Key points to remember
The car will need to be returned once the lease ends (or you can extend the lease)
When your lease ends, you'll arrange for the car to be collected and returned. You may be able to extend the lease; you can contact the finance provider a few months before the end to check if this is possible. As the car will be older, you might be able to negotiate your payments too.
If the car is in good condition and is within the terms of your contract (for example, kilometer allowance), then you shouldn't have anything else to pay on returning the car.
Large fees can apply if the car is damaged or you exceed the kilometer allowance
On returning the car, a report will usually be provided to you. Any damages beyond fair wear and tear will likely result in a bill where you will be expected to pay for the repairs.
If you have any major damage to the car, it would be worth getting quotes to repair the car before it is returned. This may work out cheaper. Review the fair wear and tear policy too, so as to understand the fees that may apply on returning the car.
If you've exceeded your kilometer allowance, that will likely incur a fee. Make sure to check what the charge is before signing a lease. Agreeing a reasonable kilometer limit can also avoid this fee.
Responsibility for insurance, maintenance and any parking/speeding tickets is with you, even though you don’t own the car
You'll be responsible for insurance and may need to provide proof of insurance before taking delivery of the car. A Servicing/maintenance package might be offered to you as part of the lease too. If you decide not to take this up, you may be required to ensure the car is regularly serviced.
It's important to factor in both insurance and service costs in addition to your monthly lease payment.
Whilst the leasing company is the legal owner and registered keeper of the car, you will be responsible for any parking or speeding tickets. They will pass these onto you and it may include an admin fee too.
It can be expensive to end your lease early
You will likely incur an early termination fee should you decide to end your lease early. This can be expensive as the leasing company will want to cover its losses.
A car depreciates faster in it's first year of ownership. So returning the car early can mean it's lost a large part of it's value. A lease agreement is designed to cover the loss in depreciation. So the car might be worth less than the leasing company will accept when returned early.
So an early termination fee (could be 50% of your remaining payments for example) will likely apply. This will be in addition to any costs incurred through damage or excess kilometers driven.
You should check your agreement to understand what fees may apply and if you're able to end the agreement early, at all. Some leasing companies may not allow this.
A credit check is usually required
Applying for a lease will trigger a credit check, as the leasing company will determine whether to lend to you. This check will apply on your credit report as an application.
A credit check for a lease is somewhat different to a personal loan or credit card. The security is on the car, so if you don't pay, the lender can repossess it. On a loan or outstanding credit card bill, the lender would need to take legal means (court as an example) to get their money back.
If you may struggle to make payments, it's worth calling the leasing company before the payment is due. You may be able to agree to a different payment plan.
Missed payments can result in you being marked as in "default". The default mark will be added to your credit file. Also at this point the car will likely be repossessed as quickly as possible.
What is a car lease?
Leasing a car is like renting a house or condo. So in this example, you pay a deposit and get to use it for an agreed period of time where you pay a set amount (rent) to the landlord every month. Once the contract ends, the property goes back to the landlord.
With a car lease, you agree how many kilometers you will likely drive each year, pay a set amount every month, and pay a deposit.
The monthly payment you pay is based on the car’s price; contract length; and the predicted resale value at the end of the contract.
You won’t own the car, and at the end of your contract it will be returned to the leasing company. You will likely pay for any damages (outside of normal wear and tear) or if you’ve exceeded your kilometer allowance.
Advantages and disadvantages of a car lease
| Advantages | Disadvantages |
|---|---|
| – Deposit doesn’t necessarily need to be high – Monthly payment can be low – You get a newer model – The warranty is usually as long as the lease contract – Repair costs may be lower through warranty or service packages – You can get a new car every couple of years | – You won’t own the car – Exceeding the kilometer allowance will incur charges – You’ll pay for damages outside of normal wear and tear – Regular maintenance or servicing of the car may be mandatory – You may incur fees for ending the lease early – Moving to another province during the contract can be a irritating |
Buy or lease?
Since the majority of cars depreciate, it’s hard to make the case they are a worthy investment (a classic car is perhaps the exception). If you buy a car, you will get some money back when you sell it. With a lease, you know from the beginning that you won’t own the car at the end of your contract.
A simple way to answer this question:
- first calculate the total amount to pay during the lease contract;
- Second, calculate the amount you would lose between buying and selling the car in the same period as the lease contract;
- Is the leasing amount higher or lower than the amount you would lose?
If lower, then leasing is cheaper than buying. If higher, then it would be better to buy the car.
Comparing leasing deals
Lease deals are quite easy to find, especially online. Though the numbers can be confusing. There’s a couple of points to focus on, which may help provide clarity:
- Total cost over the entire lease contract. Monthly payments can usually be the focus but the total cost is what matters most. Multiply the monthly payment by the number of months in the contract. Then add the deposit and fees that may apply.
- Be realistic with your expected kilometers. More kilometers will likely mean a pricer deal. An allowance will be set in the contract that will incur fees if you exceed that allowance.
- Play around with the options. Perhaps a wildcard play, but you may find deals are available on certain terms.
FAQs
What’s the best way to estimate my kilometer allowance?
You would need to think about how often you will drive. A good starting point is if you drive to work every day; how far do you go? Then factor in any weekend and holiday drives you are likely to take.
As an example: let's say you drive every day to work. A round trip (to your office and back home) is 20 kilometers. So in a week that is 100 kilometers. If you consider two weeks of holiday a year, then you'll be driving at least 5000 kilometers a year for work. Factor in weekend and holiday drives, and your estimate could be between 6000 - 7000 kilometers.
Is insurance included?
You are responsible for insurance on the car. Usually the lease contract will state insurance must be in place, and you may have to provide proof of insurance before taking delivery of the car.
A good idea is to start getting insurance quotes once you know the car registration details and a delivery date. A policy can be more expensive if taken out closer to the date it is required, rather than a few weeks before.
Essential information
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