Car Leasing vs Car Financing: Which Is Right for You?
Posted on April 3, 2024
The choice between leasing and buying a car is a crucial decision influenced by various factors, each carrying its own set of advantages and drawbacks. Choosing the right path requires a thoughtful assessment of personal preferences and financial circumstances.
This blog post is here to help you understand the ins and outs of buying vs leasing a car as you explore your options in the world of getting a new car. We'll break down the differences between the two and provide insights to make the decision-making process easier.
Leasing vs Buying a Car Canada: Understanding the Differences
Leasing involves paying to drive a vehicle for a set time, typically 24 or 36 months, with mileage restrictions and potential fees for modifications. In the end, you can return the car or buy it at a predetermined price.
Buying a car means immediate ownership, either outright with cash or after financing. You have full control, deciding whether to keep, trade, sell, or gift the vehicle.
Difference Between Leasing and Financing a Vehicle
The main distinction lies in vehicle ownership – financing leads to ownership, while leasing does not. In a financing arrangement, each payment contributes to loan repayment, resulting in 100% equity after the payoff.
In Canada, car loan interest rates average around 8.19%, influenced by factors like new or used car purchase, credit score, and loan type. Buyers usually face 6.7% to 9% interest. For leases, interest rates (3% to 15%) hinge on credit score and income.
Pros And Cons of Leasing a Car
Considering leasing a car? Here are the advantages and drawbacks that can help you make an informed decision.
Pros of Leasing a Car
- Lower Monthly Costs: Leasing typically involves a smaller down payment, lower monthly costs, and access to luxurious vehicles.
- New Car Every Few Years: Leasing grants the joy of driving a brand-new car every few years, providing access to the latest advances in car technology.
- Worry-Free Maintenance: Many new cars come with a warranty lasting at least three years, potentially covering most repairs during a typical lease term.
- No Resale Worries: Returning the leased car eliminates resale concerns; you only need to address end-of-lease fees, if any, such as those for wear or excess mileage.
- Potential for Tax Deductions: Business use of a leased car may offer more tax deductions than a loan, allowing deductions for depreciation and financing costs.
- Drive During Trouble-Free Years: Leasing allows driving the car during its most trouble-free years.
- Late-Model Vehicle with Warranty: Leasing ensures you're always driving a late-model vehicle covered by the manufacturer’s new-car warranty.
- Inclusive Maintenance: Some leases may include free oil changes and scheduled maintenance.
- Access to Higher-Priced Vehicles: Leasing enables driving a higher-priced, better-equipped vehicle that might be affordable through buying.
- Latest Safety Features: Leased vehicles often come with the latest active safety features.
- No Trade-In Hassles: No concerns about trade-in value fluctuations or the hassle of selling the vehicle when it's time to move on.
- Tax Advantages for Business Owners: Business owners may enjoy significant tax advantages through leasing.
- Easy Return: At the lease end, simply drop off the car at the dealer.
Cons Of Leasing a Car
- No Ownership: Leasing comes with mileage restrictions, limiting your freedom to drive as much or as far as you'd like. Additionally, modifying the vehicle may result in fees, as changes need to be reversed at the end of the lease, adding potential costs.
- Lack of Control: Leasing doesn't allow you to sell or trade in the car to offset the cost of your next vehicle.
- Fees and Other Costs: Lease contracts often include fees for excess mileage, modifications, and wear and tear.
- Modifications: While you can freely modify or customize a vehicle you own, leased cars require the removal of aftermarket additions upon return.
- Ending the Agreement: Leasing limits your flexibility as breaking the lease before its term incurs termination fees due all at once.
- Returning the Vehicle: At the lease end, you'll face end-of-lease costs, whereas with financing, once the payments are completed, the vehicle is entirely yours.
In the long run, owning a car and using it for an extended period is more cost-effective than leasing one.
Pros And Cons of Buying a Car
Considering the purchase of a car? Understanding the advantages and drawbacks of buying a car can guide you in your car-buying journey.
Pros of Buying a Car
- No Restrictions: There are no obligations for mileage fees or wear and tear charges, providing flexibility in usage.
- Total Control: Once the purchase loan is settled, you have the freedom to keep, trade, sell, or gift the vehicle as you see fit.
- Potential for Tax Deductions: If the car serves both personal and business purposes, potential tax deductions are available for costs and depreciation related to business use.
- Long-Term Cost: Owning a car and retaining it for an extended period is generally more cost-effective in the long run.
Cons of Buying a Car
- Rapid Depreciation: New cars may depreciate by 15%–25% in the first five years, presenting a drawback if you view your car as an investment. Depreciation rates can vary significantly from one car to another. Check on the stats for the car you’re considering.
- Driving Costs: A 2022 AAA study revealed that the annual cost to drive a new car for approximately 25,000 km amounts to $10,728.
From exploring options to finalizing your purchase, CarHub is committed to making your car buying experience easy, enjoyable, and perfect for your needs.
Leasing vs Buying a Car: A Brief Comparison
Here are key distinctions between buying and leasing, which provide insight into the significant differences that can influence your decision when buying a car.
| Leasing | Buying | |
| Ownership | No ownership; pay to drive for a set period | Full ownership; drive for as long as desired |
| Financial Aspects | Lower or no down payment; monthly payments | Usually higher down payment; slightly higher monthly payments |
| Access to Luxury | Opportunity to get into a luxury car at a lower cost | Higher cost for more expensive cars |
| Technological Advances | Regular access to automotive advances with each new lease/car | Restricted to the car’s technology until a new purchase or self-initiated upgrades |
| End-of-Term Options | Options to turn in or buy the car when the lease concludes | Must arrange trade-in or find a buyer if you wish to sell |
| Mileage and Modifications | Restrictions on mileage allowed and car modifications | No mileage restrictions; freedom for modifications |
| End-of-Lease Costs | Various fees may increase costs at the end of the lease | No special fees at the end of ownership |
| Cost Predictability | All costs aren’t known until the lease ends | Costs are known and can be projected |
| Long-Term Cost | Higher cost over a long period and multiple leases | Lower cost when bought and kept |
What Are the Different Types of Car Leases?
In Ontario, car leases come in different types. The common choice is a closed-end lease, which allows vehicle return at term-end. Other options include:
1. Lease to Own vs Financing
Leasing to own means eventual ownership, but the dealership holds the title until fully paid, unlike immediate title transfer in financing.
2. Finance Lease vs Operating Lease
In a finance lease, ownership transfers to the lessee at the term end, while an operating lease retains ownership with the lessor throughout the term.
Key Takeaways:
- Car financing offers ownership benefits, while leasing provides flexibility to upgrade frequently.
- Leasing often involves lower initial costs, but long-term expenses may be higher compared to financing.
- Leasing restricts mileage and modifications, whereas financing allows freedom in these aspects.
Your Car, Your Choice – Need Assistance? Visit CarHub Today
In choosing between car leasing and car financing, the decision depends on individual preferences, financial circumstances, and long-term goals. Whether drawn to the flexibility of leasing or the enduring ownership associated with financing, you must weigh the advantages and drawbacks discussed in this blog.
At CarHub, we understand the significance of this decision, and as your trusted partner in automotive, we are here to help you and provide expert guidance. Contact us now.