Leasing a New Car in Ontario
Monday, January 30, 2017
Whether you choose to lease or purchase your next new vehicle, it’s crucial to make an informed and educated decision. Failing to do adequate research BEFORE your lease or purchase can have considerable financial implications. So if you’re considering leasing a new vehicle, ensure you understand how leasing works and decide if it’s right for you…
What is a Lease?
A lease is a long-term car rental since you’re only paying for part of the cost of the vehicle; you don’t actually own the vehicle unless you decide to pay the remaining amount at the end of the lease term. This remaining amount is called the “residual value.” Lease agreements are for a specific duration (typically 24-60 months) with a set monthly payment. Leasing is available for new and used cars.
5 Terms To Know When Leasing A Vehicle
The person who leases the vehicle.
The company that owns the leased vehicle.
Excess Wear and Tear Fees
This is a cost determined at the end of a lease agreement if damage/wear to a vehicle is beyond what the original agreement detailed. Examples include: dents, paint damage, cracked or chipped glass, mechanical damage, holes, tears or burns to upholstery.
Excess Mileage/Kilometer Fee
Leases typically allow a maximum number of kilometers for the time of the lease – 20,000 per year is common but the amount can vary. If the total distance driven exceeds the agreed amount, the lessee will be charged an excess kilometer fee – 10-20 cents per kilometer is common but the charge can be higher. This is an important factor for consumers considering a lease but who drive more than average distances.
Early Termination Fee
A fee charged to the lessee should a lease agreement be terminated early. These vary and can be significant, so it’s crucial consumers understand the early termination fee (and how it is calculated) before entering into a lease agreement.
Types of Leases – Closed or Open
The most popular lease type for new vehicles is an “option lease” also known as a “closed-end lease.” This type of lease allows consumers to return a vehicle at the end of the lease and either walk away or buy the vehicle for a pre-arranged amount. You are not required to make any additional payments unless there is damage, the kilometres driven are higher than agreed upon or there is excessive wear and tear. Most manufacturer leases are closed-ended.
The alternative type of lease is called a “residual obligation lease” or “open-end lease.” Consumers lease the vehicle and make the scheduled payments similar to the closed-end lease; however, at the end of the lease, the consumer is responsible for covering any shortfall between the residual value and the actual price the lessor sells the vehicle for. This type of lease is not as common because of the risk to consumers needing to make additional payments at the end of the lease term.
Important Considerations When Leasing A Car
When leasing a vehicle, you are entering into a contract to “rent” a vehicle for a long period of time. Should your situation change due to relocation, job loss or discovering the vehicle no longer meets your needs (e.g. starting a family) it may be difficult and expensive to get out of a lease. So it’s important to do your research and determine if leasing is right for you, before you sign the contract. For more useful tips on leasing, visit OMVIC’s website.
OMVIC Protects Car Buyers in Ontario
As the regulator of motor vehicle sales in Ontario, OMVIC protects consumers and maintains a fair and informed marketplace by:
- Maintaining strict registration requirements for Ontario’s dealerships and salespeople
- Regularly inspecting all Ontario dealers (new and used)
- Providing free conciliation services to consumers
- Developing/delivering consumer and dealer education/awareness programs
- Investigating and prosecuting industry non-compliance and illegal sales (curbsiding)
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Ontario Motor Vehicle Industry Council
Ontario Motor Vehicle Industry Council