How to Lease a Car in Ontario: A Step-by-Step Guide

By Arthur Dubois | Published on 29 Jun 2023

How to Lease a Car in Ontario
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    Leasing a car opens up a great transportation option for many people in Ontario. It allows you to drive a new car with lower monthly payments than buying. Afterward, you don’t have to worry about selling or trading in the car. But if you’ve never leased a car before, the process can feel confusing. In this guide, we’ll take you through the steps you need to follow to lease a car in Ontario.

    Understanding car leasing in Ontario

    Before you sign a contract, you’ll want to understand the basics of car leasing in Ontario. When you lease a car, you essentially rent it for a certain period of time, typically two to four years. You’ll make monthly payments to the lease company and, at the end of the term, you’ll return the car to them. You’ll also maintain the car during that term.

    Car leasing makes for a popular option for those who want to drive a new car every few years. After all, they don’t have to worry about selling or trading in the car. It can also work well for those who want to keep their monthly car payments low. However, take the time to understand the terms and conditions of your lease before signing on the dotted line.

    Pros of leasing a car

    Leasing a car truly suits many people. Some of the benefits of leasing include:

    • Lower monthly payments compared to buying: When you lease a car in Ontario, you only pay for the portion of the car’s value that you use during the lease term. This can result in lower monthly payments compared to buying a car outright.
    • Driving a new car every few years: If you like driving the latest cars with the newest features, leasing opens that door. You can lease a new car every few years and always have the latest technology and safety features.
    • Not worrying about selling or trading in the car when you’re done: When your lease term ends, you simply return the car to the company. You don’t have to worry about selling or trading in the car, which can create a hassle.

    Cons of leasing a car

    Like everything in life, everything has a cost, and leasing a car comes with some cons as well. 

    • More Expensive Over Time: Over the long term, leasing can cost more than buying. Since you essentially rent the vehicle, you make continuous payments without ever owning the car. Once the lease term ends, you have to return the car or buy it out at the residual value. Often, this leads to higher overall costs compared to outright purchasing.
    • Mileage Restrictions: Most car leases come with mileage limits, usually between 12,000 and 15,000 kilometers per year. If you exceed this number, you’ll have to pay excess mileage charges, which can add up quickly. This restriction might not suit people who need to drive long distances regularly.
    • Wear and Tear Penalties: Leased vehicles must come back in a reasonably good condition. Normal wear and tear is acceptable, but anything beyond that could incur additional fees. If the vehicle has excessive dents, scratches, interior damage, or mechanical damage due to neglect, you’ll likely have to pay for the repairs.

    Determining your needs and budget

    Leasing a car provides wheels to those who want a new car without the commitment of buying. Before you start looking for a car to lease, first determine your needs and budget.

    Assessing your driving habits

    Think about how much you drive and what type of driving you do. Do you need a car with good gas mileage for commuting? Or do you require an SUV for family outings? Perhaps you live in an area with harsh weather conditions and need a car with all-wheel drive. These factors all matter when choosing a car to lease.

    If you drive long distances frequently, you may want to consider a car with a higher fuel efficiency. For instance, a hybrid or electric car would take you further on little or no gasoline. On the other hand, if you enjoy off-roading or need a car for outdoor activities, an SUV or crossover may fit you better.

    Setting a monthly budget

    Next, decide how much you can afford to spend each month on your lease payment. This will help you avoid getting in over your head. When setting your budget, keep in mind that you’ll also need to pay for insurance, gas and maintenance.

    Ultimately, aim to find a balance between a car that fits your needs and a car that fits your budget. While you may dream about leasing a luxury car, it may not make for the best financial decision. Consider your financial goals and priorities when making your decision.

    Once you’ve determined your needs and budget, you can start researching different car models and lease deals. Don’t back down from negotiating with dealerships to get the best possible deal for your situation.

    Researching and choosing the right car

    Buying a car is a big investment, so choose the right one for your needs. Once you know what you want, start researching and comparing different options. Here are some tips to help you make the best decision:

    Comparing different makes and models

    When it comes to choosing the right car, consider the make and model. Look at different options that meet your needs and budget. Account for things like gas mileage, safety features and cargo space. Do you need a car that can fit a family of five and all their gear for a road trip? Or do you aspire for a sleek sports car that can handle tight turns and high speeds?

    Finally, think about long-term costs. How much will it cost to maintain and repair the car over time? Are there any common issues with the make and model that you should factor in?

    Evaluating lease offers and promotions

    Once you’ve narrowed down your options, start looking for the best deal. Many car dealerships offer special lease offers and promotions that can help you save money. These can include things like cash back, low down payments and lower interest rates.

    Before signing any lease agreement, make sure you understand all the terms and conditions. How long is the lease? What is the monthly payment? Are there any penalties for early termination? 

    Also, consider the overall cost of the lease. How much will you pay over the life of the lease? Is it more cost-effective to buy the car outright? You can also deliver a downpayment, which can lower your overall costs during the length of the lease.

    Test driving your leased car

    Before making a final decision, you should test drive the car on your wishlist. This will give you a chance to see how it handles on the road and identify any potential issues. After all, you’ll tour around in it for years, so it should feel like a good fit.

    During the test drive, pay attention to things like acceleration, braking and steering. Does the car feel comfortable and responsive? Are there any strange noises or vibrations? Make sure you feel comfortable enough to commit to a few years behind its wheel.

    By taking the time to research and choose the right car, you can ensure that you make a smart investment that meets your needs and budget.

    Visiting dealerships and test driving

    Once you’ve narrowed down your choices, it’s time to take the next step and visit dealerships to test drive some cars. At last, you’ll finally see and experience the cars you’ve considered.

    However, before you head to the dealership, do some preparation. First, make a list of questions to ask the dealer. Writing these questions down ahead of time can help you stay organized and ensure that you don’t forget anything important. It also helps if you get nervous and feel less confident one on one.

    Preparing questions for the dealer

    When you prepare your list of questions for the dealer, think about what matters most to you. Are you primarily concerned with the cost of the car? Or do you care more about its features and performance? Some questions you might want to consider include:

    • What is the total cost of the car, including any fees and taxes?
    • What are the lease terms and how much will I be paying each month?
    • What is the mileage limit on the lease and what happens if I go over it?
    • What is the penalty for early termination of the lease?
    • What safety features does the car have?
    • What is the fuel economy of the car?
    • What is the warranty on the car and what does it cover?

    By asking these and other questions, you’ll make an informed decision about whether the car suits you.

    Assessing the car’s performance and features

    During your car test drive, critically evaluate the vehicle’s performance and features. Doing so assists you in understanding if the car aligns with your requirements and offers a comfortable driving experience. You should pay attention to various aspects of the car’s performance, like its road-handling capabilities. Consider whether you can easily maneuver and park the car.

    Above all, test acceleration and braking, alongside comfort aspects such as the adequacy of the seats, legroom and headroom. Also, pay attention to additional features that the car might possess, like a backup camera or navigation system. By focusing on these elements, you can gain a comprehensive understanding of whether this car suits your needs.

    Remember that visiting dealerships and testing cars firsthand just begins the car-buying process. Going in prepared, with a set of criteria and a list of questions, will empower you to make an educated decision.

    Negotiating the lease terms

    Once you’ve found the car you want, it’s time to negotiate the lease terms in Ontario. With the right knowledge and preparation, you can get a great deal on your lease.

    Understanding the factors affecting lease payments

    The monthly lease payment fluctuates based on several factors. These include the car’s purchase price, the interest rate and the car’s residual value at the end of the lease term. As a result, you can negotiate better when you understand these factors and how they affect your monthly lease payment in Ontario.

    The purchase price of the car impacts the amount that the dealer seeks to lease the car. Naturally, the higher the purchase price, the more your monthly lease payment will cost. Meanwhile, the lower the interest rate that you will get charged on your lease, the lower your monthly lease payment.

    Finally, the residual value estimates the value of the car at the end of the lease term. The higher that value, the lower your monthly lease payment. Since you essentially pay for the car’s depreciation, a car that holds its value costs less per month. Dealerships calculate the lease residual based on a predetermined percentage of the Manufacturer’s Suggested Retail Price (MSRP). For example, if your leased vehicle sells for $30,000 and you have a residual lease value of 50 percent after 36 months, your lease residual stands at $15,000. 

    Tips for negotiating your car lease

    When negotiating, come prepared to walk away if the terms don’t work for you. This makes for a powerful negotiating tool, as dealerships don’t want to lose a potential sale. Also, get quotes from multiple dealerships to help you haggle. This will give you a better idea of the market rate for the car you want and leverage in talks.

    Moreover, adopt a stance as polite but firm. Dealerships prefer to work with someone who treats staff respectfully and professionally. State clearly what you want and what you’re willing to pay and speak up to ask for concessions.

    Certainly, read the lease agreement carefully before signing. Make sure you understand the terms of the lease, including any fees or penalties. If you feel unsure about anything, ask the dealership staff for clarification.

    Finally, remember that leasing a car means a long-term commitment. If you feel pressured, step back and take your time to make a decision. After all, you don’t want to end up in a car or a contract that makes you uncomfortable.

    Reviewing and signing the lease agreement

    Before you sign the lease agreement in Ontario, take the time to carefully review and understand all of the terms and conditions. This will ensure that you are fully aware of your rights and responsibilities as a lessee.

    A key component of a lease agreement describes the car that you would lease. This typically includes the car’s make and model, the year it was manufactured and any additional features or upgrades.

    In addition to the car itself, the lease agreement will also outline the number of months in the contract. Consequently, make sure that you agree to the length of the lease before signing the agreement.

    It will also specify your monthly payment amount, with any fees or penalties if you fail to pay on time. carefully review these details to ensure that you understand the financial commitment that you make.

    Key components of a lease agreement

    When reviewing the lease agreement in Ontario, you should pay close attention to these key components:

    • The car: Make sure that the description of the car in the lease agreement matches the car that you have test-driven and agreed to lease.
    • The lease term: Check the length of the lease term to make sure that it is appropriate for your needs and budget.
    • The monthly payment: Double check that you understand the amount of the monthly payment and any fees or penalties associated with it.
    • Fees and penalties: Identify any fees or penalties incurred for late payments, early termination or excessive wear and tear on the car.

    What to look for before signing

    Before signing the lease agreement, consider these important factors:

    • Mileage limits: Verify the mileage limits specified in the lease agreement. Exceeding these limits can result in additional fees or penalties.
    • Wear and tear guidelines: Review the wear and tear guidelines carefully to gauge what is considered normal wear and tear. After all, this may result in additional fees or penalties.
    • Early termination penalties: Finally, identify any penalties you’ll face if you terminate the lease early.

    By doing this due diligence, you can ensure that you are fully aware of your rights and responsibilities as a lessee. This can help to avoid any surprises or unexpected costs down the road.

    Insuring a leased car

    A leased car costs no more or no less to insure than a purchased car of the same model. Your car insurance premiums will rely on factors like the vehicle make and model, your driving history and number of past claims.

    However, your leasing company will need to be listed as an “Additional Interest” on your insurance policy. Of course, this third party has a financial interest in your vehicle. As such, you’ll need to provide them with proof of insurance. Further, your insurer must inform them if you change your policy, like lowering your coverage limits or cancelling your policy.

    In terms of coverage, leasing or financing companies usually have specific car insurance requirements. However, whether you lease or finance your car, keep in mind that, in Ontario, you must have at least $200,000 in liability coverage. 

    In the event of a claim, the process may differ if you lease your vehicle in Ontario. For instance, if you lease the vehicle, the settlement discussion would occur with the lessor as they own the car.

    Returning the car at the end of the lease

    When your contract ends, you face a series of options of what to do with the car that you’ve had all this time. At this point, you can return the car to the lease company, extend your agreement or buy the car. Each comes with various steps and consequences.

    Preparing for the lease-end inspection

    Before you return the car, take care of any necessary repairs or maintenance. This spares you from wear-and-tear penalties, unless you factor that into your negotiation to buy the car outright.

    Of course, you could arrange for a third party to do a lease-end inspection, but dealerships prefer to do it. That way, they can check for damages rather than trusting someone with less skin in the game. It also covers them if another expert misses something and it becomes a problem later.

    Options for lease-end: return, buy or extend

    If you love your leased car, you may struggle to give it up after three years. So, should you keep it and pay to make it your own? If not, the easiest route lies in handing over the keys and starting over. Naturally, the dealership will happily offer you another model and sell off the one you’ve driven under their care.

    You may choose to buy out your vehicle lease to secure a vehicle in which you already feel comfortable. This buyout of residual value may cost less than expected since you’ve already paid for most of its depreciation. However, you may need to pay a buyout or administrative fee, which could range from zero to more than $1,000. Those terms were set when you signed the lease so check them before deciding.

    However, if you want to keep your wheels without making a purchase, you could ask to extend the lease. Some companies will only allow this for an additional month. Other dealerships may seek a lease-to-own arrangement. After all, they have more to gain if you start a new lease and they sell off the used car. However, it never hurts to ask. 

    Leasing a car in Ontario: The Bottom Line

    Leasing a car in Ontario can give you a fresh set of wheels every few years if you don’t mind continually having that monthly expense. Yet, it comes with so many pluses that it could work out well for you. By following these steps and doing your research, you can find the right car for your needs and budget and lease it with confidence.

    FAQs About Leasing a Car in Ontario

    How to lease a car in Ontario? 

    In Ontario, leasing a car allows you to drive a new car with lower monthly payments than buying. At the end of the contract, you don’t have to worry about selling or trading in the car. You begin by going to a dealership and seeing what lease options they have available.

    How much to lease a car in Ontario? 

    On average, Ontarians paid $456 in monthly lease car payments in 2021. For high-end vehicles, such as Porsche and Jaguars, the expense ranged from $800 to $1,300. However, popular Toyota brands rented for $369 per month while a Dodge netted $503 per month for a dealership. These are the most current numbers available.

    How to break a car lease in Ontario? 

    You can end your lease agreement in a variety of ways. Most simply, you can find someone else who wants to drive your car and they pick up the payments. If not, you take the financial hit and pay the outstanding balance, the residual value and even applicable taxes. This still maintains your credit rating and allows you to buy or lease again later. Check your contract to see what penalty you would pay before deciding how to proceed.

    How to transfer a car lease in Ontario?

    You can transfer your lease to a friend or family member without any serious financial penalties. After all, the dealership still gets the income it counted on. You may need to pay an administrative fee, but it will appear in your contract. Otherwise, the new lessee takes over your payments and care of the vehicle. 

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    Arthur Dubois is a personal finance writer at Hardbacon. Since relocating to Canada, he has successfully built his credit score from scratch and begun investing in the stock market. In addition to his work at Hardbacon, Arthur has contributed to Metro newspaper and several other publications