The Ultimate Guide to Lease to Own Car Programs in Canada

By Heidi Unrau | Published on 29 Sep 2023

Lease to own car
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    How the hell did they afford that? The new and used car market is nutty right now. So if you’re wondering how your neighbour bankrolled their new whip, the answer might be a lease to own car program. Yes, you read that right. Canada’s latest trend isn’t poutine-flavoured KD, it’s car leasing. And one type of lease is particularly appealing to people with bad credit or unusual financial profiles. But is a lease to own car agreement a savvy or slippery way to get behind the wheel? Here’s what to know before you follow in your neighbour’s footsteps.

    What is a Lease to Own Car Agreement?

    A lease to own car agreement is essentially a two-part deal. First, it’s like a lease: you get a car, you pay a set amount monthly, and you drive around feeling pretty good about yourself. But here’s where the twist comes in. 

    Instead of giving the car back at the end of your lease term (and begrudgingly handing over the keys), it’s all yours. That’s right, the car you’ve grown to love, named, and driven on countless road trips becomes yours permanently. And all that without a pesky credit score getting in the way.

    Each payment you make during the lease period moves you closer and closer to full ownership. By the end of the term, you officially own it – assuming you fulfilled the terms of the lease. So, in essence, a lease to own car agreement is kind of like a bad credit car loan.

    Financing vs Leasing vs Lease to Own Car Agreements: Oh My!

    On the surface, lease to own car agreements and traditional leasing might seem like siblings. But under the hood, they’re more like distant cousins. Let’s explore the nuts and bolts of financing vs. traditional leasing vs. lease to own car agreements: 

    Financing

    Now, if you’re all about commitment from the get-go, financing might be your preferred route. You get a loan, buy the car, and then make payments on that loan. Every payment builds equity in the asset, bringing you closer to owning the car outright.

    Once you’ve paid off the loan, there are no more monthly car payments and that beauty is all yours. But remember, financed cars often come with heftier monthly payments and longer terms compared to leases. You’re also fully responsible for repairs.

    Traditional Leasing

    If traditional financing is like buying a house, then traditional leasing is like renting an apartment. You pay a monthly amount to drive a brand-new car. However, when the lease is up, you either hand the keys over. Or, if you’ve truly fallen head-over-wheels, you can buy it out.

    The downside is that during the leasing period, you’re basically paying for the car’s depreciation. Just like renting an apartment, you pay to live there, but unless you decide to buy, you won’t own any part of it.

    Lease to Own Car Agreement

    Then there’s the lease to own car agreement, presenting a middle ground between financing and traditional leasing. This option is a bit like leasing in the sense you’re making monthly payments for the right to drive the car. But each payment also brings you closer to owning that car.

    It’s especially attractive when you don’t qualify for traditional financing because of credit issues, or unusual financial circumstances like being self-employed. As long as you comply with the terms of the agreement, lease to own guarantees you own the vehicle at the end of the term.

    The Upside of Lease to Own Car Agreements

    So you’re mulling over the idea of a lease to own car. But what exactly makes it sparkle compared to other financing options? Well, there’s a pretty nifty list of benefits that might make it the right fit for your situation.

    Bad Credit, Self-Employed, Freelancer Friendly

    Now, here’s the deal with lease to own agreements: while they typically don’t report to credit bureaus, hence not directly boosting your score, they are exceptionally welcoming to those with credit bruises and unconventional employment. They don’t require a credit check, they just care you can afford the payments.

    Whether your credit history has been through the crapper or you’re experiencing a major setback like bankruptcy or a consumer proposal, these agreements tend to be a no-judgment zone. They provide a path to car ownership when most others throw up a “Do Not Enter” sign. Consider it a detour to getting those car keys even if the traditional roads are blocked.

    Shorter Term Lengths

    Being locked into long-term contracts can feel a tad claustrophobic. Thankfully, lease to own car agreements generally offer shorter terms, allowing you own the car faster than with a traditional car loan. The typical lease to own term is 1 – 2 years.

    You Own the Car at the End of the Lease Term

    Here’s where the “own” in “lease to own” shines. Ever been in a relationship where you just weren’t ready to commit from the get-go? That’s how traditional leases work. But lease to own agreements require you to “put a ring on it” at the end of the term. You’re already head over wheels in love, but the lease term acts like taking wedding vows before the car becomes your permanent roadworthy companion. 

    Potential Drawbacks of Lease to Own Car Programs

    But here’s where the rubber meets the road. While lease to own car agreements can be a boon for people with bad credit, there are several downsides or “hidden” challenges to consider. Here’s what to know:

    Higher Overall Costs

    When considering a lease to own car option, it may seem like the best car-buying hack ever. But when you sum up the total payments over the term, it can often exceed the vehicle’s actual value. This premium is the price you pay for the convenience and flexibility that lease to own car agreements offer, especially if you don’t have any other financing options. Always crunch the numbers to ensure you know the full long-term cost.

    Down Payment Required

    While lease to own car agreements offer an easier path to ownership, there’s often a catch: the down payment. Though it’s usually less than what’s required for traditional financing, some form of upfront payment is typically necessary in addition to a signing fee. This can be an unexpected hurdle if you haven’t set aside funds for this purpose.

    Demanding Payment Schedule 

    Buckle up for a more consistent financial commitment. Lease to own agreements require more frequent payments, sometimes weekly or bi-weekly, rather than the standard monthly payment schedule of traditional leases or loans. This can be a juggling act if you’re not used to managing finances on a more frequent basis.

    You’re on the Hook for Repairs

    One of the major upsides of traditional leases is that they often come with warranties or maintenance packages, covering a range of potential issues. However, with lease to own, the responsibility often shifts to you. If the car breaks down or requires repairs, the cost usually falls squarely on your shoulders.

    Limited Vehicle Selection

    Lease to own options don’t give you access to the latest car models or high-end vehicles. Instead, you’ll have to settle for used, older models or cars with higher mileage. While this isn’t necessarily a bad thing, it does mean you have less choice in the kind of vehicle you’ll be driving.

    Warranty Concerns

    New cars typically come with manufacturer warranties that cover significant repairs for the first few years. However, lease to own cars are usually older models, and their warranties might have already expired. This situation can lead to unexpected and sometimes costly repair bills. Always check the vehicle’s warranty status before agreeing to a lease-to-own contract.

    Penalties & Repossession Risk

    Lease to own car agreements often have stricter payment schedules. Missing just one payment or being consistently late can lead to hefty penalty fees. The car can be repossessed if you fail to meet the terms of the agreement. It’s crucial to understand your payment schedule and ensure that you can consistently meet it.

    Ownership Delay

    With traditional car loans, you’re on the path to ownership with every payment you make. However, with lease-to-own, true ownership is delayed until the final payment is made. So, if something goes awry, you could end up empty-handed and out the total cost of payments made and your down payment.

    Expensive Termination Clauses

    Life is unpredictable. If circumstances change and you wish to exit the lease-to-own car agreement, you might find it challenging and costly. Some agreements have strict termination clauses requiring you to pay significant fees or even the remaining balance. Always understand the exit terms before signing on the dotted line.

    Vehicle Condition Concerns

    As mentioned earlier, since many lease to own cars are used, there’s always a risk associated with their condition. Some issues might not be immediately apparent during an initial inspection. It’s best practice to have any lease to own vehicle thoroughly inspected by a trusted mechanic before entering into an agreement. Better safe than sorry!

    Can a Lease to Own Car Help Me Build Credit?

    In most cases, no. That’s bummer news if you were planning to use your lease to own car agreement to build or improve your credit. That’s because most of them do not report to the credit bureaus, especially lease to own cars from smaller, independent dealerships.

    This means that even if you’re making on-time payments consistently, it won’t boost your credit score. On the flip side, if you miss payments, it won’t harm your credit score either. But there might be other repercussions like late fees or even repossession of the vehicle.

    Having said that, “most” does not mean “all”. There are still some providers out there that do report to the bureaus. So it is essential to inquire with the dealership about whether or not they do. Always read the terms of your agreement carefully and ask questions to fully understand how the lease to own car agreement might impact your credit score. 

    Where to Get a Lease to Own Car

    Another major downside? Accessibility. In Canada, lease to own car agreements are hard to come by. Not all dealerships have these options, especially the bigger and more well-known ones. 

    Most vehicle manufacturers don’t directly offer lease to own car agreements either. Instead, they typically provide traditional leasing or financing options through their financial divisions, such as Ford Credit, Toyota Financial Services, etc. 

    If you want a lease to own car agreement, you’ll need to crack those knuckles and hit up the ol’ Google machine. Lease to own programs are mostly regional. Here’s where to start looking: 

    Specialized Lease to Own Car Dealerships

    There are specific dealerships that focus on offering lease to own car agreements, especially catering to those with bad or no credit. These are distinct from traditional dealerships. Their business model primarily revolves around the lease to own concept.

    Independent Dealerships

    Independent, smaller, or used car dealerships are much more likely to offer lease to own options. These dealerships are often more flexible in their financing options compared to larger, brand-associated dealerships.

    Online Platforms

    With the rise of online car-buying platforms, some websites specialize in or offer lease to own car agreements. These platforms might either directly provide the service or connect you with dealerships that do.

    Third-party Finance Companies

    There are financial institutions and companies outside of dealerships that partner with dealers to offer lease to own options. Sometimes, the agreement might be between you and this third-party institution rather than the dealership itself.

    Some Mainstream Dealerships

    While the number of mainstream or brand-associated dealerships offering lease to own options is very low, it’s never zero. So it’s still worth doing the research to find out. It often depends on the dealership’s management and their finance department’s structure. If you’re looking at a particular brand or dealership, it’s best to call and inquire directly.

    How to Find a Reputable Lease to Own Car Provider

    Independent, smaller, and lesser-known dealerships are more likely to offer lease to own car agreements, but they’re also more likely to be… unscrupulous. Of course, that’s not true of all of them. But you are at increased risk of dealing with a shady company. Here’s how to find credible dealerships and weed out the questionable ones: 

    Online Reviews

    Before anything else, look up the dealership online. Platforms like Google, Yelp, and the Better Business Bureau often provide reviews from previous customers. While no dealership will be without a few negative reviews, it’s vital to note recurring issues or praises.

    Local Reputation

    Talk to your friends, family, and acquaintances. Word of mouth is a great way to gauge a dealership’s reputation in the community.

    Financial Institutions

    Sometimes, banks or credit unions have partnerships or are at least aware of reputable dealerships that offer lease to own car agreements. It’s worth asking your financial institution if they can recommend any dealers.

    Check for Memberships

    Dealerships that are members of the Used Car Dealers Association (UCDA) in Ontario or similar associations in other provinces adhere to a code of ethics and standards. This helps ensure more security in your dealings.

    Transparency

    A reputable dealership will be transparent about all fees, costs, and terms associated with the lease to own car agreement. Be wary of places that are hesitant to disclose this information upfront or evade your questions. That’s a huge red flag!

    Visit in Person

    Sometimes, the best gauge is your intuition. Visit the dealership, assess how they treat you, and observe their operations. If you get a bad vibe, don’t do business with them. Trust your gut, it’s there to protect you.

    6 Essential Questions to Ask a Dealership About Lease to Own Cars

    1. Duration and Terms: “How long is the lease-to-own term, and what are the specific conditions of the agreement?” Understanding the length and terms is vital to ensure you’re comfortable with the commitment.

    2. Reporting to Credit Bureaus: “Do you report payment history to credit bureaus?” This is crucial for you’re looking to improve your credit score.

    3. Car History: “Can I get a detailed history of the car?” Always make sure the vehicle hasn’t been in any significant accidents or has other hidden issues.

    4. Early Payment or Termination: “Are there any penalties for early payment or terminating the lease early?” It’s essential to understand any potential extra costs.

    5. Warranty and Repairs: “What is the warranty on the car, and how do repairs work under this agreement?” Some dealerships might offer warranties, while others might not.

    6. Hidden Fees: “Are there any additional fees or costs that I should be aware of?” Read the fine print to make sure there are no hidden surprises.

    Determining if a Lease to Own Car is Right for You

    While a lease to own car agreement might appear attractive, it’s important to understand the nuances to determine if it’s the best fit for your unique situation. Here’s what to consider before making any sudden moves:

    Credit Score & History: Your credit score is a vital factor when contemplating a lease to own car agreement. If your credit score is less than stellar due to past financial missteps or lack of credit history, traditional financing methods might be out of reach. Often, people who are self-employed or have irregular income often struggle to secure traditional financing too, even if they have great credit. In such cases, a lease to own can be a great alternative because many of the dealerships that offer it are more lenient with credit requirements or might not check your credit at all.

    Improving Credit: If you’re looking at a lease to own agreement as a method to rebuild or establish credit, you need to explicitly ask the dealership if they report your payment history to the major credit bureaus. Unfortunately, most of them don’t. 

    Duration of Use: How long do you anticipate needing the vehicle? If you’re someone who enjoys driving newer models and frequently switches cars, a traditional lease might be more appropriate. 

    Ownership Goals: It’s vital to understand your end goals. If you’re keen on owning the vehicle at the end of the term, lease to own can be an easier path to that ownership, especially if upfront purchasing or traditional financing isn’t feasible for you.

    Monthly Payments: It’s critical to know what you can afford. Lease to own cars often require weekly or bi-weekly payments. Create a comprehensive budget that accounts for all your expenses to ensure the payment amounts and frequency are manageable. Our car loan calculator can help you with this. 

    Additional Costs: Beyond just the monthly payments, consider other costs like maintenance (especially if the warranty coverage is limited), insurance rates, and potential fees for late payments or breaking the lease early. Shop around and compare car insurance policies to find the best price and coverage for your needs. This will help keep things on budget. 

    What Have You Learned About Lease to Own Car Agreements?

    You wouldn’t speed through the Canadian countryside without a map, would you? Then you shouldn’t zoom into a lease to own car agreement without doing some serious recon. If you’re financial GPS points you in that direction, the benefits are clear: a smoother road to car ownership, especially when the road ahead is filled with credit potholes and bumpy financial circumstances.

    But let’s be real – it’s not the expressway for everyone. If your headlights are spotting too many hidden costs or conditions that seem more like roadblocks than guidelines, it’s probably a better idea to reroute to more traditional financing options.

    So, whether you’re gunning for that lease to own finish line or considering a pit stop to explore other options, remember: the best journeys happen when you’ve packed both an open mind and caution in your trunk. 

    Lease safe. Drive safer! 

    FAQs About Lease to Own Car Agreements

    What is a lease-to-own car agreement?

    A lease-to-own car agreement is a type of leasing contract where you agree to lease a vehicle for a specified period. As long as all payments are made and you honour the terms if the contract, you own the car outright at the end of the lease term. Essentially, it combines the aspects of both a lease and a purchase.

    Are lease-to-own car agreements a good idea?

    Lease-to-own car agreements can be beneficial if you do not qualify for traditional financing due to credit issues. They offer a path towards car ownership without the long-term commitment of a loan. However, it’s crucial to understand all terms and conditions, including potential higher costs, before entering such an agreement.

    Are lease-to-own agreements only for people that went bankrupt?

    No, lease-to-own agreements are not exclusively for people who have declared bankruptcy. They are available for a wide range of consumers, especially those with credit challenges, such as having a low credit score, previous bankruptcy, or being in a consumer proposal. These agreements are designed to be more accessible, especially for those who might face difficulties with traditional financing.

    Will a lease-to-own agreement help me build my credit?

    Typically, most lease-to-own car agreements do not report to credit bureaus, so they don’t directly help in building credit. However, some dealerships might offer reporting as an added service. It’s always a good idea to check with the specific provider about their credit reporting practices. If credit-building is a primary concern, you should consider other financial products designed specifically for that purpose.

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    Heidi Unrau is a senior finance journalist at Hardbacon. She studied Economics at the University of Winnipeg, where she fell in love with all-things-finance. At 25, she kicked-off her financial career in retail banking as a teller. She quickly progressed to become a Credit Analyst and then Private Lender. This hands-on industry experience uniquely positions her to provide expert insight on loans, credit scores, credit cards, debt, and banking services. She has been featured in publications such as WealthRocket, Scary Mommy, Credello, and Plooto. When she's not chasing after her two little boys, you'll find her hiding in the car listening to the Freakonomics podcast, or binge-watching financial crime documentaries with a bowl of ice cream. Fun Fact: Heidi has lived in five different provinces across Canada and her blood type is coffee.