Should You Lease or Finance a Car in Canada?

A lease is like a long-term rental. You pay to use the car for a set time and then give it back. You can also buy it at the end if you want.

A car loan is how you finance a car. You borrow the money and pay it back with interest. When the last payment is made the car is yours to keep or sell.

Both start from the same price for the car. The dealer works out your payment from that number. So the price you agree on matters more than the payment you see.

The real choice is this. Do you want a lower payment now or a car you own later?

A lease costs less per month. The Financial Consumer Agency of Canada says lease payments are lower than loan payments with the same term. It also warns that you may pay more in total than if you bought the car.

A loan costs more per month. Once it ends you drive with no payment at all. The longer you keep the car the more that pays off.

Watch the length of the loan. FCAC says a long loan raises the total cost of the car. It also raises the risk that you owe more than the car is worth.

Every lease has a kilometre limit for the whole term. Quebec's consumer office gives the example of 80,000 km over a 48-month lease. Go past the limit and you pay a set charge for each extra kilometre.

The rate per kilometre is in your lease contract. Ford Canada says those extra kilometres are billed to you when you return the car. Read that line before you sign.

Wear and tear counts too. FCAC lists fees for too much wear as a cost to plan for.

It also warns that breaking a lease early can cost a lot. A loan has none of these limits.

A lease can suit you if you drive about the same amount each year. It also fits if you want a new car every few years and like a lower payment.

A loan can suit you if you drive a lot or keep cars for a long time. It also fits if you plan to add parts to the car. You never have to think about a kilometre limit.

Not sure whether to lease or finance? Run both options through the FCAC lease or loan calculator.

Use the same price and the same term for each one. The numbers will show you the gap in a few minutes.

Settle the price of the car first. Whether you lease or finance the payment starts from that number. Every $1,000 you take off the price lowers your payment either way.

Then compare the rate. Carmakers often post special lease and finance rates on new models. Ask for the rate in writing and check it against your bank.

Ask for the total cost too. The monthly payment can hide a longer term or extra fees. A car broker can run both options for you and bring you real offers to compare.