"Should I lease or buy?" is right up there with "RRSP or TFSA?" as the most asked personal finance question in Canada. And like most money questions, the answer is it depends — but "it depends" isn't very useful when you're staring at a dealer's finance office with three different payment options. So let's do the actual math.
We'll take a real-world example — a $45,000 vehicle in Ontario — and walk through the total cost of leasing, financing, and paying cash over a 6-year ownership horizon. Then we'll dig into the hidden costs on both sides, the tax angles (including business write-offs), the EV twist, and a decision framework you can actually use.
🚗 Quick Answer — 2026
- Buying (cash or finance) is almost always cheaper over 6+ years if you plan to keep the car long-term
- Leasing costs less per month but you own nothing at the end — you're renting
- Leasing wins for business owners (tax deduction), people who want a new car every 3–4 years, and EV shoppers hedging battery depreciation
- Buying wins for people who drive a lot, keep cars 7+ years, or want to be debt-free
- Financing is the most expensive option if you carry the loan to full term and then trade in early
The Example Vehicle: $45,000 SUV
Let's use a concrete example that reflects the Canadian market in 2026. The average new vehicle transaction price in Canada is roughly $48,000 (DesRosiers Automotive, 2025), so a $45,000 compact SUV is realistic — think Toyota RAV4, Hyundai Tucson, or Ford Escape.
| Detail | Value |
|---|---|
| MSRP | $45,000 |
| Province | Ontario (13% HST) |
| HST on purchase | $5,850 |
| Total on-road price (purchase) | ~$52,500 (incl. HST, freight, PDI, fees) |
| Down payment | $5,000 |
| Finance rate (2026 avg) | 5.49% APR, 72 months |
| Lease rate | 4.99% (money factor 0.00208) |
| Lease term | 48 months, 20,000 km/year |
| Residual value (lease-end) | 55% = $24,750 |
| Annual insurance | $2,100 (same either way) |
Total Cost Comparison: Lease vs Finance vs Cash
Here's where most "lease vs buy" articles fail — they compare the monthly payment and declare leasing cheaper. Monthly payment is irrelevant. What matters is total cost over the same time horizon. Let's compare all three options over 6 years (the typical Canadian ownership cycle).
Option A: 48-Month Lease, Then Lease Again
| Cost Component | Lease #1 (Yr 1–4) | Lease #2 (Yr 5–6)* | Total |
|---|---|---|---|
| Down payment | $5,000 | $3,000 | $8,000 |
| Monthly payments (incl. HST) | $538 × 48 = $25,824 | $555 × 24 = $13,320 | $39,144 |
| Disposition fee | $450 | — | $450 |
| Excess km charges (est.) | $0 | — | $0 |
| Total out-of-pocket (6 yr) | $47,594 | ||
| Value of vehicle owned | $0 | ||
| Net cost | $47,594 |
*Lease #2 assumes a similar vehicle at a slightly higher MSRP due to inflation, with a 24-month remaining term to match our 6-year window.
Option B: Finance Over 72 Months
| Cost Component | Amount |
|---|---|
| Down payment | $5,000 |
| Financed amount | $47,500 |
| Monthly payment (72 mo @ 5.49%) | $779 |
| Total payments | $779 × 72 = $56,088 |
| Total interest paid | $8,588 |
| Total out-of-pocket (6 yr) | $61,088 |
| Vehicle value at year 6 (~38% of MSRP) | −$17,100 |
| Net cost | $43,988 |
Option C: Cash Purchase
| Cost Component | Amount |
|---|---|
| Purchase price (incl. HST, fees) | $52,500 |
| Opportunity cost (6 yr @ 4% on $52,500) | $13,930 |
| Total economic cost | $66,430 |
| Vehicle value at year 6 | −$17,100 |
| Net cost | $49,330 |
| Net cost (ignoring opportunity cost) | $35,400 |
The Verdict
| Option | 6-Year Net Cost | You Own the Car? |
|---|---|---|
| Cash purchase (no opp. cost) | $35,400 | ✅ Yes |
| Finance (72 months) | $43,988 | ✅ Yes |
| Lease × 2 | $47,594 | ❌ No |
| Cash purchase (with opp. cost) | $49,330 | ✅ Yes |
Cash purchase is cheapest if you have the money sitting around (ignoring what that $52K could earn invested). Financing comes next — you pay more in interest but still own the car. Leasing is the most expensive per dollar of vehicle usage, and you have nothing to show for it at the end.
But — and this is important — the monthly cash flow story is completely different. The lease payment is $538/month vs the finance payment of $779/month. That $241/month difference can matter enormously to a household budget. And if you invest that $241 monthly difference at 6% returns... we'll get to that in the decision framework.
The math shifts dramatically if you keep a purchased car beyond 6 years. A well-maintained vehicle driven for 10–12 years amortizes the purchase cost over many more years. By year 8, a financed car's net cost per year drops to roughly $4,300/year. A serial leaser is still paying $7,900+/year. The longer you keep a purchased car, the more decisively buying wins.
🧮 Plug in your own numbers — vehicle price, rate, term, and residual — and see the real cost difference for your situation.
Try the Lease vs Buy Calculator →Key Lease Terms Decoded
Leases are designed to be confusing. Dealers love this because confused buyers can't negotiate effectively. Here are the terms you must understand before walking into a dealership.
Residual Value
The residual value is the car's projected worth at lease-end, set by the manufacturer's finance arm (not the dealer). It's expressed as a percentage of MSRP. A higher residual is better for you — it means you're paying depreciation on a smaller chunk of the vehicle's value.
- Good residual (48 months): 55–60% — vehicles like Toyota, Lexus, Porsche
- Average residual: 48–54% — Honda, Hyundai, Mazda
- Poor residual: 38–47% — most domestic sedans, some luxury brands
A $45,000 vehicle with a 55% residual means you're paying for $20,250 of depreciation over the lease term. With a 45% residual, you're paying for $24,750 — that's $4,500 more in lease payments for the same car.
Money Factor
The money factor is the lease equivalent of an interest rate. To convert: money factor × 2,400 = approximate APR. A money factor of 0.00208 equals about 4.99% APR. Dealers may not volunteer the money factor — you have to ask. If they won't tell you, walk out.
In Canada, lease advertisements must show the annual percentage rate, but in the finance office, dealers sometimes use the money factor to obscure the rate. A money factor of 0.00350 sounds tiny but equals 8.4% APR. Never sign a lease without converting the money factor to APR and comparing it to current financing rates. If the lease rate is higher than the finance rate on the same vehicle, you're overpaying.
Mileage (Kilometre) Caps
Most Canadian leases default to 20,000 km/year, with 16,000 km/year as a lower option. Going over costs $0.08–$0.20 per excess km at lease-end, depending on the manufacturer. On a 48-month lease at 20,000 km/year, your allowance is 80,000 km total.
The average Canadian drives about 15,200 km/year (Statistics Canada), so 20,000 km is fine for most people. But if you commute long distances, take road trips, or live in a rural area, those excess km charges add up viciously:
- 5,000 km over @ $0.12/km = $600
- 15,000 km over @ $0.12/km = $1,800
- 30,000 km over @ $0.15/km = $4,500
Wear and Tear
At lease return, the dealer inspects the vehicle for "excess" wear and tear. Normal wear (minor paint chips, light interior use) is expected. But anything beyond that — dents, curbed wheels, stained seats, cracked windshield — gets charged to you. Budget $500–$2,000 for a typical lease-return wear charge if you have kids, pets, or park on the street. Some lessees pay for professional detailing and minor body work before returning the car — often cheaper than the dealer's charges.
Hidden Costs of Leasing
The monthly payment isn't the whole story. Here's what the lease ads don't show you:
| Hidden Cost | Typical Amount | Notes |
|---|---|---|
| Disposition fee | $300–$595 | Charged when you return the car (not if you buy it out) |
| Excess km charges | $0.08–$0.20/km | Can easily hit $1,000–$4,000 |
| Wear-and-tear charges | $500–$3,000 | Dents, scratches, tire wear, interior damage |
| GAP insurance | $300–$900 total | Sometimes included; if not, essential to add |
| Early termination penalty | All remaining payments | Walking away early is extremely expensive |
| Higher insurance premiums | $200–$600/year extra | Lessors require comprehensive coverage with low deductibles |
| HST on every payment | 13% of each payment | You pay HST on the full payment including the interest portion |
GAP (Guaranteed Asset Protection) insurance covers the difference between what your regular auto insurance pays out (the car's market value) and what you still owe on the lease if the vehicle is totalled or stolen. Since leases often have you "upside down" (owing more than the car is worth) for the first 1–2 years, GAP insurance is essential. Some manufacturers (Toyota, Honda) include it in the lease; others charge $300–$900 extra. Always confirm before signing.
Hidden Costs of Buying
Buying isn't free of surprises either. Owners face costs that lessees avoid:
| Hidden Cost | Typical Amount | Notes |
|---|---|---|
| Depreciation (years 1–3) | ~40–50% of MSRP | Steepest in first 3 years; you absorb it all |
| Major maintenance (post-warranty) | $1,500–$4,000/year | Brakes, tires, suspension, transmission service after year 4–5 |
| Extended warranty (optional) | $2,000–$4,000 | Covers major repairs in years 4–7 |
| Opportunity cost of capital | ~$2,000–$3,000/year | Cash tied up in a depreciating asset vs invested |
| Repair risk | Variable | One major repair ($3K+ transmission) can wipe out years of savings vs leasing |
| Trade-in loss | 10–15% below private sale | Dealers lowball trade-ins; private sale gets more but takes effort |
The Depreciation Curve
Depreciation is the single largest cost of vehicle ownership — bigger than gas, insurance, or maintenance. A $45,000 vehicle's value typically follows this trajectory:
| Year | Estimated Value | Cumulative Depreciation | % of MSRP Lost |
|---|---|---|---|
| 0 (new) | $45,000 | $0 | 0% |
| 1 | $37,800 | $7,200 | 16% |
| 2 | $33,300 | $11,700 | 26% |
| 3 | $29,250 | $15,750 | 35% |
| 4 | $25,650 | $19,350 | 43% |
| 5 | $22,050 | $22,950 | 51% |
| 6 | $17,100 | $27,900 | 62% |
| 8 | $12,600 | $32,400 | 72% |
| 10 | $9,000 | $36,000 | 80% |
Notice the curve flattens after year 5–6. From year 6 to year 10, the car only loses another $8,100 in value. This is the "sweet spot" for ownership — the depreciation hit per year shrinks, and if the car is reliable, your annual cost drops dramatically. This is why buying a 2–3 year old used car and keeping it for 7+ years is statistically the cheapest way to drive in Canada.
Tax Implications: HST, Business Write-Offs, and CCA
This is where the lease vs buy decision gets genuinely complicated — and where leasing sometimes wins even when the raw math says otherwise.
HST on Lease vs Purchase
When you buy a car in Ontario, you pay 13% HST on the full purchase price upfront: $45,000 × 13% = $5,850 in HST.
When you lease, you pay 13% HST on each monthly payment — not on the full vehicle price. Over a 48-month lease at $476/month (pre-tax), total HST is $476 × 0.13 × 48 = $2,967. That's roughly $2,883 less in total HST versus buying. Why? Because you're only taxed on the depreciation portion plus interest — not the residual value you're giving back.
You pay HST on lease payments because you're only paying for the portion of the vehicle you "use up." If the residual is 55%, you're being taxed on roughly 45% of the car's value plus interest. If you buy the car outright, you pay HST on 100% of the value — even though 38% of that value still exists at year 6. This is a genuine tax efficiency advantage for leasing, worth $2,000–$3,500 on a typical vehicle.
Business Use: Section 67.3 Lease Deduction vs CCA on Owned Vehicle
If you use your vehicle for business purposes (self-employed, sole proprietor, or claiming employment expenses), the lease vs buy decision has major tax implications.
Leasing (Section 67.3 of the Income Tax Act):
- Monthly lease payments are deductible up to a maximum of $1,050/month (2026 limit) for the business-use percentage
- For a $538/month lease used 60% for business: deduction = $538 × 60% = $323/month or $3,876/year
- Simple, predictable, no depreciation schedule to track
- HST paid on lease payments is also recoverable as an Input Tax Credit (ITC) if you're GST/HST registered
Buying (Capital Cost Allowance — CCA):
- Passenger vehicles are capped at $37,000 (before HST) for CCA purposes in 2026 — even if the car costs $45,000, you can only claim CCA on $37,000
- Class 10.1 vehicles: 30% declining balance CCA rate
- Year 1 deduction (with Accelerated Investment Incentive): up to $37,000 × 30% × 1.5 × 60% business use = $9,990
- Subsequent years: declining balance, progressively smaller deductions
- Interest on a car loan is deductible up to $300/month (2026 limit)
| Tax Deduction (60% business use) | Lease | Buy (CCA + Interest) |
|---|---|---|
| Year 1 | $3,876 | $9,990 + $1,548 = $11,538 |
| Year 2 | $3,876 | $4,662 + $1,296 = $5,958 |
| Year 3 | $3,876 | $3,263 + $1,026 = $4,289 |
| Year 4 | $3,876 | $2,284 + $738 = $3,022 |
| Years 1–4 total | $15,504 | $24,807 |
Buying gives you a larger total deduction in the early years due to accelerated CCA. But the deduction shrinks each year, while the lease deduction stays constant. Over a longer time horizon (6+ years), the total deductions converge. The key advantage of leasing for business: predictable, consistent deductions and no need to track undepreciated capital cost (UCC) schedules.
If you buy a zero-emission vehicle (ZEV) for business, the CCA cap increases to $61,000 (before HST) and it qualifies for Class 54 at a 100% first-year write-off under the Accelerated Investment Incentive. That means a $45,000 EV used 60% for business could generate a $27,000 first-year CCA deduction. For EVs, buying almost always wins on the tax front.
The EV Angle: Why Leasing Makes More Sense for Electric
Electric vehicles flip several lease-vs-buy assumptions on their head. Here's why many financial planners recommend leasing for EVs, even for people who would normally buy.
Battery Depreciation Hedge
EV battery technology is improving rapidly — range is increasing, costs are dropping, and solid-state batteries are expected to start appearing in production vehicles by 2027–2028. An EV bought today may be significantly less desirable (and less valuable) in 5 years when newer models offer 30–50% more range at the same price. Leasing lets you hand back the technology risk to the manufacturer.
Some used EV residual values have already dropped sharply: the 2022 Tesla Model 3 lost roughly 40% of its value by early 2025, compared to ~30% for equivalent gas vehicles. Leasing insulates you from this depreciation volatility.
Federal iZEV Rebate ($5,000)
The federal Incentives for Zero-Emission Vehicles (iZEV) program offers up to $5,000 for eligible battery-electric, hydrogen fuel cell, and longer-range plug-in hybrid vehicles. This rebate applies to both purchases and leases. For leases, the rebate must be passed to the lessee (you) as a reduction in your capitalized cost or as a credit against payments.
Provincial Incentives (2026)
| Province | EV Incentive | Applies to Leases? |
|---|---|---|
| British Columbia | Up to $4,000 (CleanBC Go Electric) | ✅ Yes (min. 36-month lease) |
| Quebec | Up to $7,000 (Roulez vert) | ✅ Yes (prorated for shorter terms) |
| Nova Scotia | Up to $3,000 | ✅ Yes |
| New Brunswick | Up to $5,000 | ✅ Yes |
| PEI | Up to $5,000 | ✅ Yes |
| Ontario | None (cancelled 2018) | — |
| Alberta | None | — |
In Quebec, stacking the federal iZEV ($5,000) + provincial Roulez vert ($7,000) gives you $12,000 in rebates on an EV lease. On a 48-month lease, that's effectively $250/month off your payment — an enormous reduction that can make an EV lease cheaper than an equivalent gas vehicle lease.
The EV Lease Sweet Spot
Combining all the EV-specific factors — battery depreciation hedge, full incentive stacking, rapid technology improvement, and the 100% CCA write-off for business buyers — leasing an EV for 36–48 months is often the smartest play in 2026. You get the latest technology, reduce your depreciation risk, pocket the rebates, and swap into a better vehicle when your term ends.
When Leasing Wins
- You want a new car every 3–4 years. If you'd trade in or sell every few years anyway, leasing formalizes this and avoids the trade-in value haircut.
- You're self-employed or claim business use. Predictable lease deductions under Section 67.3 simplify tax planning.
- You're getting an EV. Battery depreciation risk + rebate stacking + rapid tech improvement make EV leasing compelling.
- You drive under 20,000 km/year. Staying within the mileage cap avoids excess charges.
- Cash flow matters more than total cost. Lower monthly payments free up cash for investing, debt repayment, or emergencies.
- The residual value is high. Vehicles with 55%+ residuals at 48 months (Toyota, Lexus, Honda) make leasing relatively cheap because you're paying for less depreciation.
- You hate dealing with selling a used car. Lease return is simple — drop it off and walk away.
When Buying Wins
- You keep cars 6+ years. The longer you own, the more buying saves. By year 8–10, you're driving nearly "free" (just maintenance and insurance).
- You drive a lot. Over 25,000 km/year makes excess km charges painful. Ownership has no mileage penalty.
- You want to modify the vehicle. Leases restrict modifications. Owners can add roof racks, tint, lift kits, whatever.
- You want to be debt-free. A paid-off car is a paid-off car. No monthly payments is a powerful feeling — and financial flexibility.
- You're buying used. The best value in auto is a 2–3 year old certified pre-owned vehicle. Leasing used is rare and usually a poor deal in Canada.
- You're buying a ZEV for business. The 100% first-year CCA write-off on up to $61,000 makes buying an EV for business use extremely tax-efficient — better than leasing in most cases.
- Interest rates are low. When finance rates drop below 3%, the cost of borrowing is minimal and you build equity in the vehicle.
Your Decision Framework
Work through these five questions to find your answer:
Question 1: How long will you keep this vehicle?
- 2–4 years: Lean toward leasing
- 5–7 years: Could go either way — run the numbers
- 8+ years: Buy, full stop
Question 2: How many kilometres do you drive per year?
- Under 16,000 km: Leasing works well
- 16,000–20,000 km: Leasing works with standard allowance
- Over 20,000 km: Buy — excess km fees will eat you alive
Question 3: Is this a business vehicle?
- Yes, gas/hybrid: Leasing offers simpler tax treatment; buying offers larger early deductions
- Yes, EV: Buying likely wins due to 100% first-year CCA on $61K cap
- No: Business tax treatment is irrelevant; focus on total cost
Question 4: Is this an EV?
- Yes: Strongly consider leasing (battery risk hedge, tech improvement, rebate stacking)
- No: Standard lease-vs-buy math applies
Question 5: What's your financial priority?
- Lowest total cost: Buy (cash or finance) and keep 7+ years
- Lowest monthly payment: Lease
- Maximum tax deduction: Buy an EV for business
- Maximum flexibility: Lease (walk away at term-end) or buy cash (sell anytime)
✅ Before You Sign: Lease vs Buy Checklist
- Know the money factor / APR — convert and compare to finance rates
- Confirm the residual value percentage and verify it's competitive
- Calculate your annual km and ensure the lease allowance covers it
- Ask about GAP insurance — is it included or extra?
- Get the disposition fee in writing
- Check excess wear-and-tear policy and what's considered "normal"
- If buying: get pre-approved financing from your bank before visiting the dealer
- If business use: calculate Section 67.3 lease deduction vs CCA schedule for your specific situation
- If EV: confirm iZEV + provincial rebate eligibility for both lease and purchase
- Run the total cost comparison over your expected ownership period — not just the monthly payment
🧮 Compare lease vs buy for your exact vehicle — plug in the price, rate, residual, km allowance, and see the 6-year total cost breakdown.
Try the Lease vs Buy Calculator →
📖 Recommended Read: The Wealthy Barber Returns
David Chilton's classic sequel covers the psychology of spending, car buying, and why most Canadians make emotional (not mathematical) vehicle decisions. A quick, entertaining read that'll save you thousands over your driving lifetime.
View on Amazon.ca →As an Amazon Associate, FiggyBank earns from qualifying purchases.
Ready to crunch the numbers for your specific vehicle? Use FiggyBank's Lease vs Buy Calculator to compare total cost, monthly payments, and tax implications side by side. Pair it with our Tax Estimator to see how business vehicle deductions affect your bottom line.