VSA

Consumer

Financing and Leasing

Financing or leasing?

This summary from Consumer Reports will help you weigh the pros and cons of leasing versus financing. Whichever method you choose, a contract is a legally binding document. Be sure to read the front and back of the agreement carefully and ask questions about all the terms and conditions before signing. See more tips for financing a car here .

Understanding financing

Both financing and leasing require the clear disclosure of the terms and conditions. If you’re financing your vehicle and disability or life insurance are required, you must be given the opportunity to use your own insurance company or broker. You should agree to the loan or lease terms before taking the vehicle home.

What are finance placement fees?

Finance placement fees are negotiable fees charged by some dealers to arrange financing with a bank or finance company. These fees must be disclosed prior to the agreement being signed and the fee must be included in the Annual Percentage Rate calculations. It is improper for a dealer to indicate the fee is required by the lender if it is not.

Understanding lease agreements

If you can answer these questions you probably understand your lease agreement:

  • What is the total financial obligation of the lease, including the cost of all lease payments, plus all taxes, fees, and any down payments?
  • What would be the total cost to buy the same vehicle and finance the purchase instead?
  • What is the best retail price for the vehicle and what price is the company using as the basis for the lease?
  • What is the interest rate being applied to the lease and how does it compare with current loan rates for purchasing a vehicle?
  • Is there an option to buy the vehicle at the end of the lease?
  • Can you buy the vehicle during the term of the lease and are there penalties or additional charges if you do?
  • Can you terminate the lease before the date specified in the contract and are there penalties or additional charges if you do?
  • What is excessive wear and tear that will make you liable for expenses at the end of the lease?
  • How is extra mileage defined and how much will you have to pay per kilometer?
  • What are the associated fees you might have to pay for items such as insurance and administration?

What is a cooling-off period?

Motor Dealer Act Regulation provides for what is called a one clear day cooling-off period. During this period, the dealer is expected to keep the vehicle in their possession. After you enter into a lease agreement, you may cancel the lease without penalty within the cooling-off period. It is not a 24 hour period and it is not just one business day. Consumers can waive this requirement in writing so you can take the vehicle home immediately. However, the dealer must make sure you understand that you are waiving this right. Simply taking the vehicle home does not waive your right to the cooling-off period.

What is one clear day?

One clear day is a term defined in BC law. For example, if you sign a lease on Tuesday and change your mind, you must notify the dealer of your decision to cancel by the end of the day on Wednesday. While you have the whole day to cancel, it’s better to notify the company during business hours so the dealer can provide written confirmation that your contract has been cancelled. If you choose to cancel after business hours, make sure you have proof that notice was given before midnight. There are days that do not count in the cooling-off period. All statutory holidays, Sundays and whenever the dealership is closed do not count. Therefore, if you sign a lease on a Saturday and Monday is a legal holiday, Tuesday will be the clear day when you may cancel the contract, even if the dealer is open on Sunday.

What happens at the end of a lease?

Lease end buy-out options should be discussed before signing the lease agreement. At the end of the lease, you will likely have no equity in the vehicle, but you may have an option to purchase. On some leasing agreements, the vehicle is returned to the dealer at the end of the lease period and there are no further obligations, except for extra mileage or damage. However, other lease agreements ask you to guarantee the dealer a residual value. The amount owed at the end of a lease which is an estimate of the fair market value of the vehicle/property at the end of the term for the vehicle at the end of the lease period. Residual value is the amount the vehicle is expected to be worth at the end of the lease period and is specified in the agreement. At times you may be able to buy the car for the residual value. Other times, if it’s returned to the dealer and sold for less than the residual value, you may be required to pay the dealer the difference between the selling price and the residual value of the vehicle.

Lease end inspections

Under B.C. law, all motor dealers are required to ensure that the lease vehicle meets the safety requirements of the Motor Vehicle Act before it is sold. To ensure this, it’s best to have the vehicle inspected prior to a sale – even if it is to you. Your lease agreement will specify who is responsible for the cost of inspecting the vehicle. It may be up to you to pay this amount, but only if you agreed to this in your lease agreement.