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The Pros and Cons of Financing vs. Leasing a Car in Canada

The Pros and Cons of Financing vs. Leasing a Car in Canada

Introduction to Car Financing and Leasing

When it comes to getting a new car in Canada, you've got two main financial options: financing and leasing. Understanding the nuances of each can help you make a better decision for your lifestyle and budget.

What is Car Financing?

Car financing involves taking out a loan to purchase your next vehicle. You'll make payments towards the principal and interest.

What is Car Leasing?

Leasing a car is akin to renting it for a long-term period, usually 2-4 years. You pay a monthly fee to use the car but do not own it outright.

Pros of Financing a Car

Ownership and Equity

One of the biggest advantages of financing a car is that you own it once the loan is paid off. This ownership builds equity and the car becomes an asset.

Credit Score Improvement

Regularly paying off your car loan on time can positively impact your credit score, demonstrating to lenders that you are a reliable borrower.

Long-Term Cost Effectiveness

Although the initial payments can be high, over time, financing can be more cost-effective as you end with a vehicle you own.

Cons of Financing a Car

Higher Monthly Payments

Monthly payments can be higher when financing a car as compared to leasing, primarily because you are paying off the entire purchase price.

Depreciation Issues

Owned cars depreciate over time, and this loss in value is something to consider as a potential financial disadvantage.

Upfront Costs

Financing a car often requires a substantial down payment, which can be a barrier for some buyers.

Financing the Taxes

Sales taxes are rolled into the finance amount, in most of Canada including New Brunswick that means your paying interest on the HST, ouch!

Pros of Leasing a Car

Lower Monthly Payments

Generally, lease payments are lower than finance payments because you are not paying towards ownership.

Latest Models and Technologies

Leasing allows you to drive a new car every few years, which means you always have access to the latest models and tech.

Maintenance Advantages

Many lease agreements include maintenance plans, which can reduce your out-of-pocket costs for car upkeep.

Cons of Leasing a Car

No Ownership

The biggest downside to leasing is that you do not own the car after the lease terms are up—you have to return it.

Mileage Restrictions

Leased cars come with mileage caps. Exceeding these can lead to hefty penalties at the end of the lease term.

Wear and Tear Charges

You could be charged for any damage considered to be more than normal wear and tear, which can be a vague area leading to potential unexpected costs.

Comparing Financing and Leasing

Which is Better for You?

Deciding whether to finance or lease a car often comes down to personal preference, lifestyle needs, and financial circumstances.



Both car financing and leasing have their advantages and disadvantages, and your choice will depend on your individual needs and financial situation.

Final Thoughts

Think about what's most important to you in a vehicle and how much you're willing to spend, both upfront and monthly.

Categories: New Cars, Credit, Articles, Used Cars