Expert advice: To buy or lease a new car?
Do you have a financial question that's keeping you up at night? Ever wished you could get a second, or third, opinion on what to do with your money? Here's your chance: Bankrate.ca is introducing a new monthly feature whereby you submit a question, and we ask three industry experts to weigh in. The topics are up to you -- you ask the questions, and we'll get the answers.
Here's this month's question: I'm in the market for a new family car, but I can't decide between buying (with financing) and leasing. Given the current state of the economy, to say nothing of the state of the auto sector, is now a better time to buy or to lease a new vehicle?
When it comes to spending your hard-earned cash, Paul Meyers, sales manager for North Bay Toyota, looks at it this way: "You buy what appreciates and you lease what depreciates."
Despite rock-bottom interest rates that in many cases offer zero percent purchase financing for up to 60 months, Meyers is still a fan of leasing when looking at it from a consumer perspective. "How smart for manufacturers to take all the risk off their portfolio and put it on the consumer's portfolio," he says of the recent move toward encouraging people to purchase instead of lease. When people buy a vehicle, they take on the burden of depreciation and repairs.
He understands people's desire to build equity, but he doesn't think vehicle ownership is the way to do it. Leasing can cost people hundreds of dollars less a month than financing a new car. "If you want to build equity, put the savings into your mortgage," says Meyers, who, despite being a fan of leasing new cars, adds that people need to assess their individual situations.
For those set on buying, interest rates are low, and with many dealers anxious to make sales, customers are finding they have the upper hand during negotiations.
"It's a great time to be in the market for a new vehicle," says Meyers, adding that incentives are huge and pricing is lower now than it was three to five years ago. "The value is definitely there, it's just whether the customer feels secure enough with their job."
Take advantage of low rates
If Robert Abboud, a Certified Financial Planner, or CFP, and president of Wealth Strategies in Ottawa, had it his way, people wouldn't be torn over whether to buy or lease a new car -- instead, they'd buy used. He recently purchased a fully-loaded used vehicle for $15,000 plus $2,000 for a four-year warranty. The same vehicle would have cost him $40,000 new.
"People always worry about buying a lemon (when buying used), but I say just buy the warranty," says Abboud, adding that if you have your heart set on a new vehicle, then opt for buying over leasing.
"If you're looking to buy a car and keep it for seven to 10 years, buying is the way to go," he says. "I can't see the benefit of leasing unless somebody wants to drive a car they can't afford."
The only people who should consider leasing are those who need a vehicle for business purposes and can write off the expense.
When purchasing a new vehicle, Abboud suggests arranging financing through the dealer; at zero percent, the banks can't compete. He does say, however, that those who finance don't have quite as much leverage when it comes to negotiating big discounts off the sticker price.
Something to consider is asking a dealer about purchasing a demo vehicle for a deep discount. These usually feature all the bells and whistles, include a warranty, and qualify for zero percent financing. "You can get the best of both worlds," says Abboud.
It's a lifestyle decision
"A lot of the manufacturers are getting out of the leasing business," says Stephen deBlois, a chartered accountant with Welch LLP in Ottawa, referring to last summer when a number of domestic manufacturers moved to curb leasing by raising interest rates or simply doing away with the option.
While leasing is still on the table with a number of automakers, deBlois isn't a fan. He thinks leasing can be restrictive, regarding kilometres, etc., and doesn't like the idea of having nothing to show at the end of your term. "If it was me, I'd want to buy: Interest rates are low and who knows how long that will last," he says, adding the economic slowdown is putting pressure on prices. "You can get some good deals these days."
Still, deBlois recognizes the debate is as much a lifestyle as a financial decision, and it really comes down to how you'll drive the car and how long you plan to keep it. People who prefer driving something new every three or four years are better suited to leasing, while those in it for the long term would be advised to take advantage of good pricing and rock-bottom interest rates.
"I don't know if they can go much lower," says deBlois. "The only place to go is up."
Michelle Warren is a freelance writer living in Toronto.