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 – in Canada 25,000 km/year is common. And if you exceed that, say for a summer road trip, or a longer commute to a new job, you’ll pay a penalty when your lease is up. So if you do a lot of driving you may prefer to buy a vehicle instead of leasing one.

#2. Am I A Small Business Owner Who Wants to Lease an Expensive Vehicle?

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

For example, currently the CRA limit on the allowable vehicle purchase depreciation deduction is $30,000. The maximum allowable deduction for car loans is $300 per month, while the limit on deducting vehicle lease payments is $800 per month.

#3. Is a Low Monthly Payment the Most Important Thing to Me?

Interest rates for both leasing and for financing a vehicle purchase are low. However 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 to get into a vehicle at the lowest monthly rate possible, and 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 you have dogs, kids, or other regular reasons for driving vehicles that take a beating inside or out, (like living on a gravel road) leasing may not be a good option as you could face costly damage repair bills when you return your leased vehicle at the end of the term. These may come into play for stone chips, scratches, burns, upholstery tears, and even dents.

#5. Do I Mind Driving an Older Vehicle?

If you’re the kind of driver that’s more comfortable depending on a newer car, leasing may be the best option for you. After all, 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 that accompany owning an older vehicle.

Some drivers prefer to purchase a new vehicle outright because they believe the maintenance and repair costs of an aging vehicle are a small price to pay for avoiding the perpetual financial burden of a monthly lease. They’re ready to maintain and care for their vehicle meticulously, and don’t mind driving the same vehicle for 10 plus years, long after paying off a car loan – if they even needed one in the first place. Financial experts often suggest buying a car that’s just a couple of years old, as it’s still relatively new yet has depreciated in value 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.