Leasing a Car: Difference between revisions

From Clicklaw Wikibooks
Jump to navigation Jump to search
No edit summary
No edit summary
 
(3 intermediate revisions by 2 users not shown)
Line 1: Line 1:
{{REVIEWEDPLS | reviewer = Ian Christman, Vehicle Sales Authority of BC |date= February 2019}} {{Dial-A-Law TOC|expanded = cars}}
{{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.
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.


==Understand your legal rights==
==What you should know==


===How leasing differs from buying===
===How leasing differs from buying===


A '''lease''' is an agreement to rent and use someone else’s property, in this case, a vehicle. 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.
When you '''lease''', you rent and use someone else’s property. A lease can last from several months to several years.


Leasing is an alternative to buying — both have advantages and disadvantages. If you lease, you don’t own the vehicle. And you have different rights and responsibilities than if you buy.
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.


====Advantages of leasing====
If you lease, you don’t own the vehicle. And you have different rights and responsibilities than if you buy
On the surface, leasing can be more appealing than buying. You typically get a newer vehicle. Your monthly lease payments can be much lower than the monthly payments on a car loan. Taxes may be lower because they are based on monthly payments (as opposed to the purchase price).


Many find they can afford a more expensive vehicle, or one with more options, if they lease.
===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.


====Disadvantages of leasing====
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.
But there are disadvantages to leasing a vehicle.  


One is the dealer owns the vehicle, not you. This means the dealer may place restrictions on who may 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.


And at the end of the lease, you haven’t built up '''equity''' in the vehicle the way you would have if you had bought. At the end of paying off a car loan, you own the vehicle. At the end of a lease, you own nothing.  
===Types of leases===
In a '''straight lease''', you return the vehicle when the lease ends and owe nothing more. This is rarely used.


The result is that leasing typically costs you more than borrowing money to buy a vehicle. For more on buying a vehicle, see our information on [[Buying a Used Car (No. 197)|buying a used car (no. 197)]].
Most of the time, you’ll get a lease with an option to purchase.


===Types of vehicle leases===
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.


There are two types of vehicle 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.


First, a '''straight lease'''. With this, you return the vehicle when the lease ends and owe nothing more. This is rarely used.
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.


Second, a '''lease with an option to purchase'''. This comes in two forms — open and closed. 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 the lease must tell you===


In an '''open lease''' with an option to purchase, you may have to pay an extra amount at the end of the lease. How much more you have to pay is explained in the lease agreement. At the beginning of the lease, a dealer estimates what a vehicle will be worth at the end of the lease (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:


===What the lease must tell you===
* a summary of costs
A '''lease agreement''' is a legally binding contract. Make sure you understand it before you sign it. Under the [https://www.canlii.org/en/bc/laws/regu/bc-reg-447-78/latest/bc-reg-447-78.html#sec30_smooth law in BC], the lease agreement must include:
* all express warranties and guarantees
*a summary of costs and credits for any extended warranty 
* who’s responsible for maintenance and service
*all express warranties and guarantees made by the manufacturer or dealer
* a description of any insurance that you must provide and pay for
*who is responsible for maintaining and servicing the vehicle
* any limits, including who can drive the vehicle and whether you can take it outside of BC
*a description of any insurance, including types and amounts of coverage, that you must provide and pay for
* the amount of tax in each monthly payment
*any limit on your use and enjoyment of the vehicle, including any restriction on who can drive it and any requirement for permission to take the vehicle outside of BC
* the cooling-off period
*the amount of tax in each periodic payment you must make under the agreement
*the cooling-off period (described below)


====The dealer must give you a disclosure statement====
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.
As well, another [https://www.canlii.org/en/bc/laws/stat/sbc-2004-c-2/latest/sbc-2004-c-2.html#sec101_smooth law in BC] requires the dealer to give you a '''disclosure statement''' before you sign the lease. Read it carefully. It has all the key terms and details of the lease.


====The dealer must tell you if there is a lien on the vehicle====
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.
Another [https://www.canlii.org/en/bc/laws/stat/rsbc-1996-c-410/latest/rsbc-1996-c-410.html#sec16_smooth BC law] requires a person leasing goods to tell you if there is any '''lien''' or charge on the goods in favour of a third party. A lien is a legal claim made on property — such as a vehicle — 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 can take the vehicle from you as payment for the debt.
 
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 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'''. During this time, the law requires the vehicle 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.  
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'''<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.


Some days 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, and the dealership is closed on Sunday, Monday is the cooling-off day when you can cancel the contract.
When you make your offer to the seller, say it with confidence.


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.
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).


==Common questions==
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.


===What can happen if I have trouble paying under a lease?===
Take all the time you need. No matter what, don’t rush this decision!
If you fail to make a payment under a lease, this is called a '''default'''. If you default under the lease, the leasing company may be able to take the vehicle back ('''seize''' it) or sue you for all remaining lease payments. Depending on the lease agreement and the use you put the vehicle to, they may be able to do both.


Key is whether the lease is viewed under the law as a “true lease” or a “secured lease”. Generally, a '''true lease''' is one where at the end of the lease, the cost to buy the vehicle is an amount close to the vehicle’s market value. A '''secured lease''', generally speaking, is one where at the end of the lease, the cost to buy the vehicle is very little. Put another way, under a secured lease, you will have paid almost the entire value of the vehicle by the end of the lease. (There are other factors that go in to determining whether a lease is a true lease or a secured lease. It is best to get legal advice on how your lease might be characterized.)
If the seller makes a counteroffer to your original offer and you’d like to think about it, that’s OK.


====If the lease is a secured lease and for personal use====
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.
Under the [http://canlii.ca/t/8495 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”. If you default on the lease, the leasing company can seize the vehicle. Or they can sue you for the amount owing on the lease. But they can’t do both. This is called the “'''seize or sue rule'''”.


The “'''two-thirds rule'''” comes into play if you’ve paid back at least two-thirds of what you owe under a secured lease for personal use. In this case, the creditor needs a court order before seizing the vehicle. If you’ve paid back less than two-thirds, the creditor can seize the vehicle without going to court.
'''Step 2. Consider how to pay'''<br>
Before you sign, think about how you’ll pay.


====If the lease is a true lease or for business use====
Understand your monthly payments, and review how much you’ll have to pay at the end if you want to buy the car.
If the lease is a true lease, things are different. They’re also different if the vehicle is used primarily for business purposes. In either case, if you default on the lease, a creditor may be able to sue you '''and''' seize the vehicle. For more on the law relating to secured debts, see our information on [[Buying on Credit (No. 246)|buying on credit (no. 246)]].


===Are there other ways the law is different for a business lease?===
In deciding whether to buy or lease, consider that when you lease a used vehicle from a dealer:
When you lease a vehicle for business purposes, you can deduct the lease payments from the business’ income for tax purposes. You don’t typically get a tax deduction for a consumer lease. Check with [http://www.cra-arc.gc.ca/ Canada Revenue Agency] for details.


Several BC laws offer protection when you lease goods for personal use, but not when you lease goods for business use. For example, under the ''[https://www.canlii.org/en/bc/laws/stat/rsbc-1996-c-410/latest/rsbc-1996-c-410.html#sec20_smooth Sale of Goods Act]'', if you lease a new car, a term in the lease agreement waiving the legal warranty implied by law is void — if the lease is for personal use. If the lease is for business purposes, such a waiver is not void.
* 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


{| class="wikitable"
'''Step 3. Write down the agreement'''<br>
|align="left"|'''Tip'''
Having clear, written terms protects both parties from unforseen surprises.
If you want to lease a vehicle for business purposes, you should get legal and accounting advice — before you lease.
|}


===What happens when a lease ends?===
When leasing, the dealer ''must'' give you a written lease agreement.
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 lease may say the vehicle 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.  


With a '''straight lease''', you return the vehicle and owe nothing more. With a '''closed lease with an option to purchase''', you pay an agreed-on amount if you decide to buy the vehicle. With an '''open lease''' with an option to purchase, you may have to pay an extra amount.  
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.


You may also have to pay extra if you drove more than the lease allowed or if the vehicle has more than normal wear. Some dealers may also want to charge other fees at the buy-out time. Before you sign a lease, ask about any fees the dealer will charge at the time of buy-out. Discuss these fees with the dealer and get them in writing — before you sign the lease agreement.
Now, you’re almost ready to sign.


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 address when you get your security deposit back and when the dealer can keep it.
'''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:


===What if I decide to buy the vehicle at the end of the lease?===
* Go over every section, including any text on the reverse side.
If you buy a vehicle at the end of the lease, it’s a new transaction. The dealer must make all the required declarations about the vehicle as they would on any sale, including the declaration that the vehicle meets the safety requirements of the ''[http://canlii.ca/t/847n Motor Vehicle Act]'' when they sell it. For details of the required declarations, see People’s Law School’s information on [https://www.peopleslawschool.ca/everyday-legal-problems/cars-getting-around/buying-or-repairing-car/buying-used-car-sale buying a used car].
* 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.


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


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


===If you’re concerned about a dealer===  
===Go deeper===
The '''Vehicle Sales Authority of BC''' helps resolve complaints with licensed car dealers. Their website includes a [http://mvsabc.com/consumers/resources/vehicle-buying-guide/ vehicle buying guide] and information about a [http://www.mvsabc.com/consumers/compensation-fund compensation fund] if you lease from a dealer that goes out of business.  
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].
:Toll-free: 1-877-294-9889
:Web: [http://www.mvsabc.com/ mvsabc.com]


{{Dial-A-Law_Navbox|type=consumer}}
{{Dial-A-Law_Navbox|type=consumer}}
{{Dial-A-Law Copyright}}
{{Dial-A-Law Copyright}}

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.
Dial-A-Law
Dial-A-Law‎
This page is
from Dial-A-Law‎,
a starting point for
information on the law
in British Columbia.
See the full contents.
About
Introduction
Consumer & Money
Cars & Getting Around
 · Problem with a Used Car

 · Leasing a Car

 · Car Repairs

 · Insurance Benefits for Accident Victims

 · Injured in a Motor Vehicle Accident

 · Making a Vehicle Damage Claim

 · The Points System & ICBC
Work & Business
Families & Children
Life
Courts & Crime
From
Visit more from People's Law School
People's Law School
People's Law School
v • d • e

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.

v • d • e
 
Consumer & Money
Cars & Getting Around
Consumer
Money & Debt
Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International Licence Dial-A-Law © People's Law School is licensed under a Creative Commons Attribution - NonCommercial - ShareAlike 4.0 International Licence.


Retrieved from "https://wiki.clicklaw.bc.ca/index.php?title=Leasing_a_Car&oldid=57054"