Lease vs. Finance: What You Need To Know About Each Option

If you’re shopping for a new (or new-to-you) car, one of the first big questions you’ll face is: Should I lease or finance it? Both options involve monthly payments and give you access to a vehicle—but what you’re paying for, and what happens at the end, is completely different.

In this guide, we’ll break down leasing vs. financing in Canada so you can understand which one suits your lifestyle, driving habits, and long-term plans. Plus, we’ll explain how Clutch makes either option easier—whether you’re trading in a leased vehicle or financing a used one entirely online.

What Is Auto Financing?

Auto financing—also known as an auto loan—is one of the most common ways Canadians buy a car. Instead of paying the full amount upfront, you borrow money from a lender to purchase the vehicle and repay it over time with interest.

Once the loan is fully paid off, you own the car outright.

How It Works

• The lender gives you the funds to buy the car (or pays the dealership directly)
• You agree to repay this amount over a set term (usually 3–8 years)
• Your payments include interest, known as the annual percentage rate (APR)

Until the loan is paid off, the lender holds a lien on the vehicle. That means you can drive it and modify it, but the car isn’t fully yours until the last payment is made.

Factors That Affect Your Loan Terms

• Your credit score and borrowing history
• Whether the car is new or used
• The down payment you provide
• Your loan term (shorter terms usually have lower interest rates)
• The vehicle price and any added taxes or fees

In some cases, automakers may offer promotional 0% financing on new vehicles through their in-house lenders—but these deals are usually reserved for buyers with excellent credit.

What Is Leasing a Car?

Leasing a car is a bit like long-term renting. You agree to use the vehicle for a set period—typically 2 to 4 years—and make monthly payments based on the car’s expected depreciation over that time. At the end of the lease, you return the car, buy it out, or start a new lease.

Unlike financing, you don’t build equity or own the vehicle at the end of the term unless you choose to buy it out.

How Leasing Works

• You choose a lease term (usually 24–48 months)
• Your monthly payment is based on how much value the vehicle is expected to lose over time (its depreciation)
• At the end of the lease, you return the vehicle or buy it for the residual value (its estimated value at the end of the term)

Leases often have lower monthly payments than financing because you’re not paying for the full cost of the car—just its temporary use.

Common Leasing Conditions

• Mileage Limits: Most leases include a limit of 16,000–20,000 km per year. Go over, and you’ll pay a per-kilometre fee (usually 8–20 cents/km).
• No Modifications: You can’t make cosmetic or mechanical changes to a leased car without penalties.‍
• Wear and Tear Rules: Excessive wear (scratches, dents, stains) could lead to additional charges at the end.

Key Differences Between Leasing and Financing

Both leasing and financing give you access to a car—but the long-term implications, costs, and flexibility are very different. Here’s how they compare:

1. Ownership

• Leasing: You don’t own the car—you’re borrowing it for a fixed time.
• Financing: You’re working toward full ownership. Once the loan is paid off, the car is yours.

2. Monthly Payments

• Leasing: Typically lower because you’re only paying for depreciation.
• Financing: Higher, since you’re paying off the full value of the car (plus interest).

3. Mileage Restrictions

• Leasing: Most leases cap you at 16,000–20,000 km/year. Exceed that and you’ll pay per kilometre.
• Financing: No mileage limits. Drive as much as you want—ideal for road trippers or commuters.

4. Customization

• Leasing: Modifications like tinted windows or upgraded rims aren’t allowed.
• Financing: You’re free to personalize your car—just be mindful of warranty restrictions.

5. End-of-Term Options

• Leasing: Return the vehicle, lease a new one, or buy it out.
• Financing: You own the vehicle and can keep it, sell it, or trade it in.

6. Long-Term Cost

• Leasing: May cost more in the long run if you lease repeatedly without ever owning.
• Financing: Can be more cost-effective over time, especially if you keep the car after it’s paid off.

7. Tax & Business Use

• Leasing: Monthly payments may be partially deductible for business use (up to $800/month + HST).
• Financing: Only the interest and depreciation may be deductible—check with your tax advisor.

How to Get Out of a Lease Early

Life happens—and sometimes, your leased vehicle no longer fits your needs before the term is up. Fortunately, there are a few options if you want to exit your lease early.

1. Lease Buyout

You can purchase the vehicle by paying the remaining balance—also known as the residual value—plus any remaining payments and fees.

This might make sense if:

• The car’s market value is close to or above the buyout price
• You want to keep the vehicle long-term
• You’d rather sell it privately or trade it in

2. Lease Transfer

Some manufacturers allow lease takeovers. You find someone willing to assume the lease (mileage and terms included) and transfer the contract to them.

Downsides:

• Transfer fees may apply
• You’re still on the hook if the new lessee defaults (in some cases)

3. Sell or Trade the Leased Vehicle

In many cases, you can trade in your leased vehicle or sell it to a dealership—just like a financed car. If the vehicle is worth more than the buyout amount, you keep the difference.

Clutch makes this easy. We’ll:

• Give you a real trade-in or cash offer
• Handle the lease payout directly
• Pick up the vehicle and manage the paperwork

Get a Lease Buyout Offer

Which Option Is Better for You?

There’s no one-size-fits-all answer—choosing between leasing and financing depends on your lifestyle, priorities, and driving habits. Here’s a quick way to figure out what makes the most sense for you.

Leasing Might Be Better If…

• You drive under 20,000 km per year
• You like having a new car every few years
• You want lower monthly payments
• You use your car for business and want potential tax deductions
• You don’t plan to modify or customize your car

Financing Might Be Better If…

• You plan to keep your car for the long haul
• You drive a high number of kilometres
• You want the freedom to customize your vehicle
• You’d rather own something at the end of your payments
• You want to avoid mileage limits or wear-and-tear fees

Still not sure? With Clutch, you can:

• Trade in your leased vehicle and apply the value toward a used one
• Finance your next car entirely online
• Get pre-approved and browse hundreds of inspected vehicles—all from home
  

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Should You Lease or Finance Your Next Car?

The right choice comes down to how long you plan to keep your car, how much you drive, and how much flexibility you want. If you’re looking for lower monthly payments and love driving a new car every few years, leasing might be the way to go. But if you want to own your vehicle, avoid mileage limits, and have full control, financing is likely the better bet.

Whichever route you take, Clutch makes it easy to get started online—with no awkward dealership visits, pushy salespeople, or hidden fees.

Get Pre-Approved for Financing

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