What if renting had become a trap | JDM

Never before have we seen so many luxury vehicles on our roads. Audi, BMW, Lexus, Mercedes-Benz, not to mention those full-size pickup trucks whose bills can approach $100,000.

Could it be because people are wealthier? Or, because they manage their finances better? Of course not. On the contrary, people have never been so indebted, with Canadian households posting a debt ratio of around 170% of their annual income...

This means that the average motorist is more than ever buying a vehicle that is more expensive than their means allow. Needless to say, car manufacturers and financial institutions are facilitating access to these vehicles, which were once reserved only for the elite. Because there was a time when you had to be really rich to drive a Mercedes-Benz. However, the “ease of debt” is now such that you can easily get a $50,000 car as a second chance at credit.

Rent to access luxury

That said, access to more expensive vehicles is overwhelmingly through rental. Thus, rather than buying a Toyota RAV4 over four years, which would cost around $850 per month, we prefer to lease a well-equipped Mercedes-Benz GLC300 4Matic, with a suggested retail price that is $25,000 higher, for a similar monthly payment. For some, a thoughtful choice insofar as one chooses knowingly to afford luxury. However, you will have understood that it is not the same for everyone.

Of course, this also applies to those on a tighter budget. To people who would normally be able to afford a Honda Civic but prefer to lease a CR-V. As far as I'm concerned, a trap that mainly benefits the industry, which ironically loses maintenance revenue at the expense of more new vehicle sales.

For some, it is true that renting can be advantageous. From a tax point of view, where if the landlord strictly respects the terms of a contract that does not extend over more than three years... four by forcing.

For example, a vehicle with a good resale value and rented at an attractive rate over a reasonable term can be interesting, insofar as you will drive at the limit of the mileage allocated to you. A less and less common situation since the pandemic has forced people for a year to move from their living room to their kitchen instead of from home to the office. Thus, you could have rented a car in 2019 allocating you 20,000 km per year, and only use half of this mileage. A gift of several thousand dollars that you will make to the landlord by returning the keys at the end of the term, as for countless motorists.

Of course, you must also consider that at the end of your rental, a rigorous inspection of your car will be made in order to find some defects for which you will have to pay. Scratches, damaged rims, tire wear, glass breakage, lack of maintenance. Everything to charge you, but probably to a lesser extent if you choose to rent a vehicle from this dealership again.

To avoid this problem, you can however be sold at the start of the lease an “end of lease protection” guarantee, which would cover the anomalies that would be denoted at the time of the delivery of the vehicle. A guarantee whose price is at least around $1,000, an amount that would be added to your monthly payment. A little $25 or $30 a month is worth it, right?

Leasing also brings its share of uncertainties, insofar as you are sometimes very strongly encouraged to carry out maintenance at the dealership. A maintenance that we will have you do, and that we could even sell to you for the full term of the lease, in order to ensure the condition of the vehicle upon its return. Naturally, the dealer who will then resell the vehicle in his used department will not have to do this maintenance to get a better price. You will have done it for him!

Too long terms

That said, the pitfall of leasing is unfortunately in the scope of the terms. Rentals of up to 60 months, sometimes even longer. Nonsense, since the monthly difference between a term of 4 or 5 years is sometimes only a few tens of dollars.

For a Nissan Rogue SV, we are talking about a difference of barely $35 per month, to stretch a lease over an additional year. A year when the vehicle is no longer covered by the warranty, and when it will certainly be necessary to replace the brakes, the tires and any other normal wear part. All this to “save” $35 a month. Do you sincerely think that the landlord can win out of such a situation? Obviously not.

However, five-year leases are common. At Honda, Nissan and Toyota, in particular. A trap to be avoided at all costs. You will be convinced to opt for this option on the pretext that you can replace your vehicle free of charge after only three or four years. But be careful, if we do this, it means that we are playing with the numbers, without your knowledge, often transferring part of the vehicle's debt to the new one, without you even noticing.

Today, around 45% of new vehicle buyers choose to lease. A ratio that is clearly too high compared to the real needs of Canadian motorists, especially in the current context. So, before renting your vehicle, ask yourself a few questions. If you had to finance the vehicle (maximum for a term of six years), would you have the means? What mileage do you plan to do? Is the purpose of leasing only to give you access to a more expensive vehicle? Does the vehicle you intend to lease have a good resale value (significant residual value to promote the lease payment)? Is the lease rate higher than the finance rate?

These few questions will make you think and could encourage you to opt for traditional financing, where you will have the right time and where it is more difficult to be trapped. Because, although a lessor only has to pay about 50% of the value of the vehicle over four years, the latter is entirely responsible for it. Until the keys are handed over...