Lease or Finance? How to Decide What's Right for You
Understanding the differences between leasing and financing before choosing how to purchase your next vehicle.
What's the Basic Difference?
When you finance a vehicle, you are borrowing money to purchase it. You make payments over an agreed term, and once the loan is fully paid, you own the vehicle outright. With a lease, you are essentially paying for the use of the vehicle over a set period of time, subject to the terms of the lease. At the end of the lease, you typically have the option to return the vehicle, purchase it for the predetermined lease-end value, or move into another vehicle.
When Does Leasing Make Sense?
Leasing can be attractive if you: • Prefer driving a newer vehicle every few years • Like having a vehicle that is generally within its factory warranty period • Drive a relatively predictable number of kilometres each year • Don't necessarily care about owning the vehicle long-term • Value the flexibility of reassessing your vehicle needs every few years One of the biggest attractions of leasing is convenience. If you're someone who knows you'll probably want something different three or four years from now anyway, long-term ownership may not be your priority. But leasing also comes with conditions. Your lease will normally have an agreed kilometre allowance, and excess kilometres can result in additional charges. The condition of the vehicle when it's returned can also matter. That's why the monthly payment shouldn't be the only thing you look at when considering a lease.
When Does Financing Make Sense?
Financing may be more suitable if you: • Plan to keep the vehicle for many years • Want to own the vehicle outright • Drive a lot and don't want to worry about lease kilometre limits • Want the freedom to modify, sell or trade the vehicle when you choose • Like the idea of eventually having no monthly vehicle payment The important part is thinking beyond the financing term. If you finance a vehicle for several years but then keep it for several additional years after the loan is paid off, those payment-free years can be an important part of the overall ownership equation. If you constantly finance vehicles and trade them before they're paid off, the calculation can look very different.
Don't Make the Decision Based Only on the Monthly Payment
This is where many vehicle buyers can get distracted. A lower monthly payment doesn't automatically mean you're getting the better financial outcome. Payment amount can change depending on: • Term length • Interest rate • Down payment • Lease structure • Kilometre allowance • Vehicle price • Incentives • Trade-in value Two offers can have similar monthly payments while representing very different overall transactions. Before agreeing to anything, understand what you're actually paying for and how the deal is structured.
Think About Your Lifestyle, Not Just Today's Vehicle
Another question worth asking is: Where will you be three or four years from now? Your vehicle needs can change. Maybe your commute will be different. Maybe you'll need more space. Maybe you'll drive fewer kilometres. Maybe the sports car you want today won't make as much sense later — or maybe now is exactly the right time to own it. This is one reason leasing can appeal to people whose needs change regularly, while ownership can be attractive to someone whose vehicle requirements are relatively stable. There is no universally correct answer. The goal is to choose the structure that fits your life rather than forcing your life to fit the structure.
What About Your Trade-In?
If you currently own or finance a vehicle, your existing vehicle can also affect the decision. Before focusing entirely on the next payment, understand: • What your current vehicle is worth • How much you still owe, if anything • Whether you have positive or negative equity • How that equity is being applied to the next transaction A strong-looking payment on the next vehicle doesn't necessarily tell you whether your trade-in was valued properly. The entire transaction needs to be looked at together.
So, Should You Lease or Finance?
A simple way to think about it is this: If you like changing vehicles regularly, drive predictable kilometres and value convenience and flexibility, leasing may be worth considering. If you plan to keep your vehicle long-term, want unrestricted ownership and like the idea of eventually eliminating the payment, financing may make more sense. But don't make the decision based on one number. Look at the vehicle price, interest rate, term, kilometres, trade-in, incentives, total cost and your own plans. The best structure is the one that actually fits how you intend to use the vehicle.
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