car - lease or buy

Car – Lease or Buy? That is the question! I bought my 1st car in 2010 and it was one of the happiest days of my life – not even kidding. At the time, I was working as an auditor at an auditing firm and I was visiting clients daily. Not an easy task when you don’t have a car, trust me! There were times when I had to take a subway & 3 different buses to get to my client, dragging this brick called a laptop with me (they did not make them so light and airy back then)! Needless to say, I needed a car!

I put a $10K down payment on the car & financed it over 5 years – a terrible idea, as the interest ends up costing you more than a lower term, but I was a student and I wanted my monthly payments to be as low as possible. After I paid it off, it was nice to have a car that did not cost me anything monthly – bliss. But 7 years into this relationship, maintenance bills started to pile up, countering all the savings that came from owning the car. Finally, the suspension gave up and my wheel practically caught on fire, so it was time for an upgrade. I sold the car on Kijiji to a mechanic – who either knew how to fix it up at a low cost or got it for parts, whatever the case may be I got a really good deal on it and if you keep reading, I will tell you why you should do the same instead of trading it in when you lease or buy a new one. After selling my car, I decided to lease one.

Leasing a car : Instead of owning the car, a lease involves making monthly payments in return for using the car. The leasing agreement includes the following:

1- Lease term: typically 36 or 48 months

2- Interest rate on the lease (varies)

3- Number of km you can drive per year: typically 20,000 or 24,000 – note that if you go over this allowance, you will be charge a fee per km, so be mindful of how much you use the car. The lease will be more expensive if you chose the options with a higher km allowance.

4- Monthly payments – as per your negotiations with the car salesman

5- Residual value of the car once the lease is up – this is the amount of $ it would cost you to buy this car at the end of the lease, essentially determining how much of the car’s value you will be paying for.

6- Warranty included in the lease of the car

7- Other: Down payment (if you choose to put $ down to lower your monthly payments), additional warranties you purchase, estimated manufacturer’s value of the car (important to have on hand if you will be claiming your lease for tax purposes)

Advantages of leasing:

  • Lower monthly payments: When you lease a car, you’re technically only paying for the part of the car that you use up during the term of the lease, whereas when you buy the car, you pay the full car value. It’s simple really, once a car is sold and leaves the dealership, it’s value depreciates year over year. By leasing it for a specified period of time, you pay for the amount that is estimated to have been depreciated by the time you return the car to the dealership. Here is a simplified example: Say you bought a car for $20,000 at 2% interest rate for 36 months with a residual value of the lease of 10,000. Here is what the payments come up to when you lease compared to when you buy:

Useful calculator to keep on hand when deciding whether to lease or buy a car:


  • No expensive repair costs: Once the lease is up, you return the car to the dealership within 36-48 months, at which point the car is still in great shape and should not cost you anything in repairs, aside from the occasional flat tire.
  • A brand new car : By leasing a car, you can drive a new car model or even a different type of car (make & model) with all the latest gadgets and comforts every 36-48 months.

Disadvantages of leasing

  • The car is not yours: You need to return the car in its original condition to the dealership at the end of the lease term. Therefore, after paying the lease, you don’t come out of the deal with an asset. It’s basically like paying rent on a condo you live it – you don’t own it. But, you do have the possibility of purchasing the car at the residual value stipulated in your contract.
  • Extra charges- you break it, you buy it – If you go over you km allowance or if you damage the car, you will need to pay for it. Extra kms & damages are paid at a nice little premium, so be aware.
  • You are locked in Again, same as with your rent, a lease is a biding agreement that you are legally bound to respect. You cannot just break the lease easily, although there is a potential to get someone to take over the lease.

It’s important to weight the advantages and disadvantages before making your decision. In order to help you out further, I tallied up some personal tips and advice based on my learning when I recently ventured to lease a car.

Car: Lease or Buy

Personal tips:

  • Car salesman: There are a couple of things to keep in mind: a car salesman’s job is to sell/lease you that car. Therefore, do your research, be prepared & know your budget. This will keep you on track and facilitate your negotiations. Most importantly, don’t let him/her try to undermine you by saying things lie- “Does it even start?” when they ask you for the keys to your current car while you’re trying to negotiate a trade in value for it – true story. I mean, I drove it here, didn’t I?! So yes, it works, and I shall take my business elsewhere, thank you very much!
  • Don’t trade in your old car – This brings me to my 2nd personal tip: sell it on Kijiji instead of trading it in. The salesman can easily tell you that your old car is worth $1.5K tops, but trust me there is a 2nd hand market out there, and are you can easily double or triple your money that way.
  • Down Payment: Leases don’t typically require a down payment and I actually recommend against it, however if you do want to lower your monthly payments and you decide to put a down payment, do so only once you have negotiated, agreed and signed off on the monthly lease payments (and signed the contract). Once you make that down payment, it’s hard to go back.
  • Test drive: Always test drive the car you want to lease or buy! Don’t be afraid of telling the salesman that you are just starting to look and that you’re interested in a test drive. It’s important to drive the car and get a feel for it, take notice of all the features and whether you’re comfortable navigating them, as well as whether the car answers are your wants and needs.
  • Shop around: It’s extremely important to shop around before making a decision. Check out different car dealerships, test drive different makes and models and compare prices. Truth be told, I hated car shopping, but it’s a necessarily evil, b/c I learnt a lot from the process and I ended up getting the right car at the right price as a result. It also gave me thicker skin – definitely a bonus! ;) Also be mindful that if you are being offered a coffee or a bottle of water, the salesman is trying to close the deal. If you’re not ready to negotiate, just politely decline and don’t be shy to walk away to think about it! It’s a big decision and a big ticket item, you don’t want to have any regrets.