What Happens if a Leased Car Gets in a Collision?

With affordability being a major concern, many new car buyers opt to lease their vehicle rather than pay with cash or take out a conventional loan. Leasing offers many benefits, such as lower monthly payments and the luxury of driving a car that may be more expensive than you could afford to buy outright. Plus, with many Canadians now working from home, the typical mileage restrictions on a leased car may not be a factor for many shoppers. There’s also the predictability of payments and ownership costs with lease terms that match new car warranties, which has its appeal. 

However, life can be unpredictable, and the threat of getting into a traffic collision is real. Read on to find out what happens if a leased vehicle gets in a crash.

Check for Injuries and Call 911 Immediately

Regardless of whether your leased vehicle has been in a collision with another car, a cyclist, or a pedestrian, the first thing to do is check to see if anyone is hurt and call emergency services (911) if necessary. If possible and safe to do so, move the cars to a shoulder or away from live lanes.

With most drivers possessing smartphones with cameras, it’s a good idea to take some photos of the crash if you are not injured. This should include pictures of the scene, vehicle damage, and any relevant details, and will help your insurance company with your claim.

Report the Collision

First, if no one is injured, call the police. A police report will outline all the facts of the collision and is essential for resolving disputes, such as determining who was at fault. 

Next, contact your automotive insurance company or broker to report the collision. The contact information should be on the insurance policy slip, which is typically kept in the car with the vehicle’s ownership papers, usually in the car’s glove box. Even if you didn't cause the collision, it’s a mandatory requirement for most insurance policies. The quicker you contact your insurance company, the quicker you can start the process against the other driver and their insurance company if your vehicle needs any repairs.

Finally, reporting the crash to your car leasing company is crucial. Unlike if you own the car outright or have a car loan, the leasing company is the owner of the vehicle and needs to be informed, especially if the damage to the car ends up being a total write-off. This step is not to be overlooked, as it can significantly affect your lease agreement. 

What if the Leased Vehicle Can Be Repaired?

Depending on the extent of the damage to your vehicle, such as a small dent or some scratches on the exterior paint, you may be able to drive it to a repair shop. If it's unsafe to drive, your insurance company will need to arrange for a tow truck to be dispatched and have the vehicle transported to a facility on the company's network. 

Because you don't own a leased car and your monthly payments are based on the vehicle's residual value, the work must be up to the standard to return the car to its pre-collision condition. It is also important that the repair shop uses only original equipment manufacturer (OEM) parts, not less expensive aftermarket parts, to avoid violating the leased vehicle’s new car warranty requirements. This way, you won't be saddled with any unexpected financial penalties if the damaged vehicle is not in an acceptable condition at the end of the lease, which could significantly impact your finances. 

What if the Leased Vehicle Is Totalled?

Leased or not, when a car is deemed a "total" loss, the cost of repairs exceeds a reasonable percentage of the car's value, and the vehicle will be declared a total loss. The insurance company will then settle the claim directly with the leasing company.

If the cash settlement exceeds the amount you still owe on the lease, you might get a refund for the difference, but these situations are extremely rare. The payout will likely be less than what you owe, leaving you responsible for the shortfall. However, you will not have to pay the difference if your lease contract includes a "waiver of responsibility" or "guaranteed automotive protection" (GAP) coverage. This additional coverage bridges the difference between your car's value and the remaining balance on your loan or lease. Many lease agreements include GAP or offer it as an option.

What if You Don't Have Insurance for a Leased Car?

It is almost impossible to lease a vehicle without insurance in Canada. Nearly all leasing companies won't even let you sign an agreement and hand you the keys without proof that you have valid coverage.

If, however, you've lapsed in making payments on your insurance after taking on a lease and no longer have it when you get into a collision, you are driving illegally. You will be left to cover all the expenses out of pocket. This includes repairs or replacement of the other driver's vehicle, as well as any medical expenses or legal fees.

On the other hand, if the other driver caused the collision and you don't have insurance, the other driver's insurance company may cover the cost to repair or replace your leased car. Their insurance may also cover the cost of medical treatment for any physical injuries you suffered as well. However, because you were driving without insurance, you will likely be required to pay your leasing company for any repairs or replacement of your vehicle if it is a total loss. And if you're injured, you will be financially responsible for any of your resulting medical expenses or lost income.

In either of these scenarios, you still voided your lease contract by driving without insurance. In that case, your leasing company could repossess your vehicle and claim any remaining lease payments and balances due immediately.