Difference between revisions of "Leasing a Car"

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{{REVIEWEDPLS | reviewer = [https://www.carboncure.com/ Mario Garcia], CarbonCure Technologies |date= October 2022}} {{Dial-A-Law TOC|expanded = cars}}
Leasing a vehicle is quite different from buying one. Leasing can offer lower monthly payments, but you typically spend more in the long run. Learn your rights if you lease.


{{Dial-A-Law TOC|expanded = autos}}
==What you should know==
This script explains leasing a car in BC for personal or family use (consumer leases). It does not cover business leases. Cars are expensive machines. Before you lease one, you should compare leasing with buying to see which is best for you.


==What is a lease?==
===How leasing differs from buying===
A lease is an agreement to rent and use someone else’s property, in this case, a car. A lease is usually long term. And usually, you must be at least 19 years old to sign a lease. It can last from several months to several years. At the start of a lease, you make a first, or initial, payment. You may also have to pay a security deposit. After that, you make monthly payments.


Leasing is an alternative to buying—both have advantages and disadvantages. If you lease, you don’t own the car. And you have different rights and responsibilities than if you buy.
When you '''lease''', you rent and use someone else’s property. A lease can last from several months to several years.


Leasing often means a lower first (initial) payment and monthly payments compared to buying. Leasing may also mean lower taxes because taxes are based on the monthly payments, not on the total purchase price. Many drivers can afford a more expensive car, or one with more options, if they lease.
At the start of a lease, you make an initial payment. You may also have to pay a security deposit. After that, you make monthly payments.


On the other hand, you pay interest on a lease. So it may cost more, in total, to lease than to buy a car without financing. And when you lease, the dealer or lease company still owns the car and may control who drives it and the maintenance schedule you have to pay for—even though you drive and insure the car, and make monthly lease payments for it.
If you lease, you don’t own the vehicle. And you have different rights and responsibilities than if you buy


==What types of car leases are there?==
===Advantages and disadvantages of leasing===
*a '''straight lease'''—with this, you return the car when the lease ends and owe nothing more. This is rarely used now.
Leasing can be more appealing than buying. You often get a newer vehicle, and monthly lease payments can be much lower than monthly car loan payments.
*a '''lease with an option to purchase'''—this comes in two forms: open and closed
**'''closed'''—you pay the agreed-on amount if you decide to buy the car at the end of the lease.
**'''open'''—you may have to pay an extra amount at the end of the lease. How much more you have to pay is set in the lease contract. Before signing a lease, a dealer estimates what a car will be worth at the end of the lease (the residual value) and then calculates the monthly payments based on that estimate. If the car 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 car has more than normal wear.


==What must a lease agreement tell you?==
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.
A lease agreement is a legally binding contract, so make sure you understand it before you sign it. [http://www.bclaws.ca/civix/document/id/complete/statreg/447_78#section30 Section 30] of the BC ''[http://www.bclaws.ca/civix/document/id/complete/statreg/447_78 Motor Dealer Act Regulation]'' requires a lease agreement to have the following information:
*a summary of costs and credits for any extended warranty due when you sign the lease.
*all express warranties and guarantees for the vehicle made by the manufacturer or motor dealer.
*who is responsible for maintaining and servicing the vehicle.
*a description of any insurance, including types and amounts of coverage, that you must provide and pay for.
*any limit on your use and enjoyment of the vehicle, including who can drive it and any requirement to get permission to take the vehicle outside of BC.
*the amount of tax in each periodic payment you must make under the agreement, based on the tax rate at the time of disclosure.
*the cooling-off period (described in the next section).


[http://www.bclaws.ca/civix/document/id/complete/statreg/96410_01#section16 Section 16(c)] of the ''[http://www.bclaws.ca/civix/document/id/complete/statreg/96410_01 Sale of Goods Act]'' requires a person selling or leasing goods to ensure the goods have no lien or charge on them, or to tell the person leasing the goods about the lien and have them agree to the lease knowing about the lien.  
The result is that leasing typically costs you more than borrowing money to buy.


[http://www.bclaws.ca/civix/document/LOC/complete/statreg/-- B --/Business Practices and Consumer Protection Act %5bSBC 2004%5d c. 2/00_Act/04002_06.xml#section101 Section 101] of the ''[http://www.bclaws.ca/civix/document/id/complete/statreg/04002_00 Business Practices and Consumer Protection Act]'' requires the dealer to give you a Lease '''disclosure statement''' before you sign the lease. Read it carefully. It has all the key terms and details of the lease.
===Types of leases===
In a '''straight lease''', you return the vehicle when the lease ends and owe nothing more. This is rarely used.


==What is a cooling-off period?==
Most of the time, you’ll get a lease with an option to purchase.
You get one business day after you sign the lease to cancel it – this is the cooling-off period. During this time, the law requires the car to stay with the leasing company. 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 that do not count in the cooling-off period: statutory holidays, Sundays, and any day the dealership is closed do not count. So if you sign a lease on a Saturday, Monday is the cooling-off day when you can cancel the contract.


You can waive (give up) the cooling-off period. If you want to do that, you must do it in writing. Read the lease documents carefully because they may include a waiver.
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.


==What can happen if you have trouble paying a 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 (its residual value), and then calculates the monthly payments based on that estimate.
If you default on a consumer lease (stop paying it), the dealer or creditor may be able to take the car back (seize it) or sue you for all remaining lease payments. Depending on the type of lease (a security lease or a true lease), they may be able to do both. You would need legal advice on that and on whether the “seize or sue” rule and the “two-thirds rule” apply.  


The dealer or creditor could also extend a lease if you are having trouble paying it. That might create a new lease and the dealer or creditor would have to give you a new disclosure statement. Even if an extension is not a new lease, it would change the term and your total cost, and those changes would have to be disclosed. And if the dealer or creditor invites you to delay a payment, they must tell you if you will pay interest on the delayed payment.
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.


Business leases are different—a dealer or creditor may be able to sue you and seize the car. Generally, your rights and responsibilities depend on whether you sign a lease or a secured lease agreement. You can talk to a lawyer before you lease to find out what type of agreement you are signing. As well, check script [[Buying Goods on Credit, Credit Cards and Credit Bureaus (Script 246)|246]], called “Buying Goods on Credit, Credit Cards & Credit Bureaus”.
===What the lease must tell you===


==What are the differences between consumer and business leases?==
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:
You don't normally get a tax deduction for a consumer lease, only for a business lease. Check with [http://www.cra-arc.gc.ca/ Canada Revenue Agency] for details.


For a business lease, you don't get the protection of 3 laws: the ''[http://www.bclaws.ca/civix/document/id/complete/statreg/04002_00 Business Practices and Consumer Protection Act]'', the ''[http://www.bclaws.ca/civix/document/id/complete/statreg/96359_01 Personal Property Security Act]'' or the ''[http://www.bclaws.ca/civix/document/id/complete/statreg/96316_01 Motor Dealer Act]''. So if there's a mechanical problem with the car, you still have to continue paying the lease. The Sale of Goods Act still give you some protection that the car is suitable for its purpose—but only if you lease the car mainly for personal, family, or household purposes. If you want to lease for business purposes, you should first get legal and accounting advice—before you lease.
* 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


==What happens when a lease ends?==
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.
There are several possible outcomes when a lease ends. You should discuss them before you sign the lease. You may still owe money when the lease ends. The car goes back to the dealer, or you may have an option to buy it for a certain price. Whether you owe money depends on the type of lease you signed (types of leases are explained earlier in this script).  


With a straight lease, you return the car and owe nothing more. With a closed lease with an option to purchase, you pay just the agreed-on amount if you decide to buy the car. But with an open lease with an option to purchase, you may have to pay an extra amount. You may also have to pay extra if you drove more than the lease allowed or if the car has more than normal wear. Some dealers may also want to charge other fees at the buy-out time. So before you sign a lease, ask about any fees that the dealer will charge at the time of buy-out. Discuss them with the dealer and get them in writing—before you sign the lease agreement.
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.


The dealer can use your security deposit to pay for kilometer overages or damage to the vehicle that must be repaired. The lease agreement should say when you get your security deposit back and when the dealer can keep it.
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.


If you buy a vehicle at the end of the lease, it’s a new transaction. So motor dealers and salespeople must make all their required declarations, especially the declaration that the vehicle meets the safety requirements of the ''Motor Vehicle Act'' when they sell it. The declarations are listed in the Vehicle Sales Authority of BC [http://mvsabc.com/glossary/ glossary of buying terms].
===You can change your mind during the cooling-off period===
You get one business day after you sign the lease to cancel it — this is the '''cooling-off period'''.


How a dealer ensures that a vehicle meets the ''Motor Vehicle Act'' is a business decision—the Act does not say how. Generally, a dealer will do an inspection to ensure a vehicle meets the Act. Depending on the original lease, the dealer may charge you for the inspection. Discuss it with the dealer before you agree to lease a vehicle.
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.


==Summary==
Some days don’t count in the cooling-off period — like statutory holidays, Sundays, and any day the dealership is closed.
Leasing a car is quite different from buying one. If you decide to lease, you have less protection than if you buy. Leases are usually long term and normally help the dealer more than you, the consumer. Read the lease agreement carefully and consider taking it to a lawyer before you sign.


For more information on leasing a car, check the [http://mvsabc.com/consumers/resources/vehicle-buying-guide/ buying guide] on the website of the [https://mvsabc.com/ Vehicle Sales Authority of BC]. It has information on consumer help and complaints. This website also describes the [http://www.mvsabc.com/consumers/compensation-fund Motor Dealer Customer Compensation Fund] (which may cover financial losses from leasing a vehicle if the dealer is no longer in business).  
The dealer can ask you to '''waive''' (give up) the cooling-off period. '''Read the lease documents carefully'''! It may include this waiver, which you would have to cross out before signing if you want to keeep the cooling-off period.


===What if I have trouble paying under a lease?===
If you fail to make a payment under a lease, it's called a '''default'''.


[updated June 2018]
Under BC law, 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.”


'''The above was last reviewed for accuracy by Ian Christman and edited by John Blois.'''
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.


==Protect yourself!==
===The steps involved===
You’ll save in the long run if you follow a few simple steps before leasing a car.
'''Step 1.''' Research and negotiate
'''Step 2.''' Clarify how to pay
'''Step 3.''' Get it in writing
'''Step 4.''' Read and understand the agreement before you sign
===More on each step===
'''Step 1. Research and negotiate'''<br>
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 and a vehicle history report reveals that the vehicle has been damaged, check to make sure it's 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, or warranties).
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'''<br>
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 until 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'''<br>
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'''<br>
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.
Once you sign the document, the other party can accept it. Once the other party has accepted it, you’re locked in.
Once the cooling-off period ends (presuming you didn’t waive it), you have to lease the vehicle.
===Go deeper===
For a closer look at car leases, check our in-depth guidance on the topic. [https://www.peopleslawschool.ca/leasing-car/ See leasing a car].
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Latest revision as of 06:33, 30 September 2023

This information applies to British Columbia, Canada. Last reviewed for legal accuracy by Mario Garcia, CarbonCure Technologies in October 2022.

Leasing a vehicle is quite different from buying one. Leasing can offer lower monthly payments, but you typically spend more in the long run. Learn your rights if you lease.

What you should know

How leasing differs from buying

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 an initial payment. You may also have to pay a security deposit. After that, you make monthly payments.

If you lease, you don’t own the vehicle. And you have different rights and responsibilities than if you buy

Advantages and disadvantages of leasing

Leasing can be more appealing than buying. You often get a newer vehicle, and monthly lease payments can be much lower than monthly car loan payments.

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.

The result is that leasing typically costs you more than borrowing money to buy.

Types of leases

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 (its 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.

What the lease must tell you

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 can change your mind during the cooling-off period

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. Read the lease documents carefully! It may include this waiver, which you would have to cross out before signing if you want to keeep the cooling-off period.

What if I have trouble paying under a lease?

If you fail to make a payment under a lease, it's called a default.

Under BC law, 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.

Protect yourself!

The steps involved

You’ll save in the long run if you follow a few simple steps before leasing a car.

Step 1. Research and negotiate

Step 2. Clarify how to pay

Step 3. Get it in writing

Step 4. Read and understand the agreement before you sign

More on each step

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 and a vehicle history report reveals that the vehicle has been damaged, check to make sure it's 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, or warranties).

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 until 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.

Once you sign the document, the other party can accept it. Once the other party has accepted it, you’re locked in.

Once the cooling-off period ends (presuming you didn’t waive it), you have to lease the vehicle.

Go deeper

For a closer look at car leases, check our in-depth guidance on the topic. See leasing a car.

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