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Understanding Leases - A Consumer Guide
All lease contracts written in Ontario are written in 'plain language' and are 'full disclosure'.
What this means for the consumer is that all terms and conditions of each lease are clearly spelled out. There should be no misunderstanding of either the obligations or the responsibility or the benefits of the lease agreement. The Toronto Automobile Dealers Association (T.A.D.A.), with full support from its member body pushed for the adoption of 'full disclosure, plain language' lease agreement.
This move was instrumental in the greater acceptance of leasing by consumers who would normally not lease. By knowing how leasing works, the different types of leases and options within these types, the consumer can tailor a lease to his or her personal needs and affordability.
There are two types of leases: closed-end and open-end. All leases require the consumer to stipulate the number of months that the lease is to run (term), the number of kilometres either per annum or for the 'term' of the lease and the pre-agreed price (optional buy-back) of the vehicle, at the end of the lease term.
Lease payments are paid monthly in advance, or can in some cases be prepaid in total (one payment lease).
In addition most leases require you to pay a refundable security deposit.
Monthly lease payment can be lowered by increasing the down payment, or if you have a vehicle to trade the trade-in value inclusive of taxes can be applied to reducing your monthly payment. Open-end leases can also help reduce the monthly payment.
However, as explained later in this article, this lease plan does carry additional risk to the consumer.
License and registration fees are applicable with a lease just as they are with a vehicle purchase. If you are removing the vehicle out of the country for an extended period of time you may need permission from the leasing company.
During a lease, it is the consumers' responsibility to maintain the vehicle according to the manufacturers' recommended maintenance schedule. Should your leased vehicle be involved in an accident, notify your leasing dealer immediately.
It is very important that all repairs be performed by an authorized body repair shop.
Not doing so may alter the value of the vehicle at lease end and possibly become an unnecessary expense. The last 'must' is maintaining the kilometre below those stipulated in the lease agreement.
Should you exceed the stipulated kilometres you will be required to pay for the over usage at a pre-determined per kilometre price.
It is less expensive to pre-pay for the kilometres, unless you are definitely going to exercise your end of lease buy-back option.
In the case of a closed-end lease, if you choose not to exercise the buy-back option and are compliant with all the other conditions, you may return the vehicle to the leasing dealer with no further obligations However, in the case of an open-end lease if the actual value of the vehicle at the end of the lease is lower than the residual value stated in the lease agreement you may be asked to make up the difference. While the majority of leases are closed-end leases, the reason for an open-end lease is to set a lease payment at a suitable level during the term of the lease, knowing that the difference is made-up at the end by the consumer. Conversely, it is possible that you can accrue equity and receive a payment if the vehicle has depreciated less then expected, There are other factors to be aware of when leasing. Some consumers feel that leasing is a form of renting and that they can drop the vehicle of at the dealership, put a stop-payment on the pre-authorization and walk away. This option is only available at the end of the lease term. If you are thinking of such a move, for what ever reason, please rethink, resolve any issues etc that may exist and by working with the dealership arrange to terminate your lease early( in such cases there are financial obligations involved). By merely walking away and stopping the monthly payment you may be jeopardizing your credit rating.
Even though third party lease companies like to say they can save you money, they cannot offer the range of terms and the assurance of a new car dealer. A franchised dealer must sell every new vehicle and even those third party companies must obtain them from a dealer. With a direct pipeline to the manufacturer and to that manufacturer's financing options, new car dealers are in the best position to provide you with the lease you need.
Be sure to visit your new car dealer member of the TADA to get specific examples and options to a lease arrangement tailored specifically for you.
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