To Lease or Not to Lease a Car

Posted on April 19, 2021

If you need a new car, the first question you might ask yourself is whether you should lease a car or buy one instead.

Leasing comes with pros and cons, but in the last year, it's been an increasingly popular option over buying. Does that mean it's the right choice for you? What's the difference between leasing vs. buying? 

Let's break down everything you need to know about leasing a car, including costs, maintenance, credit, insurance, and more. At the end of this guide, you should be able to decide if you want to lease vs finance your next vehicle. 

To Lease or Not to Lease a Car

Is it a good idea to lease a car? Everyone's situation is different; however, with so many people strapped for money due to the pandemic, leasing has become a more popular and accessible option. 

You can lease a car with a very small down payment, or no money down at all, and you aren't locked into a long commitment.

Interest rates on loans are currently lower than they've been in almost a decade, so monthly payments are more manageable right now. 

But there are some downsides. Even though it may feel like your car, you don't own it. That means you can't claim it as an asset. Since it isn't really yours, you also can't make any major modifications to it. 

Some lease agreements come with hefty penalties too. For instance, you may have a kilometer limit you always need to be aware of.  Racking up mileage in excess of that limit will result in overage charges.

But what everyone really wants to know about is if leasing a car is a waste of money. It depends on how you look at it and the details of your specific situation.

However, it's possible that leasing can be more expensive than buying a new car would be in the long run. In the end, you have put a lot of money into paying for a car that you do not own. 

Leasing a car has become more popular all over Canada, but especially in Toronto. The rapid pace of downtown life steers city-dwellers away from making long-term commitments, so leasing is an appealing option.

Most short-term leases in Toronto are for two years, but there's always a rare chance that you could find a one-year contract. 

Another perk of leasing a car in Toronto is that Ontario doesn't have a required minimum credit score to be able to lease. The average credit score in Canada is 600, which is just fair. 

If you have bad credit it may be hard to get approved for a loan to buy a car, but you could still get approved to lease. 

Couple with a car lease image

Leasing vs Buying

Let's look at a few ways to get the best deals when you lease vs buying a car and the requirement for both options. The first thing to think about is timing. 

The best month to lease a car is December because dealerships have year-end goals that they want to hit. That means they'll offer more incentives than any other time of year, so you can walk away with a great deal. On top of that, there are usually great holiday promos going on too. 

For the most part, there isn't a bad time of year to lease a car. 

If you're buying a car, the best month to do it in is August. Dealerships are wanting to push out older models for newer ones during this time, so you can get a good deal on most mainstream models. 

You should never buy a new car in the fall because that's when dealerships get new inventory and prices are at their highest. 

Requirements for Leasing vs Buying

To lease a car, you need a valid driver's license, decent credit, proof of income, and insurance. You may also be required to purchase gap insurance.

To buy a car, you also need a driver's license and insurance policy, as well as a higher credit score and vehicle registration.

What are the Advantages of Leasing a Car?

car buying image

When you lease, you also aren't locked into a long contract. Typical lease contracts are for two or three years, and they can be transferred to another person if you need to get out of the contract before the end date.

You can also find great manufacturing incentives to lease a car, especially since the market is down right now. You may be able to score a lower amount due at signing, monthly payment, or shorter contract length if you lease before the economy bounces back. 

Leasing is also a good way to determine if a car is right for you long-term. At the end of your contract, you will have the option to buy your car. If you do, you could keep it and continue making monthly payments, or you could sell it and potentially make money.

Finally, leasing a car protects you from depreciation, which isn't a luxury you get when you own a car. 

While there are plenty of advantages to leasing, before you do it you should know that it may cost more than buying in the long run. 

What Are the Advantages of Buying a Car?

Couple with a Car Buy Image

The main advantage of buying is that you own the car and it's a powerful asset.  If you took out a loan to purchase a vehicle, paying it down will improve your credit score.

When you buy a car, there are no rules, and the only person responsible for the wear-and-tear is you. You also don't have a limit on mileage.

You can also find great deals when you're buying a car, especially if you buy a used car that's a couple of years old. However, before you buy a car you should keep in mind that it is a long-term investment. You should be prepared to pay larger monthly payments and maintenance costs for at least ten years.

Is Maintenance More Affordable on a Leased or Bought Car?

People doing Car Maintenance Image

Some lease agreements have rules about where you can get car repairs and maintenance done, and you may need to pay for premium parts, depending on the make and model of course, to keep it in tip-top for shape when you return it. 

When you own a car, you get to make all of those decisions, so you can find ways to cut costs on maintenance and shop around for good deals. You also won't stress as much about every little ding or scratch. 

However, one upside to leasing in terms of maintenance is that you get to drive the car in the prime of its life. The longer you drive a car, the more it loses value and the more mechanical issues you have to deal with. 

When you lease a new car for just two or three years, chances are you won't drive it long enough for it to have significant issues. 

How Many Kilometres Can I put on a Leased Car?

According to Leasecost, the average kilometer allowance in Canada is 20,000 per year. However, you can find some lease agreements that are much lower or higher than that.

The reason is that there are fewer restrictions and caps on what you can deduct when you lease. 

Which is Better for Taxes Leased or Bought Car?

You may be able to write off some of your vehicle expenses for your business. According to RLB Chartered Professional Accountants, you can write off more when you lease a car vs when you buy one. 

However, keep in mind that other expenses may still make leasing more expensive, and the tax difference may not be enough to outweigh them. 

Which is Better for My Credit - Leasing or Financing?

Leasing a car can help you repair your credit. When you lease, the entire value of the car doesn't show up on your credit report like it does when you buy. 

Your credit score will also improve when your lease ends since a completed contract is a powerful asset. The same thing happens when you buy a car; however, it can happen faster with a lease since the contract is shorter. If you need to boost your credit sooner rather than later, leasing might be the right choice for you.

What Kind of Credit Do You Need to Lease a Car?

A strong credit score is more favorable for getting approved for a lease. However, there are ways to get approved with average or low credit as well.

Buying a car can initially cause a drop in your credit, but it will improve as you make timely payments. 

What Kind of Credit Do You Need to Buy a Car?

Your credit score should be at least 450 to buy a car, but a stronger one is better. If your score is at least 700 you will get a good interest rate. If it's below 450 you will have a hard time getting approved for a loan. 

Is Insurance Cheaper on a Leased or Financed Car?

Your insurance rate is not affected by whether you lease or buy a car. Instead, your rate is determined by your driving history, your age, where you live, and the type of car you drive.

Should You Lease a Car?

Only you can decide if leasing a car is right for you, but hopefully, this guide made your decision clearer. The good news is that if you do choose to lease a car, now is a great time to do it. 

Whether you lease or buy, you need top-tier auto insurance. Click here to get the best insurance quotes and offers in Canada. 

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