Financing usually costs less over the long run because you end up owning the car and can keep driving it after the loan is paid off. Leasing gives you a lower monthly payment and a newer car more often, but you never build equity and you pay extra if you exceed the kilometre limit or return the car with damage. If you keep cars for many years, finance. If you want low payments and drive predictable distances, a lease can make sense.
Last updated: October 28, 2026
How a car loan works
With a loan, you borrow the price of the car (plus taxes and fees, minus your down payment and trade-in) and repay it with interest over a fixed term, often 60 to 84 months. You own the car from day one; the lender holds a lien until the loan is repaid. When the loan ends, you keep the car with no payment.
How a lease works
With a lease, you pay for the part of the car’s value you use during the lease (the difference between the price and the expected value at the end, called the residual value), plus a finance charge and taxes. At the end of the term, usually 36 to 48 months, you return the car, buy it at the residual price, or lease a new one.
Leases include an annual kilometre allowance, commonly between 16,000 and 24,000 km per year. Extra kilometres are charged at a set rate per kilometre, and excessive wear and tear is billed when you return the car.
Side-by-side comparison
| Car loan | Lease | |
|---|---|---|
| Monthly payment | Higher | Lower |
| Ownership | Yes, you build equity | No, unless you buy out the car |
| Kilometre limits | None | Yes, with charges for extra km |
| Customisation | Allowed | Restricted |
| Wear and tear | Your problem only if you sell | Charged at lease end |
| Ending early | Sell the car and repay the loan | Often expensive |
| Best for | Long-term owners, high-km drivers | Drivers who want a new car every 3 to 4 years and drive predictable distances |
A worked example
Consider a $40,000 vehicle (before tax) and compare two simplified scenarios. These numbers are illustrations, not offers.
- Loan: $40,000 financed at 6.99% for 60 months gives a payment of about $792 per month, with about $7,500 in interest. After five years you own the car outright. Stretching the same loan to 84 months lowers the payment to about $604, but total interest rises to about $10,700.
- Lease: with a 48-month lease, a residual value of $22,000 and a 5.99% rate, the depreciation portion is $375 per month and the finance charge about $155, for roughly $530 per month before tax. After four years you have paid about $25,400 and own nothing, but you can buy the car for $22,000 or return it.
The lease looks cheaper monthly, but the loan builds about the value of the car in equity. If you keep the financed car for eight to ten years, its cost per year usually ends up well below leasing. Run your own numbers with our car payment calculator.
Taxes on loans and leases
When you buy, sales tax is generally charged on the full purchase price at the time of purchase. When you lease, tax is generally charged on each lease payment instead. In Ontario that means 13% HST on each payment; in Quebec, GST and QST apply. Your contract should show taxes clearly.
When leasing makes sense
- You drive a predictable distance, comfortably under the allowance.
- You want to change vehicles every three or four years and avoid out-of-warranty repairs.
- You use the vehicle for business and your accountant confirms the tax treatment works for you.
- The manufacturer is offering a subsidised lease rate.
When financing makes sense
- You keep vehicles for many years.
- You drive a lot of kilometres, for example a long commute.
- You want to modify the car or are hard on interiors (kids, pets, work gear).
- You are buying used. Leases on used cars are less common and often expensive.
Watch out for
- Very long loans. 84- and 96-month terms keep payments low but you may owe more than the car is worth for years (negative equity).
- Add-ons rolled into the payment. Extended warranties, rust protection and paint sealant are optional and negotiable.
- Lease end costs. Ask for the per-kilometre charge, the disposition fee and the wear-and-tear standard before you sign.
Compare lenders in our guide to the best car loan options in Canada and check your budget with how much car you can afford.
Frequently asked questions
Is it cheaper to lease or buy a car in Canada?
Over the long term, buying is usually cheaper because you own the car after the loan and can keep driving it without payments. Leasing is cheaper month to month but you must keep paying to keep driving.
Can I buy my car at the end of a lease?
Usually yes, at the residual value stated in your lease contract, plus taxes. Compare that price with similar used vehicles before deciding.
Can I end a lease early?
It is possible, but often costly. Options include paying the early termination charges, buying the car out, or transferring the lease to someone else if your leasing company allows it.
This guide is general information, not financial, legal or mechanical advice. Rules and prices change and vary by province: confirm details with the seller, your lender, your insurer or your provincial authority.
