What You Need to Know When Leasing a Car

What You Need to Know When Leasing a Car

It can oftentimes be overwhelming to buy a car, with ample choices on the market and endless features to be on the lookout for. This article will give you a simplified look at leasing a car, to make your next trip to the car dealer effortless.

The idea of leasing a car, giving it back or exchanging it for a new one every year or two seems ideal. Both buying and leasing a car can be a hassle if you do not know how to go about it. This is why you need to read this article thoroughly for you to get a deeper understanding of what leasing a car entails.

The benefits of leasing a car

First of all, you could be driving the car of your dreams at a fraction of the price it would cost you if you had to buy the car. Whether you’re looking to lease a car for personal use, or you’re a business owner looking to lease a car for your employees the concept of leasing outweighs buying a vehicle.  

You can drive the car through its trouble-free years and at the end of your contract, you can hand in the keys and start scrolling through the market for your next lease. Usually when something happens to the car the company’s insurance will cover the costs.

The company from which you lease a car pays the tax on that car. This simply means that you do not pay the full tax of the vehicle but only a portion of the car, so you get to keep at least a third of the full tax amount. The vehicle might still be under warranty which means that you benefit from free oil changes and scheduled maintenance.

Leasing a car will give you the benefit of simply changing your car in for a newer model, instead of having to worry about the trade-in value or finding buyers. It is a hassle-free exchange. If you feel like ending your lease contract early, unfortunately, you’ll have to either trade your car in for a different one and pay the rest of your existing contract plus a small up payment of your new contract, or, pay out the remainder of your contract.

Pro tips for leasing a car

When looking for a car to lease, go for that new model you’ve always wanted. When the car is still under warranty, the company’s insurance will cover most minor breakages and oil-changes etc. Cars usually come with a warranty of 3 years. So, with only a small amount more for every month’s payment, you could get a car that is still under warranty and brand new.

When driving a leased car, it is very advantageous to have gap insurance. The ‘gap’ refers to the value of the car and how much you still owe on your lease. So, before you sign a lease contract, ask whether the contract includes gap insurance coverage. If the car you’re looking for does not have the coverage, pay extra to get it or look for a car that already has a lease plan which includes gap insurance.

Remember to still treat a leased car as your own as beyond normal wear and tear will mean additional fees when returning the car to the dealer. Make sure you inspect the car before driving it and make sure the company knows of any existing dents and scratches. The lessor or car dealer will inspect the car for scrapes and dents on the body, damage to the tires, windshield and wipers as well as tears or stains on the upholstery.

Contract consideration when leasing a car

The money factor is probably the most important bit of information that you need to keep an eye out for when reading through your contract. The most important factor to find is the interest rate, the lower the rate, the better deal for you.  

In every contract, there will be a limit on the number of miles you can drive the car. So, when looking at leasing deals and you come across a very attractive, low-priced one just know that it probably has a very limited number of miles you can drive before exceeding the mileage limit stated in your contract. This means that you’ll have to pay an amount for excess mileage, a penalty that all car leasing companies have. 

You have to be very careful when leasing a car as car dealers usually offer the public outrageously low monthly payments on leases. What you need to know is that the trick there is making you pay a big amount of money upfront which covers a portion of the lease in advance.   

At times when leasing a car, you might get caught up in clever advertisements which companies use in an effort to boost their sales. Special deals are offered, however, take your time to read the fine print of the lease for any additional expenses like drive-off fees, sales tax and even registration fees.  

Drive-off fees usually get paid upfront, it’s a combination of regular fees and your down-payment. The bigger the down-payment the lower your monthly payment will be. However, you want to pay as little money upfront as possible just because you never know what will happen to your car, it could get totaled or stolen. 

Make sure to ask the car dealer about the guidelines on the lease-end condition. This guideline specifies the condition that the car needs to be in when you return the car at the end of your contract.

The good thing about these contracts is that they are there to protect you. Leasing terms can be very confusing which is why we will be taking a look at leasing terms as well as the terms which are used to calculate your monthly payments. Keep an eye out for what exactly you are paying for when leasing a car. You can ask that some fees are reduced, and you can get the car dealer to waive your security deposit.  

At some point, you’ll have to ask yourself how much the leasing of the car will cost you over time. You can multiply the total amount of the monthly payment including the fees and taxes, with the number of months you’re planning on leasing a car.

Considering every aspect of the contract, the deal and the cost you should have a much clearer picture of the value of the lease you are considering. It will also make you seem more informed when you have done some research.

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Different Lease Options

In Canada it is possible to enter into a few different types of lease contracts and depending on your needs you might find one more beneficial than the other.

A standard rental lease is where you lease a brand-new vehicle. This is the perfect choice for someone looking to enjoy new vehicles that are still under warranty. There is a down payment required as well as monthly payments and different penalties based on the condition of the car upon return. At the end of the lease term, you can choose to continue leasing the same car or trade it in for a newer model.

If you don’t have enough money to purchase a car firsthand but you would like to eventually own the vehicle, you can choose ‘leasing to own’. This contract gives you the option to buy the car once the lease term finished. You will still be required to make lease payments, but rather than just paying to use a car, your payments will be adding up to the final purchase price. This option is more lenient in terms of creditworthiness, but you might not find the latest car models to choose from.

Lease takeovers are where you take over a lease agreement for someone else. This option is beneficial because it has smaller upstart costs, but there is the added risk that the previous lessee may have damaged the car or gone over the mileage limit which will lead to you paying penalties at the end.

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The risks involved in leasing a car

Although leasing a car may seem like the obvious choice, it is not without risk. When signing a lease agreement, you need to be aware of all of these important points so that you don’t end up disadvantaged.

The first risk to consider when leasing a car is damage fees. Even though you are only leasing the car, you will still be responsible for keeping the car in a reasonable condition. Regular wear and tear might be covered, but that doesn’t mean you can return the car with hundreds of scratches and bumps. Do you drink coffee while driving? Well, this might end up costing you hundreds, sometimes thousands, of dollars in damages if you leave stains on the carpets.

Even things that you might consider ‘reasonable wear and tear’ might not be acceptable to your dealer. Each dealership will have their definition of ‘satisfactory condition’. You need to carefully consider this definition as well as the damage fees that you may be liable for should you break the terms.

If you find yourself unsure of how the dealership will react to the condition of the car you can take your car to them for a pre-inspection before returning it. This will give you time to have the car fixed or cleaned according to their standards before being charged excessive fees for it.

You will also want to take note of the mileage limit. When you lease a car, there is generally going to be a mileage limit between 12,000 – 20,000 km a year. For every mile that you go over this limit, you will be charged a fee, and this can hike up the price of your lease over the years. Not only will you be charged for the distance, but you could also be liable for extra damage costs. The dealer may determine that certain wear and tear only occurred because you exceeded the mileage limit, which can put you in a very expensive situation.  

Even though when leasing a car most agreements include insurance, not all of them do. In these situations, make sure you know the level of insurance coverage you must get. Some dealerships require excessive insurance coverage which will lead to your monthly payments being a lot higher than if you had purchased the car yourself.

When leasing a car, there is also a risk if you need to terminate the agreement early. Early termination of a lease agreement is expensive and can be a real problem if you find yourself in a situation where you have no other choice – especially if you can no longer afford the leased vehicle. If you find yourself in this situation, you can get around it by selling your lease agreement to someone else.

The contract term for leasing a car

One of the first things that you need to consider when looking to lease a car is the period for leasing. The usual term for a leasing contract is three years, you can either get a shorter contract or a longer one depending on what you are looking for. Just remember that when you are leasing a car for longer than three years it will usually mean that the warranty period will have ended in the time that you are still actively driving the car which could amount to you having to pay maintenance and repair on a car that you do not own.

FAQs about Car Loans

What is a good car loan rate in Canada?

The average car loan rate in Canada is 4.38%. This doesn’t mean that you will have this exact rate though. Your rate will be determined by your certified lender partner at the time of your agreement.

What affects car loan rates in Canada?

Car loan rates are determined by several factors, such as your credit score, yearly income, current debts, the loan amount and loan term you wish to borrow for. Generally speaking, the higher your credit score is, the lower your car loan interest rate can be. Lenders also look at your debt to income ratio to make sure that your payments are reasonable based on your monthly income.

Why should I get a car loan?

If your ideal vehicle costs more than what you can afford, a car loan can make owning that car a reality. Although buying a car for cash is an option, it is not a realistic route for many. Instead of waiting and saving for years to buy a car, you could purchase a vehicle immediately.

A financial institution or lender, such as those listed on Comparewise will lend you the money you need to buy your car. You will then commit to is paying interest and making frequent payments back to these providers.

What are some benefits of leasing a car?

One of the advantages of leasing a car is that you can pay a low amount to drive the car of your dreams. You also get to keep at least 1/3 of the full tax amount.

What are the tips for leasing a car?

First of all, try and get the model you always wanted. Once you get it, make sure you get a gap insurance and inspect the car thoroughly so you know any existing flaws of the car.

February 21, 2021
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