Should you lease or finance your next vehicle? It’s one of the most common questions people ask when shopping for a new car, SUV, truck or minivan.
You may see a lower monthly payment with a lease and wonder if leasing is the better option. Or you may prefer financing because you want to eventually own the vehicle.
The truth is, there isn’t one option that’s best for everyone.
The right choice depends on how you drive, how long you want to keep your vehicle, how many kilometres you drive each year and what you want to do with the vehicle at the end of your agreement.
At CarHub, we help drivers across Toronto, North York, Thornhill, Vaughan, Markham, Brampton, Bolton, Caledon and the GTA understand their vehicle options so they can make an informed decision.
What Is the Difference Between Leasing and Financing?
The simplest way to understand the difference is:
Leasing = paying to use the vehicle for a specific period.
Financing = making payments toward owning the vehicle.
With a lease, you generally return the vehicle at the end of the lease, purchase it for the applicable buyout amount, or potentially enter into another lease, depending on the agreement. OMVIC describes leasing as similar to a long-term rental, where the lessee does not own the vehicle during the lease term.
With financing, you make payments toward purchasing the vehicle. Once the financing agreement is paid off, you own the vehicle, subject to the terms of the contract.
Leasing a Vehicle: How Does It Work?
When you lease a vehicle, your payments are generally based on the vehicle’s value over the lease term, along with applicable financing costs, fees and other contractual amounts.
Your lease agreement will specify important details such as:
- Lease term
- Payment amount and frequency
- APR
- Upfront payments
- Kilometre allowance
- Excess-kilometre charges
- End-of-lease obligations
- Residual or buyout value
Ontario consumers should carefully review these terms before signing. OMVIC notes that lease agreements can include kilometre limits and potential charges for excess kilometres or excessive wear and tear.
Why Do People Choose to Lease?
Leasing can make sense for drivers who:
- Like changing vehicles every few years
- Drive within the agreed kilometre allowance
- Want to drive a newer vehicle
- Prefer predictable payments
- Don’t necessarily want to own the vehicle at the end of the term
- Want the option to return the vehicle at lease maturity
A lease can also reduce exposure to the vehicle’s future resale value because you’re generally not taking ownership during the lease term.
Financing a Vehicle: How Does It Work?
When you finance a vehicle, you’re borrowing money to purchase it and making scheduled payments over an agreed term.
Your financing agreement will generally include:
- Vehicle price
- Down payment
- Interest rate/APR
- Loan term
- Payment amount
- Payment frequency
- Cost of borrowing
- Total amount payable
OMVIC recommends comparing the complete financing terms—not simply choosing the vehicle based on the lowest monthly payment.
Why Do People Choose to Finance?
Financing may make sense for drivers who:
- Want to own their vehicle
- Plan to keep the vehicle for many years
- Drive a high number of kilometres
- Don’t want lease kilometre restrictions
- Want to build equity in the vehicle
- Want the freedom to keep the vehicle after the loan is paid off
Once the financing is paid off, you can continue driving the vehicle without a monthly loan payment.
Lease vs Finance: Quick Comparison
| Feature | Lease | Finance |
|---|---|---|
| Ownership during agreement | No | Yes, subject to financing agreement |
| Ownership after agreement | Return, buy out or other available option | Vehicle is paid off and owned |
| Monthly payment | Can be lower depending on the vehicle and terms | Can be higher depending on price, rate and term |
| Kilometre limits | Usually applies | No lease kilometre limit |
| End of term | Return, purchase or other option | Continue owning the vehicle |
| Vehicle resale value risk | Generally less direct exposure | Owner assumes resale-value risk |
| Long-term ownership | Less suited to those wanting to keep the same vehicle | Often suited to long-term ownership |
| Changing vehicles frequently | Can be convenient | Usually requires selling/trading the vehicle |
Actual payments and costs vary based on the vehicle, credit approval, term, rate, down payment, incentives and agreement.
Which Is Better: Leasing or Financing?
Instead of asking “Which is better?”, ask:
“Which option fits the way I use my vehicle?”
Leasing May Make Sense If…
You enjoy driving a newer vehicle and typically replace your vehicle every few years.
For example, if you drive a predictable number of kilometres every year and don’t plan to keep the vehicle long-term, leasing could fit your driving habits.
You also need to be comfortable with the lease’s kilometre allowance and potential end-of-term charges.
Financing May Make Sense If…
You plan to keep your vehicle for a long time.
If you drive a lot, want to avoid lease kilometre restrictions or want to eventually own the vehicle outright, financing may better match your plans.
Once the loan is paid off, you can continue driving the vehicle without monthly financing payments.
What About Monthly Payments?
This is where many shoppers make a mistake.
A lower monthly payment doesn’t automatically mean a lower overall cost.
A lease may have a lower monthly payment because you’re generally paying for the use and depreciation of the vehicle over the lease term rather than financing the entire purchase price in the same way as a traditional purchase.
Financing can have a higher monthly payment depending on the amount financed, interest rate and term, but you’re working toward ownership.
OMVIC advises Ontario shoppers to consider the selling price, monthly payments and cost of borrowing together rather than focusing only on the monthly payment.
What Happens at the End of a Lease?
When your lease reaches maturity, your options depend on the agreement.
You may be able to:
Return the Vehicle
Return the vehicle according to the lease terms and potentially move into another vehicle.
Buy the Vehicle
You may have the option to purchase the vehicle for the specified buyout/residual amount, plus applicable costs.
Lease Another Vehicle
If you want to continue driving a newer vehicle, you may choose another lease agreement.
Before returning a leased vehicle, review the agreement carefully for kilometre limits, wear-and-tear requirements and other end-of-term obligations.
What Happens When You Finance?
With financing, your goal is ownership.
You make your scheduled payments until the financing is paid according to the agreement.
After the loan is paid off, you can continue driving the vehicle without a monthly loan payment.
You can also eventually sell or trade the vehicle, giving you more control over what happens to it.
However, financing also means that you take on the vehicle’s future resale-value risk.
How Many Kilometres Do You Drive?
This is one of the biggest questions to ask yourself.
