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Leasing versus buying
It's always a dilemma and the answer is rarely easy
By Simon Wickens
Thursday, October 16, 2003
For her it makes eminent sense, for him it doesn't. Kelli Gilson, one of four horse vets at the Millbrook Equine Clinic, is one of a dwindling number of Canadians who lease their vehicles. Though it costs her $1,320 a month with the full-coverage warranty for her Explorer, she says her tax accountant recommends the lease and it ensures she always has a vehicle that will go anywhere at any time and in any kind of weather. In a highly competitive field, with the lives of highly valuable show and race horses on the line, she feels the money is worth it.
But she says that she regrets talking her horse-trainer fiancé into leasing a Mazda Protegé because it's proven to be no benefit to him. With current incentives and money rates, he might have been better off buying.
"That was a mistake," Gilson concedes.
It's always a dilemma for a vehicle-hunter and unfortunately the answer is rarely easy and differs for each consumer.
Not many years ago, there were some distinct advantages to leasing over buying: a tax-saving for companies, the self-employed and those getting car allowances; and a smart short-cut to reduced monthly payments or a means of obtaining something upscale for a few more dollars.
Those benefits have pretty well evaporated, however, with tax-law changes designed to close what were viewed as loopholes and interest rates at low levels not seen since before the Second World War.
Couple those factors with more manufacturing than buying, which has led to token or even zero down-payments, and it's no wonder leasing has lost market dominance.
"Low interest rates on loans have devastated the leasing market," according to broadcaster and writer Bruce Cohen, a long-time personal finance guru.
For once in a long while, the fine print on car ads contains the good tidings.
Dr. Gilson, who drives at least 60,000 kilometres a year, crisscrossing central Ontario with upwards of $100,000-worth of high-tech equipment and equine medicines in her third Explorer, changes her vehicle every two years.
But Rob LoPresti, car purchase adviser for Metro Credit Union in the Toronto area, says he'd still advise her to buy, since the monthly outlay is so large on a vehicle doing those kind of miles that the advantages of leasing are cancelled out by the expenditure.
"If you need 50,000 or more, forget about leasing, buy the vehicle and sell it after a year to year and a half."
Traditionally Canadians lease a far greater proportion of vehicles than Americans.
Back in the mid '90s, more than one-third of new vehicles were leased here, compared with one-quarter south of the border. But those figures have dropped dramatically in both countries.
Taxes have in the past ensured Canadians don't have nearly as much disposable income as Americans, and leasing still makes getting any vehicle or a nicer vehicle seem less expensive.
Ironically, this happens even though Canadians start out with a significant price advantage. New vehicles sold in Canada are priced considerably lower than comparable and identically equipped models sold in the United States, despite currency adjustments and even after this year's jump in value by the Canadian dollar.
Canadian sticker prices range from about 10 per cent lower for sports and luxury cars up to 15 to 20 per cent lower for mid-size vehicles.
For leased vehicles delivered in Canada, GST and PST are calculated only on the portion of the vehicle's value used during the term of the lease, meaning the higher the mileage, the higher the tax.
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