1.5
Leasing a Vehicle
Try These
You will need
What are two things that people might rent?
• Internet access
(optional)
Hint
Car allowance is
an amount that
an employer pays
toward the cost
of using a car
for work.
e.g., an apartment to live in and a car for a trip
Lee works for a computer company. She needs a car to visit
clients. Her company pays her a car allowance. She is thinking
about leasing her next car.
She knows that leasing a car requires a smaller monthly payment
than buying a car and that she will not own the car at the end of
the lease.
What advice would you give Lee?
1
Use this chart to compare leasing with buying.
Advantages of leasing
Advantages of buying
• The down payment and monthly payments are lower
because you only need to pay for depreciation and
interest.
• You pay taxes only on the monthly payments, not on
the total value of the car. So, the taxes are less.
• You can lease a nicer car than you can afford to buy.
• If you do not like the car, you can lease a different
car when the lease expires. If you do like the car, you
can buy it after the lease.
• When the payments are made, you own the car. If you
lease, you have to give back the car. None of the
residual value will belong to you.
• You can drive as much as you want. If you lease, there
may be a limit. You may have to pay for extra kilometres.
• If you lease, there may be extra charges at the end for
damages.
• If you cannot afford to keep the car, you can sell it. When
you lease, you are committed to the contract you signed.
Hint
Residual value
is the adjusted
price due to the
depreciation of
a vehicle after
a lease.
What advice would you give Lee?
e.g., I would tell Lee to lease. She gets a car allowance. Leasing is a
2
way to make sure that she will always have a reliable car. OR I would
tell Lee to buy. She can keep or sell the car if she loses her job.
Example 1
Ming lives in Edmonton, Alberta.
• She plans to lease a car that costs $27 599.00 to buy.
• She has $3500 for a down payment.
• There are 36 monthly payments of $428.54, plus taxes.
• The residual value is $17 325.00, including taxes.
If Ming buys the car after the lease, how much would she spend?
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Solution
A. What is each lease payment, including taxes?
After-tax lease payment: ( 1.05 )($ 428.54 ) 5 $ 449.97
B. What is the cost of the lease?
Cost of lease:
down payment 1 ( 5 $ 3500 1 ( 36
5 $ 19 698.92
36
mo )(after-tax lease monthly payment)
mo)($ 449.97 /mo)
Reflecting
Suppose that
Ming bought this
car new. The
payments would
be $510.55/mo
for 5 yr. Would
it cost more for
Ming to lease or
to buy it new?
C. How much would Ming spend to buy the car?
Total cost: cost of lease 1 cost to buy
5 $ 19 698.92 1 $ 17 325.00 , or $ 37 023.92
Ming would spend $ 37 023.92 .
Example 2
Sean is turning in his leased car.
• The lease says that he can drive 40 000 km.
• He has to pay $0.10/km for each extra kilometre.
• He actually drove 44 237 km.
• He also has to pay $535.00 for paint and body repairs, and
$75.00 to fix a chip in the windshield.
What is the total cost for these additional charges?
Solution
A. What is the charge for the extra kilometres that Sean drove?
Charge for extra kilometres: ( 4237 km)($
0.10
/km)
5 $ 423.70
B. What is the total cost for the extra kilometres and the repairs?
Total cost: $ 423.70 1 $ 535.00 1 $ 75.00 5 $ 1033.70
The total cost for the extra kilometres and repairs is $ 1033.70 .
C. How could Sean have avoided these additional charges?
e.g., Sean could have driven less during the lease. He could
have purchased the car after the lease and paid for the
repairs only if he wanted to do this.
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Hint
Use the tax chart
you completed in
Getting Started,
Question 1.
Hint
Taxes on a leased
vehicle apply only
to the monthly
payment.
Practice
1. What is the total monthly lease payment, including taxes, for
each monthly payment?
a) $326.45 in British Columbia
c) $414.99 in Manitoba
( 1.12 )($326.45) 5 $ 365.62
b) $534.22 in Saskatchewan
( 1 .12 )($414.99) 5 $ 464.79
d) $287.82 in Nunavut
( 1.10 )($534.22) 5 $ 587.64
( 1 .05 )($287.82) 5 $ 302.21
2. What is the total amount that must be paid in each leasing
situation below?
a) $1900 down payment, $300 refundable security deposit,
$367.58 first monthly payment plus taxes to lease a
vehicle in Medicine Hat, Alberta
$1900 1 $300 1 (1 .05)(367.58) 5 $2585.96
b) $2545 down payment, $450 refundable security deposit,
$422.32 first monthly payment plus taxes to lease a
vehicle in Gimli, Manitoba
$2545 1 $450 1 (1.12)($422.32) 5 $3468.00
3. Jody’s 3 yr lease says that he can drive 60 000 km. He has to
pay $0.14/km for each extra kilometre. He actually drove
68 468 km. He also has to pay $225.00 for paint and repairs,
and $535.00 for new tires.
What is the total cost?
Charge for extra kilometres: (8468 km)($0.14/km) 5 $1185.52
Total cost: $1185.52 1 $225.00 1 $535.00 5 $1945.52
The total cost is $1945.52.
4. Claire’s 2 yr lease says that she can drive 18 000 km/yr. She
has to pay $0.15/km for each extra kilometre. She actually
drove 31 254 km. She also has to pay $825.00 for paint and
body repairs, and $75.00 for a lost hubcap.
What is the total cost for these additional charges?
Kilometres included with lease: (2 yr)(18 000 km/yr) 5 36 000 km
Claire drove 31 254 km, so there is no charge for extra kilometres.
The total cost is $825.00 1 $75.00, or $900.
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5. Nazir lives in Grand Prairie, Alberta. He read the
newspaper advertisement at the right.
Limited time offer for
qualified retail customers
a) What is the required down payment? $ 1320
b) What is the monthly payment after taxes?
Monthly payment: (1.05)($398.93) 5 $418.88
c) How much would Nazir need to pay on the day
he signed the lease?
e.g., Due on signing:
$1320 1 $418.88 1 $75 1 $495 1 $100 5 $2408.88
d) What is the term of the lease?
36
mo
e) Suppose that Nazir bought the car when the lease expired.
How much would he have paid for the car altogether?
e.g., Total cost: $17 103.18 1 (1.05)($21 667.25)
5 $17 103.18 1 $22 750.61
Hint
The total lease
obligation, or cost
of the lease, is in
the advertisement.
5 $39 853.79 He would have paid $39 853.79.
f) How many kilometres are included with the lease?
(3 yr)(16 000 km/yr) 5 48 000 km
C01-F12 -AW12.ai
6. Amaruq lives in Hay River, Northwest Territories. He plans to
lease a car that costs $28 199.00 to buy.
• He has a down payment of $2500.
• There are 36 monthly payments of $305.95.
• Amaruq has the option to buy the car at the end of the
lease for $17 500.00 plus taxes.
a) Suppose that Amaruq buys the car at the end of the lease.
How much will he pay altogether?
Lease payment, including taxes: (1.05)($305.95) 5 $321.25
Cost of lease: $2500
AW12 1 (36 mo)($321.25/mo) 5 $14 065
Purchase price0176519637
after lease: (1.05)($17 500) 5 $18 375
Figure Number
C01-F12 -AW12.ai
Total cost: $14 065
1 $18 375 5MPS
$32 440
Company
Amaruq will payTechnical
$32 440 altogether.
Pass
1st pass
b) Suppose Amaruq
bought the car new without leasing.
Approved
How much would
he save?
Not Approved
(1.05)($28 199.00) 5 $29 608.95
$32 440 2 $29 608.95 5 $2831.05
Amaruq would save $2831.05.
NEL
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