Are monthly payments necessary? Unless you're in the position to pay cash for a new or pre-owned vehicle, you'll need to establish a payment plan to obtain that vehicle. Additional details about the choice between buying and financing are included in our article about it here.
How are monthly lease rates determined? When determining a monthly rate, the main factors considered are the amount of deprecation the vehicle will experience (how much it's worth at the start minus what it's worth at the end) and the cost of borrowing the money (the interest due to the lender.)
If you want to go into detail, there are three main components:
First, the adjusted capitalized cost is determined. This figure represents the real purchase price after elements such as the down payment, incentive discount and trade-in credit are deducted from the capitalized (actual) cost, while any fees or charges (e.g. destination, documentation, etc.) are added.
Second, the residual value, or estimated value of the vehicle at the end of the lease, is determined and then subtracted from the adjusted capitalized cost to yield a depreciation figure. The residual value depends on the length of the agreement, expected mileage and make/model of the vehicle.
Finally, a lessor assesses the money factor, a number that correlates with the cost of borrowing money during the lease period. By calculating all of these figures and adjusting the final cost over the term of the agreement, the final monthly lease rate can then be determined.
What factors determine the purchase price at the end of a lease? Most leases rely on the residual value in determining the end of term purchase price. These 'closed-end deals' require you to pay the fixed residual amount regardless of the actual market price. Open-end leases work differently in that the actual market value helps determine the purchase price. As a customer you are responsible for any difference between the residual and actual value when buying outright.
How are loan rates determined? The size of monthly loan payments depends on the amount borrowed, the length of the loan, the interest rate and other factors such as your credit history. Paying more money initially lowers the principal of the loan and reduces individual payments in turn. At any period during the loan you may opt to pay off the principal in its entirety, at which point the title of the vehicle is transferred to you.
General loan specifications Down payment amounts may range between 10 to 20 percent of the vehicle's total cost, although some purchases require no down payment. A typical loan period is five years with an annual percentage rate around 8 percent. Some manufacturers offer lower rates and our friendly staff are always ready to provide you all of the up to date information regarding current offers.
Are loans available for used vehicles? Yes, although they function somewhat differently from new car loans. A down payment of 20 percent or more is often required and the interest rate can be slightly higher. Understandably, banks are more hesitant to loan money for used car purchases as they would rather own a newer car if the borrower does not complete his or her payments.
Can extra fees and charges be financed? Yes, registration, taxes, extended service plans and other supplemental charges may be included in the financing plan. This is a great way to wrap up many of the long term costs of a vehicle into one pre-determined amount.
Which option makes the most sense? There is no 'right' answer to this question as it depends on a variety of things, largely on how you plan to use the vehicle. If you like the idea of driving a more expensive vehicle for a smaller monthly payment, leasing is a great option. However, if eventually owning the car is important, financing with a loan is the way to go. Additional details about the choice between buying and financing are included in our article about it here.
What are the restrictions of driving a leased vehicle? Annual mileage restrictions can be a major consideration for customers who choose to lease. Lenders want their vehicles returned in saleable, low-mileage conditions so they place mileage caps on them. A typical yearly figure is between 12,000 and 24,000 kilometres, manufacturer's also structure higher mileage leases to accommodate those who have more demanding transportation needs. Beyond the established limit, costs are based on a per-kilometre basis, usually in the range of $0.10 to $0.25 per kilometre. So if most of your driving is local, leasing is often the better choice. However, if you consistently tack on 500 or more kilometres a week, financing or purchase might be a better option. Our friendly staff are ready to help determine the best choice for you whatever your individual needs may be.