What is \u201cresidual value\u201d?<\/h5>
Residual value is another term for the remaining value of an asset after it has depreciated over a period of time. In addition to how much and how hard you drive, your vehicle\u2019s residual value will depend on its make and model as well as the state of the market when the lease period is up.<\/p><\/div><\/article> Say you lease a new car at $25,000 and your lease payments are structured assuming the car will depreciate by $10,000 by the end of the lease term, leaving a value of $15,000. If the car ends up depreciating by $12,000 by the end of your lease and is then worth $13,000, you\u2019ll have to pay $2,000 to cover the unanticipated depreciation.<\/p> Alternatively, if the car only depreciates by $8,000 and is worth $17,000 when the lease is up, your leasing company will then have to pay you $2,000. This payment acts as a \u201crefund\u201d of sorts to make up for the higher lease payments you agreed to make when it was believed that the car would lose more value than it actually did.<\/p><\/div><\/article> Closed-ended leases are more popular for non-commercial vehicles in Canada, but may also work well for your business. These come with a set of business car lease requirements, such as fixed monthly payments, fixed terms and mileage restrictions. And unlike an open-ended lease agreement, you won\u2019t bear the cost of depreciation because closed-ended leases are based on mileage and not the car\u2019s residual value. But since there is a mileage limit, you\u2019ll have to pay extra if you go over. The rate is usually set anywhere between $0.08 and $0.20 per kilometre, but you could pay more or less depending on your contract.<\/p> If you\u2019re only planning on using your corporate vehicle semi-regularly, then a closed-ended lease could be ideal. However, businesses that intend to use their vehicles regularly may not get the best deal out of this type of contract because they\u2019re likely to need more leeway in the lease agreement for vehicle depreciation and wear and tear.<\/p> It depends on your situation. Generally, business car leasing might be best if you plan on getting a new car in a few years. Buying might be a better choice if you want to modify your business vehicles or if you want full ownership of your fleet. The table below summarizes the differences between buying and leasing a vehicle.<\/p> If you decide that buying a vehicle is the better option for your business, check out the car financing options in the table below.<\/p>How does an open-ended lease work?<\/h5>
Closed-ended business car lease<\/h4>
Is it better to buy or lease a car for business in Canada?<\/h3>
<\/th> Buying a car<\/th> Leasing a car<\/th><\/tr><\/thead> Who owns the car?<\/strong><\/td> When you buy a car, you (or your business) own it \u2014 your lender only has a lien against the vehicle should you fail to repay.<\/td> The dealership. A lease is more like an extended rental period; once the period is over, the car is returned.<\/td><\/tr> What are the upfront costs?<\/strong><\/td> Usually a down payment of 10%-20% of the car\u2019s value as well as provincial\/territorial registration costs, fees and taxes.<\/td> It may include a down payment, a security deposit, an acquisition fee, the first month\u2019s payment and other taxes and fees.<\/td><\/tr> How large are the payments?<\/strong><\/td> With a car loan, you pay back both interest and principal. A shorter loan term makes your payments higher, but a longer loan term increases means you\u2019ll pay more in interest.<\/td> Since you aren\u2019t paying for the car itself, your payments will be smaller unless you lease a more expensive car. Lenders charge interest as well as fees for vehicle depreciation and mileage, should you go over your yearly limit.<\/td><\/tr> Do you need to worry about maintenance?<\/strong><\/td> Yes. By conducting regular maintenance and avoiding excessive wear and tear, you can keep your car functioning for years to come. You can also improve its trade-in value if you want to buy a new vehicle.<\/td> Yes. Beyond regular maintenance, you\u2019ll need to pay for any excessive wear and tear that happens to the car during the lease period.<\/td><\/tr> Are there mileage limits?<\/strong><\/td> No. Since you own the car, you can drive it as much or as little as you want.<\/td> Yes. Most lease contracts limit you to a certain amount, usually around 25,000 kilometres. If you go over this, you\u2019ll have to pay a charge per kilometre.<\/td><\/tr> Can you end the contract early?<\/strong><\/td> Yes, but your lender might charge prepayment penalties<\/a> to make up for the interest it won\u2019t get from your continued repayments. Not all lenders charge this fee.<\/td> Yes, but there will likely be high fees and charges attached to ending your contract ahead of schedule.<\/td><\/tr> What happens at the end of the loan term?<\/strong><\/td> You\u2019ll own your car, free and clear. You can sell it or keep it, whichever you choose.<\/td> If you have an open-ended lease, you must purchase the car. If you opted for a closed-ended lease, you can walk away from the term and either buy or lease a different vehicle.<\/td><\/tr><\/tbody><\/table> Leasing not for you? Compare business vehicle financing options in Canada<\/h3>