Our Advice - It is Better to Lease Expensive Vehicles

Simply put, leasing is an alternative form of financing your vehicle purchase. It isn’t necessarily better or cheaper than financing, but it does offer some pretty significant advantages for most people. We’d like to offer you our opinion:

We think leasing makes sense for most people, given the vehicles we sell. As a general rule of thumb, it probably makes more sense to lease vehicles of this calibre than less expensive vehicles (under $25,000 for instance). Here’s why:

1. You don’t pay the sales tax upfront. In BC, this is often as much as 15% of the purchase price. Instead, your monthly payment and any down payment is subject to sales tax. Further, if you never exercise the purchase option at lease end, you’ll never pay the sales tax on that portion either — often 40% of the original value of the car. That’s a massive advantage.

2. You don’t incur finance costs (interest) on the sales tax portion of your purchase. This is a significant advantage for two reasons: you save interest costs on up to 15% of your purchase price, and; your loan value starts 15% lower. Meaning — should you want to change your car sooner than the end of term, you have a 15% advantage with leasing versus financing. Think about it — that’s a giant difference.

3. Sales taxes aside, we think leasing makes more sense than buying. You’ve heard it before: buy what appreciates, and lease what depreciates. In practical terms, here’s an example that we find people can relate to more easily: you wouldn’t buy a house for $2,000,000 to live in if you knew it would be worth $1,250,000 in 3 years; you would choose to rent. So why buy a car for $200,000 that’s generally going to be worth $125,000 in 3 years? It just doesn’t make any sense.

4. There are many other reasons we like leasing better than financing. Generally speaking, our lease underwriters don’t report your lease to the credit bureau, meaning it won’t affect your debt service ratio, allowing you to borrow more when you need it for other things in your life, like buying a house or investing.

Some of our customers have access to a line of credit at a lower interest rate than our lease providers offer. The low rate however is often offset by how the interest is calculated (often compounded daily), and how repayment terms are made. Often, a low rate line of credit can actually cost significantly more in total interest paid than a lease at a higher rate.

Get more car for your money! Lower payments! We have no doubt you’ve heard that before. But what does it actually mean? If you were to buy a car and finance it on the same term as a lease, your payment will ALWAYS be lower on the lease. If you were to stretch the finance term in order to match the lease payment, you will ALWAYS pay more interest (assuming the same rate) than the lease. That’s just the simple truth in math; leases offer better cash flow than financing, plain and simple.

Get a new car more often! We’re sure you’ve seen that argument for leasing before, too. While it is true that lease terms are inherently shorter than car loans, the choice is ultimately yours: buy the car at lease end, return it to us, or lease something new. You don’t have that flexibility with a car loan — you’re subject to market fluctuations, going to the dealer to get your trade in value, or selling the car yourself. The lease essentially guarantees your trade-in value. Not bad, in our opinion. We think you’ll agree.