Last Updated: January 18, 2012
Next to buying a home, a vehicle may be the most significant purchase you make. Preparation is a key that will help ensure continued enjoyment from your vehicle. Acting with knowledge and wisdom will reduce your exposure to many of the risks found in the marketplace.
There are a number of options to consider when purchasing a vehicle. People need to decide between buying new or buying used and between leasing or purchasing a vehicle. What you decide to do will depend on your own circumstances, but knowing your legal rights and responsibilities in each situation can help you make the decision that is best for you. No matter what type of vehicle you choose you will also inevitably face the need for repairs. Knowing about warranties and how to protect yourself when repairs are needed can help you deal with these situations economically and efficiently.
Sometimes people decide not to buy a vehicle for their use but to lease one instead. The difference between leasing and buying is that when you lease you are not purchasing the vehicle. This means that none of the money you pay on the lease goes towards buying the vehicle. So if you are not buying the vehicle what are you paying for? Essentially you are paying for the right to drive the vehicle.
So how do dealers and others determine what to charge someone to lease a vehicle? There are two parts to the lease payment. First you will pay for depreciation. This is the difference between what the vehicle is worth now and what it will be worth at the end of the lease. What the vehicle is estimated to be worth at the end of the lease is called the residual value.
The second part is a finance fee. It is interest that you pay the dealer for the use of their money over the term of the lease. You pay interest to the dealer because for the period of the lease the dealer does not have the use of the money that was used to purchase the vehicle.
Although lease payments often are made monthly, sometimes you can negotiate a single lump sum payment for the whole term of the lease. In either case, at the end of the term, you usually will have an option (but not an obligation) to buy the car at its residual value.
If you choose to lease a vehicle, it is especially important to be aware of all of the costs involved. Not all of them will be obvious in the ads that brought you into the dealership in the first place. For example, you may be required to come up with a large down payment in order to make your monthly lease payments as low as advertised. Also, you may be required to pay a security deposit and the first lease payment in advance. All applicable federal and provincial sales tax must also be paid.
Another possible unadvertised cost is a mileage charge for mileage over and above the mileage cap in your lease agreement. Because part of your lease payment will cover estimated depreciation on the vehicle, the dealer wants to make sure that you do not drive the vehicle more than a certain number of kilometres. If you do, the actual depreciation may be greater than estimated, and the dealer will charge you an extra mileage fee, based upon the number of kilometres by which you exceeded the cap.
Pros and Cons of Leasing
The biggest advantage of a lease is that the lease payments are less than the payments you would make on a loan to buy the same vehicle. This is because when you take out a loan to buy a car you will pay not just interest on the loan, but also monthly amounts to pay off the purchase price of the vehicle. The same thing that makes a lease an attractive option is also the downside of a lease. You are not buying the vehicle so you will not own the vehicle at the end of the lease. Another way a lease can save you money is that there may be income tax deductions that are available, although this is not always the case and depends upon your personal situation.
A lease may also offer greater certainty about the cost of vehicle maintenance because often the vehicle will be under warranty for the whole period of the lease. Even so, when you lease you still need to take care of your car. Many people mistakenly think that since they don't own the vehicle they do not have to take care of it. However leases almost always have a clause that requires you to return the vehicle in "good working order" and with only "normal wear and tear".
Ultimately your own situation will determine how advantageous leasing will be for you. You should consider...
- Can you afford to buy a vehicle with cash or by making monthly payments on a loan?
When you lease you are always paying interest as long as you drive the vehicle. When you buy a vehicle you only pay interest until you pay the vehicle off. Although the monthly payments for a lease are often less, buying is generally cheaper in the long run.
- Will I drive the vehicle for more than five years?
If you plan on doing this buying will be a better option unless you just cannot afford the higher monthly payments.
- Do I drive a lot?
The most common problem in leasing is excess mileage. Most leases have a mileage limit and if you exceed this your lease could cost considerably more, making it not such a good deal.
- Will I benefit from tax deductions?
If one reason you are leasing is because of income tax deductions you should make sure they are applicable in your particular situation and compare these to the tax benefits you could get if you took out a loan to buy the vehicle.
If you decide that leasing is your best option it is important to shop around and look for the best deal. This is especially true because lease agreements are very difficult to cancel. With a traditional purchase and new car loan, if you came into some extra money, you generally could pay off the balance owing on the loan with little or no penalty. Or, if you ran into some financial difficulty and couldn't make the payments, you would be able to sell the car and pay off the loan. A lease agreement may not give you these options.
Once you have decided to lease here are some things to do before you sign on the dotted line...
- Negotiate the price of the vehicle, just as you would if you were buying it outright. The lower the price, the lower your lease payments will be.
- Negotiate the interest rate. The lower the financing costs the lower your lease payments will be.
- If you think that you will exceed the mileage cap, you should negotiate the price for extra kilometres at the beginning of the lease. Quite often, a mileage charge negotiated at the beginning will be less than if you had waited until the end of the term.
- If you do not intend to buy the vehicle at the end of the lease, negotiate as high a residual value as possible. Again, this will help keep your monthly payments down.
- Watch out for what are called "open-ended" leases. These are where you guarantee the dealer a minimum residual value. This means that if the actual residual value turns out to be lower than what the dealer has estimated, you promise to pay the difference. This can be a major expense, and you should avoid any such promise. In a lease, you want to keep the option of simply returning the vehicle at the end of the term, with no further obligations.
- Read the lease agreement carefully, to make sure that you are aware of all of the costs that you are responsible for. In particular, find out what your obligations will be for maintenance and repairs.
- Make sure you get what is called a "full disclosure" lease. This means that the dealer has met the industry standards concerning the things that need to be spelled out in the lease. If your dealer does not offer this you should consider going elsewhere.
Buying a New Vehicle
When you decide to purchase a new vehicle you are making a significant investment. New vehicles generally come with a pretty high price tag and many people will also pay to finance the cost of the vehicle over a number of years. Determining whether or not it is a good investment for you often depends on taking the time to do the research and make an informed decision.
Pros and Cons of Buying
While many people find advantages in leasing vehicles, others prefer to purchase. The big difference is that when you buy a vehicle, even on credit, by the time you finish making payments you will own the vehicle. In addition, a loan-financed purchase may give you greater flexibility to deal with certain situations than a lease agreement. One example might be if you come into some extra money and want to pay off your financing agreement early. Another could be if you run into financial difficulties and cannot make your payments. With a loan, you can pay out your obligations early, likely without a penalty. If you have trouble making payments, you can arrange to sell the vehicle and pay off the loan.
However, there may be some drawbacks to a traditional purchase...
- there may be greater uncertainty than would be the case with a lease regarding maintenance and repair costs that are not covered by warranty
- your monthly payments likely will be higher than for a lease
- you may not have the same income tax deduction benefits as with a lease
- even though you will own your automobile, it will have a high rate of depreciation, causing a significant reduction in value during the first few years of ownership
If you decide to buy a new vehicle there are steps you can take to make sure you get a fair deal including...
- research the vehicle you are considering buying using the internet and consumer reports to get information about things like the frequency of repairs and safety records for particular models
- check with other consumers to see if they are satisfied with their new car choices and the service they are receiving from the dealer
- shop around for the best price for the vehicle
- read the newspapers to find incentive deals that are generally only available for a limited time
- if you are financing, shop around for the best rate - compare the rate you would get at your own bank with the rate a dealer is offering
- discuss each transaction separately starting with the value of your trade-in (if you have one), then the purchase price and finally the cost of financing
- read the fine print to make sure you understand all the costs including extras such as option packages, freight, pre-delivery inspection and add-on components such as rust protection
Buying a Used Vehicle
Buying a used vehicle may be a good option. The difference in price between a new and used vehicle can be significant even when the used vehicle is only a few years old, because new vehicles depreciate fairly quickly. Just like when purchasing a new vehicle, when looking for a used vehicle it is important to research the type of vehicle you want to buy and to comparison shop for the best deal.
There can be greater risk involved in buying a used vehicle because the condition of the different vehicles, even of the same make, model and year, can vary a lot. Low mileage is not necessarily a guarantee that a used vehicle is a good deal. The owner may not have driven the vehicle very much because they had trouble with it or the vehicle may have been driven so much that the odometer is back to zero. A vehicle can look really good because it has a fresh paint job but that may mean that the seller is hiding defects like rust. As well you may be on your own for repairs because their manufacturer's warranty may have expired and warranties in The Consumer Protection Act do not apply to private purchases of used vehicles.
An Ounce of Prevention
Once you have purchased a vehicle there is no right to return it and get your money back. It is important to make certain you want the vehicle and that you have your financing in place, if you need it. Also make sure to check for defects before you finalize the deal. In some cases you may be able to sue the seller for misleading you about the condition of the vehicle but this would require you to go to the trouble and expense of a lawsuit. Even if you are successful you would then have to collect from the seller.
Signing a contract that you are buying a vehicle "as is" means that you accept the current condition of the vehicle. This term is used by a seller as notice that there are no promises about the quality of the vehicle. The buyer must rely only on their own inspection to determine a vehicle's quality, and generally takes all of the risk for any defects. Courts may ignore the "as is" clause if the defects are serious enough and if it appears that the seller misled the buyer at the time of the sale but, as with other cases of a defective vehicle, you would have to be successful in court and then collect from the seller.
Checking Out Used Vehicles
If you decide to buy a used vehicle there are steps you can take to help ensure that the vehicle is worth the money you will be paying. With a used vehicle it is important to see what you are getting. Avoid buying online unless the sale is conditional on you having the opportunity to inspect the vehicle and have it checked out. Whether buying online or in person, it is important to take the time you need to check the vehicle out. A seller who has nothing to hide should not object to this and sales can be made subject to inspections if time is an issue.
To avoid buying a vehicle that requires costly repairs that make it not such a great deal you should...
- learn about the vehicle's history in Saskatchewan by conducting a Saskatchewan Damage Claims History Search (available free of charge through SGI's website at www.sgi.sk.ca)
- test drive the vehicle on smooth payment and rough roads at various speeds and open the hood, the trunk and all doors and windows to make sure they are in working order
- get a safety, structural and drivetrain inspection done by a trusted mechanic to find any hidden defects and to make sure the vehicle meets the minimum equipment and maintenance standards set out under Saskatchewan law
- ask the seller for copies of repair receipts to see how long the seller has owned the vehicle and what work has been done
- check with a dealer or the manufacturer to confirm that all recall notices have been completed
- if it is a newer vehicle check with a dealer or the manufacturer to determine if the warranty is still valid
Making the Purchase
Often when people are purchasing used vehicles they are purchasing them from private individuals. If things go wrong in these situations there is no dealership to go back to. There are precautions you can take to avoid potential trouble. To reduce the chances of trouble you should...
- view the vehicle at the seller's home address - be cautious if the seller seems too eager to bring the vehicle to you or make the deal in a different location - like a mall parking lot
- insist on seeing the current vehicle registration in the seller's name
- pay by certified cheque made out to only the registered owner
- pick up the vehicle in person - do not accept delivery on a private sale
- record and confirm the name, address and telephone number of the seller for future contact
- collect the "Transfer of Ownership" or "Vehicle Identification Certificate" attached to the seller's registration certificate and the bill of sale
- have the seller write the mileage on the bill of sale - if you suspect odometer tampering report it to the police
- check whether the vehicle is eligible for registration in Saskatchewan by requesting a Cross-Canada VIN Search of the vehicle by its vehicle registration number (available for a fee from SGI at www.sgi.sk.ca)
- check for liens by contacting the Information Services Corporation 1-866-275-4721 or through their website at www.isc.ca.
Total Loss Vehicles
Sometimes a vehicle has been damaged in an accident and cannot be repaired economically. It then is "written off" and referred to as a total loss vehicle. It is illegal to sell a total loss vehicle unless a certificate of temporary inspection has been issued for it. This is a record of the extent of damage to the vehicle. The penalty for selling such a vehicle without a certificate is a fine of up to $1000.
A vehicle that has been identified as a total loss vehicle in Saskatchewan or any other province cannot be registered unless it passes the necessary inspections. All total loss vehicles must pass a mechanical inspection. Total loss vehicles that have sustained damage that affects their structural integrity or have evidence of corrosion must also pass body integrity inspection.
However, by itself, this law will not protect the purchaser. If you find out after the sale that a vehicle is a total loss and it does not pass the inspections you will not be able to register the vehicle. Your only recourse at this point would be to sue and collect damages from the seller. This is why it is important to check a vehicle's history and find out if it can be registered in Saskatchewan before you buy it.
Out of Province Vehicles
The rules about "total loss" vehicles apply to vehicles that have been declared a "total loss" in another province. As well, any used vehicle that was not last registered in Saskatchewan must pass a mechanical fitness inspection before it can be registered. If you are buying an out-of-province used vehicle you will want to make sure it has passed this inspection before you purchase it so you will not be left with a vehicle that cannot be registered.
A lien is a claim that someone has against an item, such as a vehicle, as security for money that is owed. A lien could secure a loan or, in the case of a vehicle, payment for repairs done on the vehicle.
When buying a used vehicle, always check with the Information Services Corporation to see if there are any liens registered against it. When buying on credit, a loans manager will often check for you. But remember it still is your responsibility. If a loans manager forgets to check, you may suffer for it. Liens against a vehicle are always registered by serial number. Make sure the serial number is correct when checking on a lien or when someone else checks for you. A valid lien may allow the lien holder to seize the vehicle as payment of a claim against a previous owner.
If the lien has not been registered and you have no other notice of it, you will not have to worry about someone repossessing the vehicle because of a lien against a former owner. However, if the lien has been registered and you do not check the Registry, the vehicle could be repossessed. You cannot rely on a bill of sale that says "Clear of Liens". If a lien was registered against the vehicle before the sale, then the vehicle can be taken away from you, regardless of what your bill of sale says.
If the vehicle is seized by a valid lien holder, the only right that you have is to claim against the person you bought the vehicle from. But, that person may no longer be around, or may not have any money to make it worth your while to try to recover the purchase price.
A vehicle warranty is any promise that the vehicle or repair services will meet certain minimum standards of quality and performance. Become familiar with your rights under various warranties. Most consumer complaints come after the deal is made, and you may find that your warranty does not cover what you expected it would.
There are several types of warranties. The warranties you have will depend on the circumstances surrounding the purchase of your vehicle. New vehicles generally come with a manufacturer's warranty. Used vehicles may also have a manufacturer's warranty depending on whether there is still time left on the warranty that came with the purchase. The law also provides some basic warranties for new and used vehicles purchased from a dealer. Private sales of used vehicles are not covered by these types of warranties. As well, at the time of the sale of any new or used vehicle the seller may make statements about the vehicle that create a warranty.
Manufacturer's warranties are what the manufacturer has promised in writing that it will do to fix any defects or other problems with the vehicle. Often, they do not cover as much as you might expect. Always read and understand the warranty. Know what is covered and for how long. Consumers can be surprised and disappointed if they get a bill from the dealer for some things that were not covered "under warranty".
For example, if a part is defective, replacing it is considered a direct cost, and will be covered under the manufacturer's warranty during the warranty period. However, if your car has to be towed a few hundred miles, or if you suffer a personal injury as a result of the defect, it may be considered by the manufacturer to be an indirect result of the defective part. These expenses or losses are referred to as "consequential damages". Under their warranties, manufacturers generally say that they are responsible only for the direct expense of replacing the defective part. They often try to deny liability for consequential damages, even though those losses also arose because of the defective part.
A manufacturer usually guarantees only to repair defects. No matter how much of a lemon the car may be, they usually promise in their warranties only to repair, not replace the automobile.
Many warranties are full of legal jargon and may be difficult for anyone to understand. It is your right to have the warranty fully explained by the dealer before the purchase. By law written warranties must be clear and fair. They cannot be deceptively worded. They cannot make the seller the sole judge of whether you have a valid claim.
By law your written warranty must contain...
- the name and address of the seller or manufacturer who is giving the warranty
- what is covered/not covered
- how long the warranty is for
- what you need to do to maintain coverage under the warranty
- costs you need to pay to make a claim under the warranty
- procedure for making a claim
- location of repair facility
For an additional fee paid by the consumer, a dealer or manufacturer may offer extended benefits in addition to their standard warranty. This can mean either that the warranty is good for a longer period of time, or that a wider range of defects will be covered. This is called an extended warranty. If you can afford the extra fee, extended warranties can be of benefit. However, as with the manufacturer's standard warranty, you need to read the documents carefully, and be sure of what you are getting.
Always take your new vehicle back to the dealer for any warranty work. If the dealer is not prepared to fix the defect under the warranty, contact the manufacturer's area representative, if possible. If you and the dealer still cannot agree on what is to be done, get an independent examination done by another mechanic (for a price) and present the dealer with a written statement of what needs to be done. Write down any other complaints that you may have, and always keep a copy of these records for yourself.
It is important that you follow the manufacturer's conditions, such as getting regular service checks. If the warranty says these things must be done at a factory-authorized dealer, get them done there. Having routine maintenance done elsewhere may invalidate some of your warranty rights.
In addition to being covered by manufacturer's warranties, consumer purchases of new vehicles and used vehicles purchased from a dealer have the benefit of statutory warranties. Statutory warranties are set by law, and apply to consumer purchases. Consumer purchases are made from a retail seller and are meant for personal, family or household use.
Statutory warranties set out minimum standards of quality that you can expect. They do not depend upon the agreement of the manufacturer or seller to be binding. A manufacturer cannot even limit the time that statutory warranties apply. For example, a manufacturer's warranty may say that you can claim under it for only 12 months after the purchase. However, this will not limit the time that you have to claim for a breach of a statutory warranty.
Statutory warranties provide, among other things, that the vehicle sold to you by a dealer must..
- be of acceptable quality considering the price paid and whether you knew about the defect when it was purchased
- last for a reasonable period of time considering the price, the seller's description and how the vehicle has been used and maintained
If a vehicle does not meet the statutory standards the seller must have it repaired at their cost. If it cannot be repaired it must be replaced. If after a reasonable period of time a seller has not repaired the vehicle you can have it repaired elsewhere and recover the cost from the seller.
Any statement of fact (not a mere opinion or "sales puff") made by a salesperson is considered an express warranty. Get these express warranties in writing if you consider them important. If a problem comes up, you will need to prove exactly what was promised by the salesperson. If your vehicle does not live up to the promises made in the showroom or elsewhere, you may have a claim against the seller.
Many consumer complaints in Saskatchewan relate to car repairs...
"If a mechanic says I need some repairs, I believe him. If the bill is $200, I pay it. What else can I do?"
"I took my car to the garage. The mechanic said I needed a new transmission seal. I paid the bill. I went to another garage. The mechanic said that wasn't the problem. How was I to know?"
"Some of the lights in the dash didn't work. I left the car at a garage to get fixed. When I came back, they said they couldn't find a short in the wiring and there was no bulb burnt out. Fine, I'll go elsewhere. But the guy gives me a bill for 2 hours labour."
The best way to handle repair problems is to take a preventive approach. Look for a mechanic before you actually need one. This way you won't be rushed into making a hasty decision because you need emergency repairs. Shop around and ask for references from other customers. Find out if the mechanic is qualified to work on your brand of car and if they have other specialized training you may need.
Before you get the work done...
- get estimates for major work
- consider getting a second opinion for complicated or expensive repairs
- check the hourly rate for labour and how this is calculated (is there a minimum charge for labour regardless of the time spent?)
- do not sign blank order forms
- insist on a call before any work is done; when you sign a work order, give your phone number and write "No further work without telephone authorization"
- ask about the possibility of using remanufactured or salvaged parts to keep costs down
- request that old parts that have been replaced be returned to you
After you have work done...
- review the repair invoice and confirm that it corresponds to your request and estimate
- road test the vehicle to determine if the problem has been fixed
Disputes over Repairs
If you are not satisfied with a repair return your vehicle right away to the shop that did the work originally. Give them a reasonable opportunity to fix your car. Speak to the service manager and ask them to test drive the car so you can point out the problem.
Where appropriate, present your complaint in writing, and keep a copy for yourself. You may want to get an independent examination of the vehicle. If you still cannot resolve the problem, you will likely need to go to other agencies for help, for example the Consumer Protection Branch. They can be contacted toll-free at 1-877-880-5550 or through their website at www.justice.gov.sk.ca/cpb.
If you are not satisfied with the work simply refusing to pay the bill will not generally resolve the problem. If you do not pay the bill the mechanic may refuse to give you back your vehicle or may give you the vehicle back but then register a lien against your vehicle. Even If they give you the vehicle back they can register a lien within 15 days of returning it to you. If a mechanic has your vehicle or a lien against it they may eventually be able to sell your vehicle to pay the bill. You may need to seek legal advice if you are in this situation and you do not want to pay the bill (perhaps because of shoddy work).
In spite of your best efforts, it may not be possible for you to resolve a dispute with a dealer or mechanic. If you cannot get any satisfaction from the people you are dealing with, you may need to consider taking the issue to court. A lawyer's advice can be useful to help you decide if it is worth your while to go to court. You may also want to consider going to Small Claims Court. This court provides an easier and less expensive way to resolve legal disputes and often a lawyer's assistance is not required. For more information see PLEA's booklet Small Claims Court at plea.org.
The possibility of having to go to court is why it is important to keep accurate records of your agreement and communications. Unless you can accurately show a judge the evidence of what happened, you will have difficulty protecting your rights as a consumer. In consumer law, the difference between theory and fact is being able to prove your claim. Complete records will help you to prove your claim, whether to a dealer or to a judge.ISBN/ISSN number: 978-1-926545-53-0