Shopping for a new vehicle is often exciting: you get to choose the colour, options, and type of drivetrain you want. However, one question always comes up—is it better to buy or lease the vehicle? There are many points to consider before making a decision, including the cost of insurance, the number of kilometres you drive, and the interest rate.
The first point to consider is the interest rate. When leasing a car, it is important to consider the price of the vehicle and to compare the actual price with the total that includes the interest rate for leasing it. At this step, it is difficult to choose based on the vehicle price only, since the total price may vary significantly based on the promotions at the time. Note that some promotions only apply to purchases, while others only apply to leases. In addition, you should be wary of any lease promotions for which the posted interest rate is 0%. The interest rate can sometimes seem enticing, but if the residual value was adjusted downward, your financial commitment may be even greater.
Since the cost of auto insurance may vary based on whether you lease or buy your vehicle, it is only natural to consider it when making your choice. With some insurers, insurance for a purchased vehicle costs about 10% less than for a leased vehicle. This is because you benefit from a discount for owners, which reduces the cost of your insurance.
It is important to also look at the replacement value premium. People mistakenly believe that replacement value insurance is beneficial only for purchased vehicles. However, it is also recommended to purchase it for leased vehicles. Here are some reasons why:
Make sure that the lease also includes a guaranteed auto protection (GAP) clause. It is a clause in the lease in which the lessor waives, so to speak, its requirement to receive reimbursement for the difference between the balance it is owed and the amount paid by the auto insurer when the vehicle is declared a total loss.
If your lessor does not have this clause in the lease and you don’t have replacement value coverage, you will need to pay the difference out of pocket.
Finally, besides insurance, other personal factors need to be considered when making your decision, including the number of kilometres you drive in a year. For example, if you lease your car and your limit is 20,000 kilometres per year, make sure that this is a reasonable limit for your lifestyle in both the short term and the long term, as many changes can occur during the four years of your lease, including a job change or a separation. It is good to know that the amount charged for extra kilometres driven is, on average, between $0.15 and $0.20 per kilometre. This can add up quite quickly by the end of your lease!
Choose to lease a car if
In this case, make sure that you return the car in very good condition. If you don’t, the dealer can bill you at the end of your lease for damage to the vehicle.
In short, there isn’t a single answer to the question of whether you should buy or lease your car, since too many economic and personal variables come into play. The environment can also be considered: changing your vehicle often has a certain “environmental cost”, while keeping your vehicle and maintaining it well over the years involves a smaller ecological footprint. Ultimately, you’ll need to decide which option works best for your lifestyle!
