What you should know
When you lease, you rent and use someone else’s property. A lease can last from several months to several years.
At the start of a lease, you make a first (initial) payment. You may also have to pay a security deposit. After that, you make monthly payments.
Leasing can be more appealing than buying. You often get a newer vehicle, and monthly lease payments can be much lower than the monthly car loan payment.
But there are disadvantages. The dealer owns the vehicle, not you. This means the dealer may place restrictions on who can drive it. You may also have to follow — and pay for — a set maintenance schedule.
In a straight lease, you return the vehicle when the lease ends and owe nothing more. This is rarely used.
Most of the time, you’ll get a lease with an option to purchase.
In a closed lease with an option to purchase, you pay an agreed-on amount if you decide to buy the vehicle at the end of the lease.
In an open lease with an option to purchase, there’s less certainty. At the beginning of the lease, a dealer estimates what a vehicle will be worth at the end of the lease (this is the residual value), and then calculates the monthly payments based on that estimate.
If the vehicle is worth less at the end of the lease, you have to pay more to make up the difference. You may also have to pay extra if you drove more than the lease allowed or if the vehicle has more than normal wear.
A lease agreement is a legally binding contract. Make sure you understand it before you sign it. Under the law in BC, the lease agreement must include:
- a summary of costs
- all express warranties and guarantees
- who’s responsible for maintenance and service
- a description of any insurance that you must provide and pay for
- any limits, including who can drive the vehicle and whether you can take it outside of BC
- the amount of tax in each monthly payment
- the cooling-off period
These contracts can be thick! The good news is a dealer has to give you a disclosure statement before you sign. Read it carefully. It has all the key terms and details.
Anyone leasing to you has to say if there are any liens. A lien is a legal claim to make sure someone pays a debt. Liens are attached to a vehicle, not to its owner.
If you lease a vehicle with a lien on it, the lien holder (could be a mechanic who hasn’t been paid for work done) can take the vehicle from you as payment for the debt.
You get one business day after you sign the lease to cancel it — this is the cooling-off period.
If you change your mind in that time, you can cancel the lease and get your money back without penalty. While you have the whole day to cancel, it’s better to tell the dealer during business hours in writing.
Some days don’t count in the cooling-off period — like statutory holidays, Sundays, and any day the dealership is closed.
The dealer can ask you to waive (give up) the cooling-off period. Please read the lease documents carefully! It may include this waiver, which you would have to cross out before signing.
If you fail to make a payment under a lease, this is called a default.
Under the law in BC, two rules kick in to protect you if the lease is a secured lease and the vehicle is used primarily for “personal, family or household purposes.”
A secured lease is one where at the end of the lease, you have very little to pay (compared to the car’s actual value) in order to buy the car.
If you default, the leasing company can seize the vehicle or sue you, but they can’t do both.
If you’ve already been making payments, the two-thirds rule comes into play if you’ve paid back at least two-thirds of what you owed. In this case, the creditor needs a court order before seizing the vehicle.
Step 1. Research and negotiate
Do your research. You’ll want to think about:
- comparable prices of other vehicles
- the car’s accessories and added features
- any recent updates or upgrades
- the mileage and wear and tear, if it’s used
If it’s a used car, a vehicle history report reveals that the vehicle has been damaged, check to make sure the vehicle has been properly repaired. Don’t be afraid to bring up any other problems you find.
When you make your offer to the seller, say it with confidence.
If negotiating with a dealer, make sure all the items that are part of the transaction are clear (for example, any dealer fee, documentation fee, warranties, etc.).
This isn’t a stick of gum. It’s a big commitment! Remember that almost anything about the sale of the car can be negotiated.
Take all the time you need. No matter what, don’t rush this decision!
If the seller makes a counteroffer to your original offer and you’d like to think about it, that’s OK.
You can simply stop the deal if you feel like you’re being pressured to pay too much or buy additional features. There are many other used-car fish in the sea.
Step 2. Consider how to pay
Before you sign, think about how you’ll pay.
Understand your monthly payments, and review how much you’ll have to pay at the end if you want to buy the car.
In deciding whether to buy or lease, consider that when you lease a used vehicle from a dealer:
- you don’t own the vehicle ‘till you’ve made the last payment
- there will be a fixed monthly cost — so it’s easier to budget
- the vehicle can be repossessed if you can’t keep up the payments
Step 3. Write down the agreement
Having clear, written terms protects both parties from unforseen surprises.
When leasing, the dealer must give you a written lease agreement.
The dealer must give you a copy of the lease agreement at the time it’s accepted. Be sure to keep a copy of the agreement in your records.
Now, you’re almost ready to sign.
Step 4. Read and understand the agreement before you sign
Don’t take this step lightly. Fine print isn’t just for lawyers! Here are a few pointers:
- Go over every section, including any text on the reverse side.
- Ask the salesperson to explain what things mean if you don’t understand them.
- Have the salesperson fill in all areas of the document or put a line through any blank spaces.
This information applies to British Columbia, Canada
Reviewed in December 2019
Time to read: 7 minutes