Leasing a Vehicle 1.5

Lee works for a computer company. She needs a car to visit clients. Her company pays her a car allowance. She is thinking about leasing her next car.

She knows that leasing a car requires a smaller monthly payment than buying a car and that she will not own the car at the end of the lease.

What advice would you give Lee?

1 Use this chart to compare leasing with buying.

Advantagesofleasing Advantagesofbuying

• The down payment and monthly payments are lower because you only need to pay for depreciation and interest.

• You pay taxes only on the monthly payments, not on the total value of the car. So, the taxes are less.

• You can lease a nicer car than you can afford to buy. • If you do not like the car, you can lease a different

car when the lease expires. If you do like the car, you can buy it after the lease.

• When the payments are made, you own the car. If you lease, you have to give back the car. None of the residual valuewill belong to you.

• You can drive as much as you want. If you lease, there may be a limit. You may have to pay for extra kilometres.

• If you lease, there may be extra charges at the end for damages.

• If you cannot afford to keep the car, you can sell it. When you lease, you are committed to the contract you signed.

2 What advice would you give Lee?

Example 1Ming lives in Edmonton, Alberta. • She plans to lease a car that costs $27 599.00 to buy. • She has $3500 for a down payment. • There are 36 monthly payments of $428.54, plus taxes. • The residual value is $17 325.00, including taxes.

If Ming buys the car after the lease, how much would she spend?

Youwillneed• Internet access

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What are two things that people might rent?

Try These

Car allowance is an amount that an employer pays toward the cost of using a car for work.

Hint

Residual value is the adjusted price due to the depreciation of a vehicle after a lease.

Hint

e.g., an apartment to live in and a car for a trip

e.g., I would tell Lee to lease. She gets a car allowance. Leasing is a

way to make sure that she will always have a reliable car. OR I would

tell Lee to buy. She can keep or sell the car if she loses her job.

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SolutionA. What is each lease payment, including taxes?

After-tax lease payment: ( )($ ) 5 $

B. What is the cost of the lease?

Cost of lease: down payment 1 ( mo )(after-tax lease monthly payment)

5 $ 1 ( mo)($ /mo)

5 $

C. How much would Ming spend to buy the car?

Total cost: cost of lease 1 cost to buy 5 $ 1 $ , or $

Ming would spend $ .

Example 2Sean is turning in his leased car.• The lease says that he can drive 40 000 km. • He has to pay $0.10/km for each extra kilometre. • He actually drove 44 237 km. • He also has to pay $535.00 for paint and body repairs, and

$75.00 to fix a chip in the windshield.

What is the total cost for these additional charges?

SolutionA. What is the charge for the extra kilometres that Sean drove?

Charge for extra kilometres: ( km)($ /km)

5 $

B. What is the total cost for the extra kilometres and the repairs?

Total cost: $ 1 $ 1 $ 5 $

The total cost for the extra kilometres and repairs is $ .

C. How could Sean have avoided these additional charges?

RefLecTiNGSuppose that

Ming bought this car new. The

payments would be $510.55/mo for 5 yr. Would it cost more for Ming to lease or to buy it new?

1.05

3500

19 698.92

19 698.92 17 325.00 37 023.92

e.g., Sean could have driven less during the lease. He could

have purchased the car after the lease and paid for the

repairs only if he wanted to do this.

37 023.92

36

36

428.54 449.97

449.97

0.10

423.70

423.70 535.00 75.00

1033.70

4237

1033.70

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Practice 1. What is the total monthly lease payment, including taxes, for

each monthly payment?

a) $326.45 in British Columbia

( )($326.45) 5 $

c) $414.99 in Manitoba

( )($414.99) 5 $

b) $534.22 in Saskatchewan

( )($534.22) 5 $

d) $287.82 in Nunavut

( )($287.82) 5 $

2. What is the total amount that must be paid in each leasing situation below?

a) $1900 down payment, $300 refundable security deposit, $367.58 first monthly payment plus taxes to lease a vehicle in Medicine Hat, Alberta

b) $2545 down payment, $450 refundable security deposit, $422.32 first monthly payment plus taxes to lease a vehicle in Gimli, Manitoba

3. Jody’s 3 yr lease says that he can drive 60 000 km. He has to pay $0.14/km for each extra kilometre. He actually drove 68 468 km. He also has to pay $225.00 for paint and repairs, and $535.00 for new tires.

What is the total cost?

Charge for extra kilometres:

Total cost:

4. Claire’s 2 yr lease says that she can drive 18 000 km/yr. She has to pay $0.15/km for each extra kilometre. She actually drove 31 254 km. She also has to pay $825.00 for paint and body repairs, and $75.00 for a lost hubcap.

What is the total cost for these additional charges?

Use the tax chart you completed in Getting Started, Question 1.

Hint

Taxes on a leased vehicle apply only to the monthly payment.

Hint

1.12

1.10

$1900 1 $300 1 (1 .05)(367.58) 5 $2585.96

$2545 1 $450 1 (1.12)($422.32) 5 $3468.00

(8468 km)($0.14/km) 5 $1185.52

$1185.52 1 $225.00 1 $535.00 5 $1945.52

The total cost is $1945.52.

Kilometres included with lease: (2 yr)(18 000 km/yr) 5 36 000 km

Claire drove 31 254 km, so there is no charge for extra kilometres.

The total cost is $825.00 1 $75.00, or $900.

1 .12

1 .05

365.62

587.64

464.79

302.21

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5. Nazir lives in Grand Prairie, Alberta. He read the newspaper advertisement at the right.

a) What is the required down payment? $

b) What is the monthly payment after taxes?

c) How much would Nazir need to pay on the day he signed the lease?

d) What is the term of the lease? mo

e) Suppose that Nazir bought the car when the lease expired. How much would he have paid for the car altogether?

f) How many kilometres are included with the lease?

6. Amaruq lives in Hay River, Northwest Territories. He plans to lease a car that costs $28 199.00 to buy. • He has a down payment of $2500.• There are 36 monthly payments of $305.95. • Amaruq has the option to buy the car at the end of the

lease for $17 500.00 plus taxes.

a) Suppose that Amaruq buys the car at the end of the lease. How much will he pay altogether?

Lease payment, including taxes:

Cost of lease:

Purchase price after lease:

Total cost:

b) Suppose Amaruq bought the car new without leasing. How much would he save?

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The total lease obligation, or cost of the lease, is in the advertisement.

Hint

e.g., Total cost: $17 103.18 1 (1.05)($21 667.25)

5 $17 103.18 1 $22 750.61

5 $39 853.79 He would have paid $39 853.79.

1320

36

Monthly payment: (1.05)($398.93) 5 $418.88

e.g., Due on signing:

(3 yr)(16 000 km/yr) 5 48 000 km

$1320 1 $418.88 1 $75 1 $495 1 $100 5 $2408.88

(1.05)($305.95) 5 $321.25

$2500 1 (36 mo)($321.25/mo) 5 $14 065

(1.05)($17 500) 5 $18 375

$14 065 1 $18 375 5 $32 440

Amaruq will pay $32 440 altogether.

(1.05)($28 199.00) 5 $29 608.95

$32 440 2 $29 608.95 5 $2831.05

Amaruq would save $2831.05.

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