Is it better to lease or buy?
To lease or buy a new car … that is the question.
Whatever decision you make, you’ll need auto insurance. If you decide to buy a car, for insurance purposes, it doesn’t affect the cost of your policy. What will are things like your driving history, type of vehicle, and where you live.
Should you decide to lease a vehicle, the leasing company will be listed on your policy since it owns the car. Since you must protect their interests, you likely have to purchase both collision and comprehensive insurance.
- Collision will pay for damage to your car in an accident. It’s limited to damage that occurs while the car is moving whether it’s an accident with another car or a single-car accident where you hit a streetlight.
- Comprehensive pays for damage to your car for instances like weather disasters, fire, or hitting an animal. It may even pay for a chipped windshield.
Pros and cons
Leasing a new car means you can try out the latest model and features every few years, but you’ll always be paying monthly fees, often at a rate higher than financing a newer car. The monthly payment will be less expensive than if you bought it, but you won’t have anything to show for it after the vehicle is returned.
Dealerships keep the lease costs low by only charging you payments based on the value of the vehicle for the duration of the lease period, which is why there’s a buy-out amount at the end of a lease period. Most leased vehicles are new which means you’ll be taking care of standard maintenance and will have to keep the car in great condition or risk penalties upon its return. The car’s depreciation or resale value doesn’t matter because it’s not your vehicle to trade or sell.
If you decide to buy a car and you are not able to buy it outright, you’ll have to get a car loan. That means you’ll pay more than you borrowed over the loan period because of interest. But once you pay it off, you can trade in the vehicle to go toward the cost of purchasing a newer one or sell it and keep the cash. Ultimately, you’ll save money in the long run if you keep using a car until its maintenance costs are no longer worth it.
If you’re trying to decide whether to buy or lease a car, you can use the federal government’s online lease or buy calculator to help you figure out which is best for you. The bottom line is whether you lease or rent, it’s what fits your financial picture the best.
Don’t forget to include your insurance coverage in your budget calculations.
Third-Party liability coverage
Some leasing and finance companies require minimum third-party liability coverage of $1 million. The minimum amount of third-party liability insurance in Canada is $200,000, except in Quebec, where it's $50,000. However, most insurance companies offer and recommend $1 million in liability coverage as a default option, so you will not usually have to pay more for your coverage.
Another optional type of coverage that can protect you when leasing or financing a vehicle is gap insurance. Many dealerships will offer this kind of coverage to a lessee.
In the event of an accident in which the car is declared a total loss, the insurance company will first pay the lienholder (the finance company) or to the leasing company. If the car is worth more than you owe on it, you will receive the remainder of the benefit amount after the financial institution is paid.
Often, due to depreciation and other factors, you will find that the market value for your car is lower than the remaining balance on your loan or lease agreement. That’s where gap insurance comes in – it covers the gap between the value of the car and what you owe the dealership.
If you are considering buying or leasing a car, talk to your insurance broker about what kind of policy and optional coverages suit your situation better. And don’t forget your broker will shop around to get you the best deal!