“Once you’ve determined that it is either not desirable or not possible to pay for the entire cost of the vehicle upfront — which will always be your cheapest option — you must decide whether to finance or lease,” says Denis Dummer, Public Affairs Officer for Industry Canada. “Both of these options have inherent advantages and disadvantages.”

The ins and outs of leasing

“Leases are contracts in which you make a fixed number of payments during the specified term of the lease and then you return the vehicle to the company when the lease is over,” explains Mr. Dummer. Some leases give you the option to purchase the car when the lease expires. There are several advantages of going this route.

  • Lower payments. “Expect to pay a lower monthly payment when you lease, compared with what you would pay on a loan for the same vehicle.”
  • Lower taxes. “You pay tax only on the monthly payment rather than upfront for the full price of the vehicle.”
  • More options. “You have the option either to return the vehicle at the end of the lease, to buy the vehicle if your lease has a purchase option or to let the leasing company sell it.”
  • Worry-free warranty. Leasing your car means you have “the added comfort of knowing that your vehicle is under warranty for all or nearly all of the ownership period.”
  • More change in your pocket. Our expert says that by leasing, you avoid tying up your money in a vehicle.
  • Greater flexibility. Leasing, explains Mr. Dummer, gives drivers the opportunity to drive a new vehicle more often.

Buying power

Buying, on the other hand, has its own advantages — especially if you drive a lot. According to Denis Dummer, purchasing your vehicle through financing provides the following benefits:

  • Lower costs with time. “With financing, the carrying cost is lower than if you keep your vehicle on lease for a long period of time,” he explains.
  • Lower taxes when buying. Taxes, he says, are lower on a loan than if you buy the vehicle at the end of a lease.
  • No mileage limit. Unlike a lease, loans have no mileage limit and you are not restricted to a fixed number of kilometres per year. “Most leases,” on the other hand, “have a mileage limit of between 18,000 and 25,000 kilometres per year. If you drive more than the stated amount, there is a penalty. Usually that penalty is 10 cents per kilometre but check your lease to make sure.”
  • Freedom to modify. “You have more freedom in terms of servicing and making modifications to the vehicle.”
  • Equity build-up. Buying means that you build equity in a vehicle — not so when leasing.

Three key questions to ask yourself

Still unsure? You’re not alone. Denis Dummer suggests you ask yourself the following three questions to help with your decision:

  1. Can I afford to pay cash or carry the monthly payments of a loan?
    “If the answer is no, then leasing may be an option,” he says. “But remember, paying cash or short-term borrowing is always cheaper than leasing.”
  2. Do I typically keep my vehicle for more than five years?
    If you do, then take a pass on leasing unless you simply cannot afford the monthly loan payment.
  3. Do I drive a lot?
    “Most consumers in Canada drive 20,000 to 25,000 kilometres per year,” he explains. “If you drive a lot more than this, then leasing can get quite expensive because of the excess kilometre charge.”

Do the math — the easy way

The buying versus leasing dilemma can be a complex one — especially when crunching numbers. Industry Canada’s Buy or Lease Calculator — created especially for consumers, not businesses — will let you know which option makes more sense for you.