Lease vs Buy: Which Actually Saves You Money?

Buying with cash uses savings upfront. Financing is also buying: you own the vehicle subject to the lender's security interest, and must repay the loan. Paying down a loan does not guarantee growing equity if the car loses value faster than the debt falls.

A lease pays for use of a vehicle under a contract. A purchase option may let you buy it at the end. Check whether the contract gives you that option or makes you responsible for a residual-value obligation.

Illustration only, not current market quotes: assume a $40,000 cash price, a 60-month loan at 6% nominal annual interest with monthly payments and no down payment, and an assumed resale value of $16,000 to $20,000 after five years.

These figures exclude taxes, fees, insurance, running costs and the opportunity cost of cash. The resale range is an assumption, not a depreciation forecast. The loan total uses the unrounded payment; lender rounding can slightly change the final payment.

For the original lease illustration, assume payments of $460 a month during a four-year lease and the first year of a replacement lease. The five-year payments are $460 × 60 = $27,600. The replacement year is already included; adding it again would double-count it.

The capitalized cost is the amount used to price the lease after applicable adjustments. The residual is the vehicle value specified for the end of the term. Payments depend on those amounts, the term, finance charges, taxes and fees.

• Request the negotiated vehicle price, down payment, trade-in credit and total payments in writing.
• Read the annual percentage rate and total cost of borrowing. A money-factor shortcut is not a substitute for the actual contract calculation.
• Separate a purchase option from any obligation to cover a residual shortfall.
• Ask for sales tax on each upfront amount, regular payment and buyout. Tax treatment depends on the province and transaction.
• Include any acquisition, administration, disposition or purchase-option fees disclosed in the agreement.

A down payment lowers monthly payments but remains part of the cost. Ask how an insurance write-off would affect amounts already paid and any remaining obligation.

Your contract sets the kilometre allowance and excess-use charge. There is no single allowance or fee that applies to all Canadian leases.

Illustration only: an allowance of 20,000 km a year for four years permits 80,000 km. Driving 25,000 km a year produces 100,000 km, or 20,000 km over. At an assumed $0.15 per extra kilometre, the charge is $3,000 before any applicable tax.

• Estimate driving from your own records, including commuting and trips.
• Compare a higher allowance at signup with the contractual overage cost.
• Read the wear standards for tires, glass, bodywork and interior condition.
• Arrange any offered pre-return inspection and ask which repairs require approval.

• Leasing may fit a planned short replacement cycle if the total cost and return conditions suit your use.
• Buying may fit a long ownership period, provided repair costs and reliability are included.
• Financing preserves more cash upfront but creates interest costs and repayment obligations.
• A warranty does not cover all maintenance, wear or damage. Budget those costs under every option.
• Business use can create tax deductions for either leasing or ownership; it does not automatically make leasing cheaper.

A takeover transfers an existing lease if the lessor permits and approves it. An advertised incentive can reduce costs, but the remaining contract determines whether the offer is useful.

• Confirm transfer eligibility, approval requirements and all transfer costs with the lessor.
• Inspect the vehicle and obtain its service and damage history.
• Check remaining kilometres against the actual time left.
• Document how any seller incentive will be paid.
• Confirm which party remains liable after transfer and whether you have a purchase option.
• Compare total remaining payments and return obligations with a fresh quote.

Marketplace listings are starting points. An advertised payment does not show every obligation you would inherit.

A closed-end lease with a purchase option generally lets you return the vehicle under the agreement or exercise that option. Returning can still leave excess-kilometre, damage or other contractual charges. Starting another lease is a separate commitment.

Illustration: a $22,000 buyout and a $26,000 resale estimate suggest a $4,000 difference before taxes, fees, repairs and selling costs. That difference is not guaranteed profit. Ask for a written buyout quote and compare realistic sale proceeds.

• Ask the lessor who can process the buyout and which fees are authorized by the agreement.
• Check inspection, registration and sales-tax requirements in your province.
• Dispute unexpected charges using the contract and the applicable provincial consumer regulator.
• Keep the return inspection and receipt, and confirm that the account is closed.

Eligible business use may allow vehicle expense deductions. These reduce taxable income, not the purchase price dollar for dollar. Keep records of total and business kilometres and separate personal travel.

These are limits, not automatic deductions. Apply eligible business use, actual costs and the CRA calculation. Lease deductions can be reduced by the vehicle-price formula. Capital cost allowance (CCA) is a tax depreciation calculation, not a deduction of the entire capital cost ceiling in one year. Eligible zero-emission vehicles have separate rules.

Source: Finance Canada's January 14, 2026 announcement, cross-checked with TaxTips' passenger-vehicle limits updated August 28, 2026. Older contracts and purchases can use different limits.