Thinking of Extending Your Car Lease in Canada? What You Need to Know

Your car lease is nearing its end, and you're not quite ready to part ways with your vehicle or jump into a new one. Maybe you're waiting for a new model to arrive, need a bit more time to save up, or simply love the car you're driving. Whatever the reason, a lease extension could be the perfect solution for you.

A lease extension is essentially an agreement with your leasing company to keep your current vehicle for a bit longer than originally planned. It offers flexibility, but like any financial decision, it comes with its own set of advantages and considerations.

Why Consider Extending Your Lease?

• Waiting for a New Vehicle: Supply chain issues or custom orders can mean long wait times for new cars. An extension keeps you mobile until your new ride is ready.
• Financial Flexibility: You might need more time to save for a down payment on your next vehicle or improve your credit score for better financing options. Extending your current lease can offer lower monthly payments compared to a new lease or purchase.
• Enjoying Your Current Car: If you love your vehicle and it's still serving you well, an extension allows you to continue driving it without the commitment of a full purchase.
• Market Conditions: With fluctuating used car prices and new car inventory challenges, an extension can buy you time to see if the market shifts in your favour.
• Testing the Waters: If you're considering buying out your lease but aren't 100% sure, an extension gives you more time to practise ownership before making the final decision.

How Does a Lease Extension Work in Canada?

The process for extending your lease in Canada is fairly straightforward, but it requires you to be proactive:

1. Contact Your Leasing Company: You'll typically want to reach out 3 to 6 months before your lease expiry date. This gives you ample time to discuss your options.
2. Review Your Account: The leasing company will review your payment history, current mileage, and the vehicle's condition.
3. Discuss Extension Options: They'll present you with different types of extensions:
   • Month-to-Month Extension: This is a common option, offering maximum flexibility. You continue making your regular (or slightly adjusted) monthly payments. It's great if you're unsure exactly when your next vehicle will arrive.
   • Fixed-Term Extension: Some lenders offer extensions for a specific period, such as 3, 6, or 12 months. These often come with new terms, which might be similar to your original lease or slightly modified.
4. New Agreement and Paperwork: Once you agree on the terms, you'll sign a new lease extension agreement outlining the new payment schedule, duration, and any revised conditions.

The Upside of Extending Your Lease

• Familiarity and Comfort: You know your vehicle, its quirks, and its maintenance history. No need to adapt to a new car.
• No Immediate Depreciation Hit: When you buy or lease a new car, a significant portion of its value can depreciate immediately. Extending avoids this initial drop.
• Potentially Lower Payments: Depending on the terms, your extension payments might be lower than those for a new lease or car loan, freeing up cash flow.
• Avoids Shopping Stress: Skip the dealership visits and paperwork for a new vehicle for a while longer.
• Flexibility: Month-to-month options, in particular, give you great flexibility to decide your next move without being locked into a long-term commitment.

The Downside to Lease Extensions

• No Equity Building: Just like with your original lease, you're still not building equity in the vehicle. You're essentially paying for its continued use and depreciation.
• Continued Depreciation: While you avoid the initial new car depreciation, you're still paying for the car's ongoing loss of value.
• Excess Mileage Charges: If you're already close to your original mileage limit, extending means you'll continue to accumulate kilometres, potentially leading to significant overage fees at turn-in.
• Wear and Tear: The longer you keep the car, the more likely it is to incur wear and tear beyond what's considered normal, which could lead to charges when you return it.
• May Cost More Long-Term: Depending on the terms, an extension might mean you pay more over time than if you had bought out the lease or opted for a new vehicle.

Before You Sign: Key Questions to Ask

Before committing to an extension, make sure you have all the facts. Ask your leasing company:

• What will my new monthly payment be? Will it change from my current payment?
• Are there any administrative fees or charges for the extension?
• Does my mileage allowance reset, or do I continue accumulating on the original limit?
• What happens to the residual value of the car if I extend and then decide to buy it out later?
• What are the terms regarding wear and tear during the extension period?
• Can I still buy the car out at any point during the extension, and at what price?
• Will my insurance costs change with an extension?

What Happens When the Extension Ends?

Once your lease extension period concludes, you'll generally have the same options as at the end of your original lease:

• Return the Vehicle: Hand the car back to the dealership. Be prepared for any excess mileage charges or fees for damage beyond normal wear and tear.
• Buy Out the Lease: If you've truly fallen in love with the car, you can purchase it for its residual value (plus any outstanding fees or taxes).
• Lease or Buy a New Vehicle: Use the time the extension bought you to secure your next car, whether that's a new lease or a purchase.

A lease extension can be a smart move, offering valuable breathing room and flexibility. Just ensure you understand all the terms and conditions so you can make the best financial decision for your unique situation here in Canada.