Roxanne Hébert-McKenzie Nathalie Lepage, CIP

Leasing or Buying a Car—Which Is the Better Choice?

Shopping for a new vehicle is often exciting: you get to choose the colour, options, and type of drivetrain you want. However, one question always comes up—is it better to buy or lease the vehicle? There are many points to consider before making a decision, including the cost of insurance, the number of kilometres you drive, and the interest rate.

  1. The Interest Rate

The first point to consider is the interest rate. When leasing a car, it is important to consider the price of the vehicle and to compare the actual price with the total that includes the interest rate for leasing it. At this step, it is difficult to choose based on the vehicle price only, since the total price may vary significantly based on the promotions at the time. Note that some promotions only apply to purchases, while others only apply to leases. In addition, you should be wary of any lease promotions for which the posted interest rate is 0%. The interest rate can sometimes seem enticing, but if the residual value was adjusted downward, your financial commitment may be even greater.

  1. The Cost of Insurance

Since the cost of auto insurance may vary based on whether you lease or buy your vehicle, it is only natural to consider it when making your choice. With some insurers, insurance for a purchased vehicle costs about 10% less than for a leased vehicle. This is because you benefit from a discount for owners, which reduces the cost of your insurance.

It is important to also look at the replacement value premium. People mistakenly believe that replacement value insurance is beneficial only for purchased vehicles. However, it is also recommended to purchase it for leased vehicles. Here are some reasons why:

  • If you make a cash down payment, replacement value coverage will protect your investment.
  • In the event of a loss, if your vehicle is over 2 years old or has over 40,000 kilometres on the odometer, the insurer is not required to replace damaged parts with new ones. That being said, some leases will require it, and you will then need to pay the difference out of pocket. However, with replacement value coverage, this will be included in the amount compensated.
  • In the event of a total loss, when you have driven many more kilometres than the annual number of kilometres listed in your lease, the lessor will find that you have not honoured your contract and will charge you for the excess kilometres due to overuse of the vehicle. This loss could be covered by replacement value insurance under certain conditions.
  1. The GAP Clause

Make sure that the lease also includes a guaranteed auto protection (GAP) clause. It is a clause in the lease in which the lessor waives, so to speak, its requirement to receive reimbursement for the difference between the balance it is owed and the amount paid by the auto insurer when the vehicle is declared a total loss.

If your lessor does not have this clause in the lease and you don’t have replacement value coverage, you will need to pay the difference out of pocket. 

  1. The personal side of things

Finally, besides insurance, other personal factors need to be considered when making your decision, including the number of kilometres you drive in a year. For example, if you lease your car and your limit is 20,000 kilometres per year, make sure that this is a reasonable limit for your lifestyle in both the short term and the long term, as many changes can occur during the four years of your lease, including a job change or a separation. It is good to know that the amount charged for extra kilometres driven is, on average, between $0.15 and $0.20 per kilometre. This can add up quite quickly by the end of your lease!

Choose to lease a car if

  • You enjoy changing vehicles regularly;
  • You do not want to worry about selling your car; or
  • You do not want to lose too much money when trading in your car at the dealership.

In this case, make sure that you return the car in very good condition. If you don’t, the dealer can bill you at the end of your lease for damage to the vehicle.

In short, there isn’t a single answer to the question of whether you should buy or lease your car, since too many economic and personal variables come into play. The environment can also be considered: changing your vehicle often has a certain “environmental cost”, while keeping your vehicle and maintaining it well over the years involves a smaller ecological footprint. Ultimately, you’ll need to decide which option works best for your lifestyle!

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Roxanne Hébert-McKenzie Personal-Lines Director
Damage Insurance Broker
See the profile
Nathalie Lepage, CIP Damage Insurance Broker See the profile

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