What Is Leasing?

Leasing is simply an alternative method of financing any car or truck with a significantly lower monthly payment than by traditional bank financing. Leasing continues to grow dramatically in popularity especially as it moves from the business community, where it has been accepted for many years, to individual leasing. This trend is expected to continue and many of the reasons are outlined below.

Leasing vs Buying

The primary difference between "leasing" and buying is that when you buy, you become obligated to pay for the total useful life of the vehicle as well as all of the applicable taxes. With leasing, you only pay for that portion of the vehicle you plan to use (including only the pro-rated taxes).

When you purchase a vehicle, you pay all the applicable taxes up front. Generally, the finance source then requires a 10% to 20% cash down payment. The balance is then financed, often over 48 months. At the end of your conditional sales contract (if you don't decide to trade first), you will then own the vehice although its value at that time is uncertain (ie. subject to market conditions and the physical condition of your vehicle). Until then, although you have your name on title the finance source essentially owns the vehicle.

Leasing from Action can significantly reduce both your immediate, and monthly cash outlay. There's generally no down-payment required and monthly payments are significantly less than the amount required by traditional financing methods. This permits you to drive more car for the money or to invest the cash you save in superior appreciating assets such as your RRSP, your home or your children's education. In addition, you will have the opportunity (but not the obligation) of purchasing the vehicle if you wish (after an extended test drive) on extremely favourable terms. If you decide not to purchase, you will never pay the tax on the portion of the vehicle you don't use.

Leasing Advantages

As discussed above with leasing you only pay for the portion of the vehicle you use and the related taxes. This results in lower monthly payments
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Reduced Sales Taxes
With leasing, you only pay the taxes as you make your payments or a down payment (if desired). This permits you to pay your taxes as you use the vehicle and defer them rather than pre-paying them all up front. In addition if you choose not to purchase the vehicle at the end of the lease term, you never pay the taxes on the portion of the vehicle you did not use! This can amount to hundreds of dollars or more in tax savings alone.
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No Down Payment Required
With leasing there's no down payment required. A small refundable security deposit (returned to you at the end of the lease) is usually sufficient. However, you can still make a down payment in order to reduce your lease payment or the future buyout price of the vehicle if desired.
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Lower Maintenance Costs
Leasing enables you to drive a car during the best years of its life. You will benefit from any applicable manufaturer's warranty. In addition, an extended warranty designed to cover the term and kilornetres of your lease (to the extent not covered by a manufacturer's warnanty) can be included in your lease for a nominal amount if requested. As a result, you should benefit from more predictable and reduced maintenance costs.
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Simplified Records
Many business people and professionals benefit from the simplified record-keeping that leasing provides. Instead of having to maintain "UCC" and interest payment records and keeping track of the "1/2 year rule" leasing provides one simple amount for forecasting and tax records. This is very convenient at tax reporting time.

In addition, for many business persons, especially high kilometre drivers, leasing provides a superior tax structure than purchasing a vehicle. Leasing permits a write-off corresponding to the depreciation actually occurring rather than the rigid tax guidelines applied when a vehicle is purchased.

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Increases Your Borrowing Sources
Most banks have limits on how much credit they will advance to anyone individual. Leasing provides you with another financing source thereby keeping your bank credit open as a future source of funds for other uses.

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Leasing Is Cost Effective

Even with all of the advantages of leasing outlined above, leasing is extremely cost effective and compares very attractively to purchasing, providing you lease on good terms from the right source. As outlined above, the difference between the higher monthly payments associated with buying and the lower monthly payments associated with leasing can be invested. This investment can be used to purchase the vehicle at the end of the lease, if desired, or used for more beneficial purposes. In addition, the funds invested are much more readily available (ie. "liquid") ,and the value much more tangible than a vehicle.