,” says Craig Riley, president of Markville Ford Lincoln and the 2005 president of the Canadian International Auto Show. “But will you still want it when the kids grow up. Leasing offers more flexibility for your changing lifestyle.”
The moment your new vehicle is driven off the lot, depreciation hits it like a bug slamming into a windshield. That’s a direct hit on your investment if you’re financing. When you’re easing, it’s not an issue because the lessor eats the cost of any depreciation. However, if you plan to buy the vehicle at the end of the lease period you should choose a vehicle that retains its value and doesn’t have a high depreciation rate. “Leasing is very popular as you get into higher end cars – the residual value holds very well,” says Cochrane.
Still, as Riley points out, current economic conditions could impact on the residual value of even the most popular models. “If gas prices remain high, I can see the residual values on SUVs taking a dive.”
If you’re financing, mileage isn’t a concern. You can literally ‘go the distance’ and drive as often and as far as you like. With leasing you have to nail down a predetermined figure for mileage with the leasing company. If the odometer clicks over that fixed number, you could end up paying an average of 15 cents for every additional kilometer. According to the Toronto Automobile Association, short-term leases of two to three years offer an average of 20,000 kilometers before additional charges kick in.
You love your new vehicle and can’t wait to accessorize it by throwing on some high performance tires and adding that snazzy undercarriage lighting system. If you’re financing, go ahead. But if you’re driving a leased vehicle, forget about it. There are stringent rules about customizing leased vehicles because lessors don’t want alterations that could affect residual value. They also don’t want their vehicles adorned with dents and scratches at the end of the lease period. So if you want to avoid return costs, be careful to avoid fender benders.
An estimated 40% of Canadians are currently driving leased vehicles, and there’s good news for anyone considering doing so in the future. Gone are the days of misleading or inconsistent leasing agreements. Since July of this year, the Ontario Consumer Protection Act states that all leasing companies must provide full disclosure to consumers, including the vehicle’s selling price, residual value, trade-in value, the annual interest rate and total interest charges, any outstanding liens, and applicable taxes. This may ease the minds of people worried about being treated fairly when entering into a leasing agreement.
What happens if you want to get out of your lease early? Financial penalties can run into thousands of dollars. But you might be able to avoid them by utilizing the services of Lease Busters (www.leasbusters.com), where for a lot less money you might find someone willing to take over your lease. The website has been helping people get out of their leases or take over someone else’s since 1990, and it features pictures and leasing information for over 1,500 vehicles.
Before making a decision to buy or lease take the time to gather competitive information to get the best rates for financing, and become familiar with the terminology of leasing: gross cap cost, net cap cost, cap reduction, money factor, open-end lease, and closed-end lease. And it’s wise to have someone knowledgeable about leasing agreements look yours over before you sign. Be prepared and you’ll have the confidence you need to negotiate the best deal possible.
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