The pros and cons of leasing versus financing your next car

OTTAWA – The shiny chrome and new car smell can be tempting lures for anyone who needs to replace their car.


But if people don’t have the money to buy one with cash and they still have their heart set on a brand new set of wheels, they’re faced with the decision to finance or lease the new ride.

The choice between the two will depend much on how much the customer drives, how long they expect to keep the car and their own priorities.


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Josh Bailey, vice-president of research for Canadian Black Book, says how much someone drives is key because leases come with kilometre-limits before extra charges kick in.

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“It is always good to really be honest as well with yourself and say how much are we driving,” he said.

“In reality, most people aren’t able to cut back because they still have to go to three hockey practices a week and five ballet classes and those kinds of things.”

As automakers show up their latest offerings at the Canadian International Autoshow in Toronto this week, the desire for a new car may be strong.

Canadians bought a record number of new cars and trucks last year as they drove away with nearly 1.9 million vehicles.

When leasing a car, customers are agreeing to make regular payments for a set period of time, often three or four years. At the end, they return the car to the dealer and walk away.

Compared with financing the purchase of a new car, it will likely mean lower monthly payments for the same vehicle. A smaller or no down payment is also possible.

But leasing carries plenty of conditions.

In addition to the mileage limit, drivers may also be dinged for damage when the lease is up and they have to return it to the dealer. A lease agreement will generally allow for normal wear and tear, but customers may face a steep bill if the damage is more than that.

Amy Orfanakos of CAA North and East Ontario says the decision between buying and leasing is a personal choice driven by circumstances.

She chose to finance even though others in her family have gone with the lease option.

Having the cash to make a down payment to lower her monthly payments and the prospect of owning the car once the loan is paid off were key for her.

“That was for me why I did it,” she said.

However, even if the car is paid for, there are still regular maintenance and repair costs. And as the car gets older, those bills can add up.

So if driving a newer car is something that is important, leasing may be the option.

For Bailey, the lure of a new car is strong, and that’s why he leases.

“If you’re perpetually paying for a car, it is probably better to pay for the 40 per cent or 50 per cent of the car that you’re going to be using in terms of how they calculate a lease, rather than paying for 100 per cent of the car,” he said.

“If you’re more inclined to buy the car and drive it until the last bit of life is left in it, then probably leasing isn’t the right way to go.”