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Insider Car Buying Tips: Lease, Buy or Subscribe?

Lease, Buy or Subscribe?

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You’re looking for a new vehicle but can’t decide whether to buy, lease or sign up for something called “subscription.” One neighbour says buying a car is the only way to go, and he’s had four new minivans in the past 30 years. A college buddy, a salesman who spends half his time on the road, gives a thumbs-up to leasing. Every three years, he sits behind the wheel of a new sedan. Then there’s this new animal called a subscription. Which is right for you?

Here are a few tips on the pros and cons of each strategy:

 

Subscription

Although vehicle subscriptions have been around for a few years, most consumers have no idea what it is. In short, it’s a way to get a vehicle with a lot of the costs from maintenance to insurance bundled into the monthly payment. It may be for one car for a fixed period or a month-to-month arrangement with access to several different vehicles depending on your immediate need. It is also the most expensive way to acquire a set of wheels.

These subscriptions are meant for people with deep pockets. They either don’t want to bother with the day-to-day expense and upkeep of a vehicle or for those who want to experience different vehicles at different moments of their life. For example, a soccer parent may want a vehicle that can transport multiple kids to and from games. They may want something sportier when going on a date night with their spouse, or lunch with their friends. It’s that sort of flexibility that comes at a price.

Several automakers have launched or are planning to launch these flexible subscription services. Each offers a wide range of vehicle choices and does not lock-in the consumer for two or three years. The theory behind subscription services is that they lower the level of commitment so buyers can mould the program to their lifestyle. So rather than having a car that needs to perform like a Swiss army knife in meeting all the needs of your life, you have several different vehicles — from sports cars to SUVs to luxury sedans — at your disposal.

 

Leasing

Several decades ago, leasing was unheard of unless an employer had a big vehicle fleet. Today, all sizes of businesses embrace leasing because they can give an executive or business owner a handsome perk and write the expense off the company’s taxes. Leasing has grown outside of business, too. A family fleet may include one or two leased vehicles. Leasing has been growing in popularity nearly every year over the past decade, accounting last year for about one-third of all new vehicle transactions.

But is leasing the right choice for everyone?

The one obvious benefit is that every two or three years, there’s a new vehicle in the driveway. If experiencing the latest vehicle technology frequently is important, a two- or three-year lease might be attractive. Second, leasing generally offers the opportunity to drive a more expensive vehicle because the monthly payment is lower than a monthly loan payment to purchase that vehicle. With a lease, the customer is paying to use that vehicle for 24 or 36 months rather than paying for the entire cost of the car over a 48- to 60-month loan.

Third, before interest rates started to creep up recently, some leases were available without a down payment. It still pays to shop around for a lease without a down payment. Finally, when you lease, there is no trade-in hassle, and it is easy to transition to another vehicle when the term expires. When your contract ends, the keys are handed over to the dealer, an inspection is conducted, and you walk out the door. And it also opens the door for enticements if you decide to stay with the make—some brands offer special deals to pull ahead the end of your lease and keep you in the brand’s vehicle lineup.

However, leases do come with some risks, especially when it comes to the condition of the vehicle when it’s turned in.

If any damage is discovered on the outside or inside the vehicle that exceeds normal wear, the lessee is responsible. Additionally, mileage is usually capped around 24,000 kilometres a year, although some leases with lower payments can have limits set at 12,000 to 16,000 per year. More expensive leases could be capped at 10,000 km. Exceeding the mileage limits usually requires an extra payment calculated at around 25 cents per kilometre. Also, if you try to get out of the contract early, there may be early termination fees. Pro tip: always read the fine print. Remember, while a lease may have a lower payment than a purchased car, if you continually lease, you will pay more in the long run than if you bought the car, paid it off and kept it for years.

 

Buying

Car and truck quality has increased considerably in the past decade. It’s not just talk; it is a reality. Cars can now last well over 200,000 km. You buy the car, pay for it over five years, and then there are another five years of life out of that car before you need to get rid of it.

The least expensive way to acquire a car can is to pay cash. Ultimately you end up owning the car after the loan (if needed) is repaid. The vehicle can be driven as much as you wish because there is no cap on mileage or penalty per kilometre for exceeding the mileage limit mentioned in a lease or subscription contract. Since the vehicle is yours, you can sell or trade it at any time (providing you pay off the loan balance if any), and you have an asset, though a depreciating one, in the resale value of your vehicle.

But also, keep in mind that if you borrow money for the purchase, interest rates will affect your monthly payment. Right now, they are at low levels but can go much higher depending on your credit rating. Also, a longer-term loan may result in a lower monthly payment, but it will also cost you more in total since the interest will accrue over the life of the contract. And since you are paying for the entire purchase price, typically, your monthly payment will be higher than a lease, but likely lower than a subscription. And with ownership comes responsibility for things like routine maintenance and more extensive repairs once the factory warranty expires.

 

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