Lease or Finance Automobile

So when it comes to replacing that car or truck in your driveway, should you lease or finance?

First off, what is leasing? Lease payments are effectively you paying for use of the vehicle for the term of the lease. What is this buyout? The buyout is usually the retail value of the vehicle at the end of the lease payments. Suppose you don’t exercise the buyout. Yes, in that case, you can return the vehicle, but make sure you look into the lease details as the majority have kilometre restrictions and make sure you take care of the vehicle while you are using it during the lease. And remember, ownership of the vehicle is not yours until you pay that buyout.

Using the base price of a new GMC 2022 Sierra Pickup Truck (no options added) as an example. The price is $47,193 plus taxes. The lease payments are $237 bi-weekly for 48 months versus finance payments of $272 bi-weekly (for 84 months). Right now, leasing looks to be the best, by more than half! However, lease payment does not include taxes..

Now the fine print (closest dollar)! Lease buyout $31,846, including taxes. The 104 bi-weekly lease payments (with taxes), $27,606. The total cost of both is $59,452. The lease allows 80,000 kilometres over four years. 16 cents per kilometre in excess. Drive an extra 5,000 kilometres each year adds $3,200. If you finance the $31,846 buyout, add interest costs (CIBC reports 3, 4 or 5 years, interest cost are $1,997, $2,662 or $3,335, respectively..

If you instead financed the purchase (including taxes), 182 bi-weekly payments of $305 (84 months or 7 years) equal $55,443.

Comparing leasing (with cash buyout) to financing. The leasing cost of borrowing is $6,596 verse $3,706 if you instead finance the truck.

If you like the idea that you can get a new vehicle every 4 years as well as always having a lease payment, then leasing may be an option for you. But, if you eventually want to own the vehicle with no more monthly payments then financing is the best option.

Are you self-employed or claim employment expenses? The outcome will be different as the net income tax savings must be considered.

Can you afford to purchase or just making the lease payments? Leasing may put you in a vehicle that you may not be able to afford to buy. Exercising the lease buyout by financing may mean payments exceeding the affordable life of the vehicle (high repair costs and low resale).

Questions, suggestions or comments? Go to PennyDimeDollar.com for extra content. Next week, how does taking your hobby and turning it into a business.

Andre Choquette is an accountant in public practice and an author of over 30 books through Pentice-Hall and other publishers. He is also a software developer of software apps and websites. Andre resides with his wife Wanda at Christina Lake. While finance, tech and computers are Andre’s life – Wanda yanks him away from the keyboard so that they can enjoy travelling, as well as being with close friends.