16.3: Evaluating the Lease Decision Flashcards
According to Canada’s auto guru Dennis DesRosiers, what is the best option for most consumers when deciding between leasing and financing a new car?
Pay cash, because it’s the least expensive option.
What does Dennis DesRosiers say about consumers who cannot pay cash for a new car?
They should consider whether they are sensitive to monthly payments or the total end-of-use cost of the purchase.
What is the “voodoo of leasing” according to Dennis DesRosiers?
Leasing appears to be worry-free but is the highest cost of borrowing in the market place.
Why are monthly lease payments usually lower than loan payments, according to the textbook?
Because the consumer doesn’t own the vehicle and will have paid more in interest on a lease than on a loan.
What is the typical embedded interest in a lease compared to a loan, according to Dennis DesRosiers?
Typically about $100 a month higher than the interest on a loan.
What additional costs can accrue on a lease, according to the textbook?
Costs for returning the vehicle in good working order, with “normal wear and tear”.
What advice does Silvana Aceto of the Canadian Automobile Association give regarding leasing vs. buying a car?
Members should do the math and consider their personal circumstances.
According to the textbook, what are the characteristics of consumers who may prefer leasing?
Those who like to have a new car every two or three years and don’t worry about maintenance because the car is new.
What is Dennis DesRosiers’ one hard-and-fast rule about leasing?
Never get into an open-ended lease where the customer is responsible for the residual value.
What does the term “residual value” refer to in leasing?
The remaining value of the vehicle at the end of the lease term.
What is the conclusion regarding leasing a vehicle for Canadians, according to Dennis DesRosiers?
Leasing is a viable option for 15 to 20 percent of customers, but for the rest, they would be better off financially with a loan.
What should be considered when evaluating a lease vs. buy decision under current IFRS and CRA standards?
Compare the cash flows from leasing with the cash flows from buying to determine the better option, considering the expensing of interest and the tax treatment of leased assets.
