When you lease a vehicle, you are essentially renting it from the dealership or financing company for a set term — typically 24, 36, or 48 months. Your monthly payment covers the depreciation of the vehicle over the lease term, plus financing charges (the money factor, equivalent to an interest rate), plus taxes.
At the end of the lease, you return the vehicle. You do not own it. You may have the option to purchase it at a pre-agreed residual value, but you are not obligated to. You then lease or buy a new vehicle.
When you finance (buy) a vehicle, you borrow money from a lender — a bank, credit union, or the manufacturer's financial subsidiary — to purchase the car outright. You make monthly payments covering principal repayment plus interest. At the end of the term, the car is yours. You build equity with each payment.
Leasing almost always offers a lower monthly payment than financing the same vehicle, for the same term. This is because you are only paying for the depreciation portion of the vehicle's value rather than the entire purchase price.
Example: A 2025 vehicle with a $45,000 purchase price and a $28,000 residual value after 36 months has $17,000 of depreciation. A lease payment is based on that $17,000 (plus interest on the full amount). Financing a $45,000 vehicle over 36 months requires paying back $45,000 plus interest.
In Canada, typical monthly payment difference for a $45,000 vehicle in 2025: financing at 6% interest over 48 months might run $1,050/month; a comparable lease might run $650–$750/month.
Lower monthly payments do not mean lower total cost. When you lease, you have nothing to show for your payments at the end. If you then lease again, you face ongoing lease payments indefinitely. The total lifetime cost of perpetually leasing versus buying and keeping vehicles long-term generally favours buying for most drivers.
However, if you factor in the opportunity cost of capital, the cost of ownership of an older vehicle (maintenance, repairs), and the flexibility value of always driving a newer vehicle under warranty, the gap narrows considerably for some drivers.
Leasing is advantageous when:
Financing (buying) is advantageous when:
Manufacturer-sponsored financing promotions (0% for 72 months, for example) can make financing extremely attractive compared to leasing. Watch for these promotional rates — they effectively eliminate interest cost entirely. Manufacturer lease subvention (subsidized money factors) can similarly make leasing very attractive during promotional periods.
At the time of writing in 2025, with Bank of Canada rates having come down from 2022–2023 peaks, manufacturer-sponsored rates are more competitive again. Comparing the effective cost of both options with current rates is always worthwhile before committing.
Both leasing and financing will require comprehensive and collision coverage on your vehicle — your lender or lessor requires it to protect their asset. Insurance costs are the same regardless of whether you lease or finance a given vehicle. However, if you purchase an older, paid-off vehicle rather than leasing new, you may be able to drop collision/comprehensive, significantly reducing your insurance costs.
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