A car lease is a legally binding agreement that sets out the terms and conditions for using a new vehicle for a defined period of time. Leases are typically available for periods of 24, 36, or 48 months. You make monthly payments during the time in which you use the car.
What you pay for when you lease
With a lease, you basically pay for the use of a vehicle you don't own. At the end of the lease term, the car is returned to the dealer, or you can purchase the vehicle at an agreed-upon price.
When you lease, you pay off only a portion of the car's value — often referred to as the "amortization amount." This figure is arrived at by subtracting what the car is expected to be worth at the end of the term from the purchase price of the car. For instance, if the price of the new car is $35,000, and the dealer estimates that car will be worth $15,000 at the end of the three-year lease term, the $20,000 difference represents the cost of the car that you will be responsible for.
Did you know? If you own a business, a portion of your leasing payments may be eligible as a business expense.
You will be charged interest on that amount (plus any applicable fees), less any down payment you contribute when you enter into the lease. You can enter into a lease without putting any money down; however, making a down payment will lower your monthly payments.
Tip: Don't be shy about negotiating the price of the new vehicle. The lower the original cost, the lower the payments you'll be responsible for. Try to get a lower price than the suggested retail price of the car. The U.S. site, Auto Lease Guide, is a great source for tips on getting a good deal. Check out autos.ca for a Canadian lease calculator.