Should You Finance or Lease Your Next Car?

It is time for you to find a new car. But you may be asking yourself, where do I start? Starting your new car search can seem like a daunting task. From choosing what make and model of car to deciding whether to finance or lease, there are many steps in the car shopping process.

When choosing between financing or leasing, you should consider your use for the vehicle, desired length of ownership, and budget. Both options have specific pros and cons that will depend on personal factors.

VINN is here to help make the car shopping process easy and enjoyable. In this article, we break down the advantages and disadvantages of financing or leasing your next car. Let us help you in your car shopping journey with our guide to financing versus leasing:

Financing vs. Leasing: The First Steps in the Car Shopping Journey

Buying or leasing a new car is a big decision, not only financially but also personally. It is important to choose the right vehicle that fits your budget and lifestyle.


The first step in your car shopping journey is deciding your budget. The general rule is that your monthly car payments should be no more than 10%-15% of your monthly income. When determining your monthly budget for your vehicle, it is important to consider all car expenses, which include insurance, maintenance, and gas. 

Try using the 20/4/10 rule to help determine how much you should spend on a car. Learn more about the 20/4/10 rule here


After you decide on your monthly budget, you can identify your wants and needs for the car. Considering your needs will help you to choose the right vehicle for your lifestyle. Some lifestyle factors to consider are your use for the car, size and storage, features and technology, and desired length of ownership.

Vehicle Use

What will you be using the car for? Consider an SUV, crossover, or van if you plan to use the car for long road trips. If you are using the car for commuting, then consider a fuel-efficient sedan. If you are using the car for work and need to transport materials or machinery, consider a truck. For example, the Ford F-150 is one of the most popular trucks— beloved for its utility, versatility, and comfort. By identifying your use for the vehicle, you can narrow down and focus on one or two models that will work for your daily activities. 

Picking the right vehicle model for your lifestyle will help you get the most out of your vehicle. It is important to research the difference between an SUV and a crossover when considering an SUV. You may decide that a crossover will be the perfect compromise between an SUV and sedan. 

Continue your vehicle research with VINN’s top picks for the best 7-seater SUVs, electric SUVs, electric trucks, and electric sedans

Size and Storage

Size and storage correlate with your use for the vehicle. SUVs, crossovers, and vans will offer more space and storage but will have higher costs for gas and repairs. In comparison, a sedan will be more fuel-efficient but will have less space and storage. Choosing a small car may work for a single driver, but a bigger car will better suit your family’s needs if you have kids or dogs

Features and Technology

Today, most new models of cars have lots of safety features and technology. Deciding what features and technology you need will depend on personal preference. The features that most car buyers look for are Bluetooth, GPS navigation, lane assist, backup cameras, heated seats, sunroof, and seat and mirror memory. The different trim levels and performance packages will have varying features and tech. However, the main features we have mentioned are usually available in most basic trim level packages.

Desired Length of Ownership

The desired length of ownership is a crucial factor to consider when deciding between finance or lease. For example, you should expect to own that vehicle for five to ten years when financing a vehicle. In comparison, when leasing a car, you should expect to have that vehicle for two to four years, depending on your lease agreement.

Financing: How Do You Sell Your Financed Vehicle?

When you own your vehicle, you have two options when you are ready to find a new one. If you still owe money on the car, you can trade it in and use the positive equity towards a new vehicle. Or, if your auto loan is paid off, you can either sell your vehicle privately or to the dealership and use that amount towards a new vehicle. 

Leasing:  How Do You Sell Your Leased Vehicle?

In the leasing scenario, you have a few different options for finding a new vehicle. After your lease term is up, you can either return the vehicle and lease a new one or buy out the remaining amount on the lease and own the vehicle. Most people will return the vehicle and lease another one, usually a newer model. 

However, you may be wondering what happens when you want to get out of your lease before your lease agreement ends. In this case, you have three options: early lease termination, transfer the lease, or buyout the lease.

An early lease termination is when you end your lease early. With this option, you will have to pay the remaining balance and fees associated with the early termination.

The most favourable option for getting out of a lease is transferring your lease to another party. The new owner of the lease will take over the payments, lease terms, and expiry date. There may be some fees associated with the transfer, but overall this is usually the best option for getting out of a car lease early. 

Lastly, you can also buy out your lease and then sell the car to a dealership or privately. You will have to pay the vehicle’s residual value and the remaining payment balance. This option can be favourable in some cases, especially if the vehicle’s market value is more than the residual value. If you have positive equity, you can use this amount towards a new vehicle or pocket the cash. 


When you finance a car, you are making payments towards eventually owning the vehicle. As you continue to make the principal payments, you build up equity, and at the end of the loan, you own the car. Your payment will include your interest payment and your principal payment. The length of ownership will depend on your down payment and the terms of your loan. If you decide to finance, you should expect to own the car for five to ten years.

In the financing scenario, there are two options for lending. For direct lending, you borrow money from your bank or another lending institution and make monthly payments for a set number of years. Direct lending allows you to have more flexibility to shop around at different banks and credit unions. You are also aware of the terms of your loan while you are car shopping.

For dealership financing, you receive financing through the dealership. Depending on the dealer’s relationships with banks, they may be able to offer multiple financing options. Also, some dealerships may have financing promotions. For example, promotions through the manufacture or in-house incentive programs can offer different terms like a shorter contract length or allow you to put down a larger down payment, resulting in lower monthly payments.

  • Interest rates are low. The current prime rate in Canada is 2.45%. This is the lowest rate in over ten years, which means that your borrowing cost is lower than in previous years.
  • Financing your car can be seen as a better investment than leasing, as you are making payments towards owning the car. However, new cars tend to depreciate quickly.
  • Over time you can pay off your car loan and have no car payments.
  • You can modify your car. When you lease a car, you have a limited ability to add modifications to the car.
  • No mileage restrictions. Mileage restrictions are a significant factor to consider when deciding between financing or leasing. Evaluate the use of your car. Will you be frequently travelling for work or pleasure?
  • Financing a new car will have higher monthly payments than a new leased car.
  • The car could depreciate, affecting your trade-in value when you want to purchase a new car.
  • Depending on the length of your car loan, there is the possibility of ending with negative equity. Negative equity means that you owe more than what the car is worth.

Can You Finance a Used Car? 

Yes, you can finance a used car. Financing a used vehicle is similar to financing a new vehicle. You can explore direct lending and dealership financing options. Dealerships will finance most used cars. However, dealerships will not finance older vehicles with high kilometres on the odometer. 

VINN Tip: When shopping for your next vehicle, look out for certified pre-owned vehicles (CPOs). CPOs are lightly used vehicles that are only a few years old, have undergone detailed inspections, have low kilometres, and can have extended warranties. Dealerships can sometimes offer better interest rates on CPOs. More importantly, you can rest assured that you have purchased a vehicle in near perfect condition. 


When leasing a vehicle, you make payments to drive the vehicle for a specified amount of time. After this, you must return the vehicle to the dealership, and you will then have to start the car-shopping process over again. However, leasing a car can offer many benefits, like lower monthly payments and driving a new car every few years.

Lease Contracts

Lease contracts are usually 24 to 48 months or two to four years. Your lease contract will also include your annual mileage allowance. The mileage allowance is how many miles/km you can put on the car each year. The standard mileage allowance ranges from 10,000 to 15,000 miles or 12,000 to 24,000 km.

One aspect to remember is that you can combine the yearly mileage/km usage. For example, let’s say your lease contract is for four years and 20,000 km/ year. After four years, you would have to return the car to the dealership with 80,000 km. If you return the car and are over the total contract km allowance, you will have to pay a certain amount per additional km. The standard amount in Canada is 10 to 20 cents per km over.

Mileage restrictions are an important factor to consider when you are deciding between lease and finance. If you plan to use your car for frequent long road trips, then mileage restrictions may not work with your lifestyle and use for the car. If you decide to lease, consider using a mileage tracking app like MileIQ. Leasing can offer benefits depending on your personal preference and situation.

Leasing a Business Vehicle

If you own a business, there are tax advantages to leasing a vehicle. Whether you lease or buy your vehicle, you can deduct most business-related expenses like gas, maintenance, insurance, tires, and parking fees.

But if you lease a vehicle, you can deduct the business-related amount of your lease payments. You can deduct up to $800 per month and HST for your monthly lease payments. The $800 monthly deduction is especially favourable when you are looking at leasing a luxury vehicle. When deciding to lease or buy your business vehicle, you should consider the significant tax advantages of leasing.

  • Leasing allows you to enjoy driving a new car every few years.
  • Leased cars usually have a factory warranty, which allows you to avoid costly repairs.
  • You can drive a more expensive car. Leasing offers lower monthly payments in comparison to financing.
  • The future depreciation of the car does not impact you.
  • You do not need to worry about the trade-in value of the car. Leasing a car prevents the risk of having negative equity.
  • Leasing provides significant tax advantages for business owners.
  • The monthly payments never end. You cannot eventually pay off your loan and own the car as you do with financing.
  • Mileage restrictions. If you go over the mileage allowance, there will be extra charges at the end of the lease.
  • You must keep the car in excellent condition. At the end of your lease, there may be extra charges for any wear and tear that affect the car’s condition.
  • You cannot add modifications to the car.
  • You are in a contract. If you want to trade in your car before the lease is up, there will be penalties.

At VINN, we work directly with you to guide you through the process of finding a new car. Our vehicle experts will work with you to ensure that you get the best value for the right car. Complete the VINN vehicle questionnaire to connect with one of our vehicle experts.

Happy driving! 🚘 Tell us if you lease or finance your vehicles by tagging us on Instagram @vinncanada or Twitter @vinnauto.

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