At AFG Canada we pride ourselves in providing thorough, comprehensive education to our credit union members. From lease origination to lease end, we are here to provide you all the information you need to make informed, educated decisions.
Looking for information on the end of term process? Please click here to learn more.
A lease may be the perfect choice for you.
Less initial cash outlay
First, auto leasing requires very little or no cash outlay. Most leases have no security deposit, and the origination fee collected at the time you acquire your lease, called an acquisition fee, is included in the loan amount of the vehicle. Less cash outlay, means more money in your pocket for other things. All you have to do is make your first monthly lease payment at the time you drive away in your new car!
A lower monthly payment
As important as your overall cash savings at lease origination, is the savings you will enjoy throughout the life of your leased vehicle. Lease payments are typically 30 to 40% less on a lease than a loan. The average lease payment could be $150 less than a loan payment. With $150 extra dollars a month, you could save in your RRSP… tax free! Imagine putting that money toward your mortgage and saving thousands in interest. Pay off a credit card, or save for vacation! Do something more with your money, instead of putting it into a depreciating asset. Lease your car and invest the difference!
A vehicle is an expense
A vehicle is not an investment, it’s an expense. Consider this: would you buy a house that’s worth $300,000 today and is guaranteed to be worth $120,000 in five years? No! Then why buy a car today for $30,000 that will only be worth $12,000 in five years? A vehicle is one of the most rapidly depreciating assets in the market today. Consider leasing it instead and let someone else deal with the depreciation. The basic leasing concept is buy assets that appreciate in value, but lease your vehicle because it depreciates in value.
More car for the money
Because lease payments are lower than loan payments, you can afford to get more car for the money. This allows you to have a new car more often, to upgrade when your needs change, and to take advantage of the newest safety and convenience features.
Generally less maintenance costs
Newer cars generally require fewer repairs, if any, and they are generally less costly.
Latest technology and more safety features in newer vehicles
Newer cars will have the most recent safety features and more technology options than older cars.
Less sales tax
On a vehicle purchase you pay sales tax on the entire purchase price of the vehicle. On a lease, you only pay sales tax on what you use of the vehicle’s value over the term.
No depreciation risk
With automobile leasing there is no depreciation risk. Vehicles depreciate in value, and at the end of your term if you own the car you then have to try and sell it or trade it in. At the end of the lease, it doesn’t matter what its value is because you simply turn the car in and get something new. Once again you are in a position to get a new vehicle with a new factory warranty, instead of driving an old car with service and warranty issues.
Debunking Leasing Myths
High mileage drivers should not lease
High mileage drivers make the most auto-leasing sense! The number one way to depreciate the value of a vehicle is to drive high miles. That vehicle then becomes the most difficult vehicle to resell. Many leases are customizable and can be written for more than 24,000 kms a year. Whether you pay for your kms upfront or at lease end, when you turn in the car you don’t have worry about trading or reselling a high-mileage vehicle.
Wear and tear and mileage are penalties
Wear and tear and mileage expenses are an equalizer. When you agree to “lease” a vehicle from the lessor (registered owner) the lessor guarantees the residual value of the vehicle, based on your agreeing to drive and maintain the car in a certain manner. If you drive more miles than agreed you use more of the vehicle’s worth, and therefore you will pay for those miles at lease end. If you own the car, you resell it for less and you still absorb the expense of the mileage and excess wear and tear. Whether you lease or own the vehicle, driving high miles or incurring excess wear and tear will affect the vehicle’s value.
Automobile leasing is only for the wealthy
Automobile leasing is for anyone who has qualifying credit. You don’t have to be wealthy to understand the value of leasing. Everyone has the same opportunity to minimize monthly expenses and maximize savings and investments.
But you don’t own the car…
…but does that matter? In the lease relationship, the lessor owns the vehicle and you lease (or rent) the use of it. Therefore, at the end of your automobile lease term, the car is returned to the lessor who resells the vehicle. If you own the vehicle at the end of your finance term, you can continue to drive a used, depreciated vehicle or you can sell it yourself. You then own the depreciating asset and its value is worth far less than when you purchased the vehicle.
Consider the following scenario:
You lease a 2008 Honda Accord, 4 door sedan EX. Your neighbor purchases the same exact vehicle! Here is what your payment scenarios look like:
Honda Accord, 4-Dr Sedan EX
MSRP: $24, 495.00
Sales Price: $24,495.00
Sales Tax Rate: 5%
Interest Rate: 6%
|Lease Payment||Loan Payment|
|Amount Paid over Term||Amount Paid over Term|
|Estimated Value of the Vehicle (residual)||Estimated Value of the Vehicle (residual)|
At the end of five years, your neighbor has paid $8699.40 more in payments than you have. He has paid more than $30,000 for a vehicle that is worth less than $10,000. The vehicle is worth 39% of the original sales price, and 31% of what he actually paid for the vehicle (including interest).
You have possibly used the $8,699 for other things over the course of the five years, perhaps you have invested that money and it is earning you interest!
Now, your neighbor owns his car and you will turn yours in and lease something new. Over the next few years, you will be driving a new car with a new warranty and a new payment, and your neighbor will continue to pay for his vehicle in parts and service fees… all the while his vehicle will continue to depreciate in value.
So, it is true that you don’t own the car and at the end of your lease and never will. But do you really want to?