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Do your homework on car leasing.

An informed consumer is always a better consumer.


Buying or leasing a car for business purposes can be a confusing and complicated process.

Lessees need to have a solid understanding of the different purchasing processes as well as the pros and cons of leasing versus buying.

"Be as educated as possible," says Tim Hines, the Complaints Team Manager for the Ontario Motor Vehicle Industry Council (OMVIC).

Some auto experts predict as cars become more expensive, everyone will be leasing their cars within 20 years.

For business owners, the big advantage of leasing a new vehicle is it's much easier to write off as an expense and it's relatively trouble-free. "It's like owning a condo instead of a house," says Hines.

But with so many different types and terms of leases, "it's important for business owners to understand what they're getting into," says Hines, a former car dealer. "There's as many leases as car manufacturers."

The OMVIC, a not-for-profit group, administers the Motor Vehicle Dealers Act on behalf of the Ministry of Government Services.

The Act is a consumer protection piece of legislature geared toward licensing for dealerships and sales people. OMVIC has a department to deal with consumer issues and complaints.

"At the end of the day, we're trying to keep bad car dealers out and good car dealers informed in what they need to do properly," says Hines.

"The leasing culture has been turned on its head with the release of the Consumer Protection Act 2002," which folded all Ontario's consumer protection legislation into one megaact.

The beefed-up legislation now requires greater disclosure by dealerships to outline any hidden costs. "Before there were contracts with no interest rate," says Hines. "But when you worked it out, it's a really high interest rate."

Legal questions can arise sometime over whether business owners can avail themselves of the Act since it's geared more toward individual consumers.

But knowing some of the details in the Act comes in handy when negotiating a car lease.

"There are leases to fit everybody," says Hines, and business owners can negotiate and structure deals to closely mirror the provisions granted under a consumer lease.

"Tailor your lease to what you're looking for," says Hines. "Dealerships will be good with that if you know what you want."

For small businesses pondering whether to lease a vehicle, there are issues to consider.

Hines advises consumers to focus on the price of a vehicle, the interest rate on the contract and to do the math on all charges.

"What am I paying for this car? If I choose to buy it out at the end, how much am I going to pay for it, as opposed to what I pay for it in cash?"

Industry Canada's Office of Consumer Affairs provides a handy online Lease-or-Buy Calculator (

Most consumers sign a close-end lease, meaning there's a guaranteed residual at the lease's end. That car company is guaranteeing the residual saying that is what vehicle will be worth at the end of term. It accounts for the vehicle's depreciation over the lease period.

Hines says many business owners get caught off guard thinking they've signed a close-end lease when in fact, it's an open-end lease.

It means the lessee is committed to monthly payments and also guarantees the residual.

"It's not the company that's guaranteeing the residual value, it's you, the business owner. You want that to be your mind-set when negotiating your lease."

Residuals can also vary on the length of the lease and type of vehicle.

Hines says he's fielded consumer complaints where that hasn't been fully explained to people or they didn't understand.

With an open-end lease, always double-check with the dealer whether you're responsible for the residual, regardless of the state of the vehicle.

"It's a bit of a crap-shoot because you don't know what that vehicle's going to be worth," says Hines.

"As a business, you want to look at whether there's a precedent. If this (type of) vehicle is being leased now, what are the values now and is it holding its value or is it below?"

Hines says knowledge is power when negotiating a lease.

The Internet can also be a great source for researching new vehicles and finding valuable dealer information on suggested retail prices.

A big advantage is knowing what the profit margin is, then you can establish what monthly payment and interest charges you're willing to pay.

Hines says to be knowledgeable about any up-front charges such as any administrative fees or how interest and taxes are spread over the term of a contract. Sometimes these charges are covered in a lease contract paid out over monthly installments.

Monthly fees can vary based on the type of vehicle and how the lease is set up.

"The people that are hurting the most are the ones that did the least amount of work up front," says Hines.

Customizing your vehicle with advertising is something that must be discussed with the dealership. A danger at lease's end is the consumer is on the hook for any excess wear and tear on the vehicle, depending on how the lease is structured.

Leasing companies also have rules on whether a vehicle can be taken out of province.

Discuss any insurance issues with your provider. There's gap insurance and a variety of consumer products provided at the dealership or with your personal insurer. If you're injured and can't work, it will cover your payments.


Northern Ontario Business
COPYRIGHT 2007 Laurentian Business Publishing, Inc.
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Copyright 2007, Gale Group. All rights reserved.

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Author:Ross, Ian
Publication:Northern Ontario Business
Date:Jul 1, 2007
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