4 Questions to Ask Yourself When Choosing Between Leasing or Buying a Car

Photo of a couple with a young daughter sitting at a desk receiving car keys from the dealer.
So you’re in the market for a new vehicle. Maybe you’ve seen some ads for monthly car lease payments far lower than the cost of financing – not to mention lower or “no down payment” options. But is leasing a vehicle really your best option? It’s a simple question, with a not-so-simple answer.

Whether you should lease a car or buy one really depends on your likes, your financial preferences, and your driving habits. Ask yourself these questions when trying to decide between leasing or buying your next vehicle.

1. How much driving will I do each year?

When you own a vehicle, no one’s watching how much you drive each year, or charging you extra for driving more than expected. Yet when you sign a lease agreement for a vehicle, you’re accepting the lease interest rate and payments based on keeping your mileage below a certain amount each year. If you exceed that amount, you’ll pay a penalty when your lease is up. If you do a lot of driving, you may prefer to buy a vehicle instead of leasing one.

2. Which option is best for my business?

Both vehicle purchase and vehicle lease payments are tax deductible for qualified small business owners. However, the lease payment deduction is only a better financial deal for vehicles worth more than about $40,000.

3. Is a low monthly payment the most important thing to me?

Interest rates for leasing and for financing a vehicle purchase are low. Monthly lease payments are much lower than loan payments because the payments only cover the amount the vehicle depreciates during your lease term. If you’re looking for the lowest monthly rate and you don’t care about building ownership/equity in a vehicle, then leasing may be your best option.

4. How much wear and tear do my vehicles usually get?

If your car takes a beating inside and out with dogs, kids or your gravel road, leasing may not be a good option. Stone chips, scratches, burns, upholstery damage, and dents could result in costly damage repair bills when you return your leased vehicle at the end of the term.

5. Do I mind driving an older vehicle?

If you prefer a newer car, leasing may be the best option for you. Every two to three years you’ll trade in your “old” leased vehicle and get the latest model. You don’t have to worry as much about the repairs and maintenance costs associated with owning an older vehicle.

Some drivers prefer to purchase a new vehicle because they believe the maintenance and repair costs are preferable to a monthly lease. They usually intend to drive it for several years, long after paying off their car loan.

Financial experts often suggest buying a car that’s a couple of years old - it’s still relatively new but its value has depreciated enough to make it more affordable.

It can be tough to choose between buying and leasing a vehicle. If you’re still struggling to decide, try the Government of Canada’s handy Vehicle Buy or Lease Calculator to compare the costs of financing and leasing your next vehicle.