You have a few options when it’s time for a new vehicle. You can buy the car outright with cash, finance it, or take out a lease. While purchasing a vehicle outright and financing one are relatively straightforward processes, there are some nuances to leases that can be confusing.

Car leasing has its benefits and drawbacks. Below, we cover some of the most important pros and cons of car leasing so you can make an informed decision on your next vehicle.

How Car Leasing Works

Car leasing is similar to a typical car loan in that you make an upfront down payment and continue making monthly payments for a specific duration. However, that’s where the similarities end.

In car leasing, the big difference is you have to decide between the following options at the end of the lease contract:

  • Return the vehicle to the dealership
  • Buy out the vehicle for the residual value
  • Take out a lease on a new vehicle
  • Trade the vehicle in for another vehicle

When you sign up for a lease, you’re essentially paying for the amount of the vehicle value you will use plus a rental fee known as the “money factor.” Because you’re only paying for the amount of the vehicle you use, the monthly payments are often significantly lower than if you financed the whole vehicle.

The leasing company knows how much of the vehicle’s value you’ll use due to the constraints and limitations within the lease contract. The lease contract generally limits the number of miles per year you can drive and stipulates processes for all mechanical and visual repairs.

Car Leasing Pros and Cons

While the immediate financial savings car leasing offers seems like a no-brainer, leases aren’t all good. You must consider the pros and cons before signing up for a new car lease.

Car Leasing Pros

There are some clear-cut benefits to car leasing in Canada. Here are a few common benefits.

Frequent New Cars

Depending on the lease term you choose, you could get a brand-new car every 2-4 years if you lease consistently. This means you’ll always be within the manufacturer’s warranty and have the latest features.

Leasing is a strong option for those who frequently get a new car and must have all the latest features.

Lower monthly payments

When you buy a new car, you’re paying for the entire thing. When you lease a car, you only pay for the amount of the car you use plus a rental fee known as the “money factor.” This makes lease payments generally far lower than loan payments on an equivalent vehicle.

Free maintenance, sometimes

Automakers have a vested interest in keeping their lease vehicles in top-notch condition, as lease turn-ins often make up a large portion of their certified pre-owned (CPO) inventory. To help keep them in top condition, some automakers will include free maintenance during the lease at its local franchised car dealership.

While this generally is just simple oil changes and tire rotations, it can still save you several hundreds of dollars during the lease term.

Long-Term Test Drive

When leasing a vehicle, you can buy it out for the residual value at the end of the lease term. This effectively gives you a long-term test drive to ensure you like the vehicle before choosing to buy it. If you don’t like the vehicle, you can turn it in and pay only the disposition fee — turn-in fee — at the end of the lease and get a different vehicle.

Car Leasing Cons

While the benefits of leasing are enticing, there are plenty of cons to consider before jumping into a lease. Here are a few things that may make you reconsider a lease.

You Don’t Own the Vehicle

You don't own the vehicle unless you choose to buy out the vehicle at the end of the lease term. Instead, you are essentially renting it for the years you drive it and have nothing to show for all the monthly payments you made at lease-end.

New Car Depreciation

You can only lease a new car — used cars aren’t eligible for leasing — so you are stuck with the massive depreciation new cars go through in their first few years. In year one, a vehicle can lose up to 20% of its value and another 15-25% every year in its first five years on the road.

This means the bulk of its depreciation occurs during your lease. And since your lease payments cover the amount of the vehicle you use, you’re essentially paying off the depreciation for the leasing company.

No Modifications

Nearly every lease contract requires you to return the vehicle in its factory condition, this means with no modifications. If you like to customize your vehicles in any way — wheels, tires, window tint, upgraded audio system, and more — you will likely need to remove this equipment or refrain from adding it. If you return a leased vehicle with any customizations, you could be charged an additional fee.

Lease-Termination Fee

If you decide you don’t like your leased vehicle and choose to sell or trade it before the lease expires, you could be stuck with a hefty lease-termination fee. This fee is in addition to paying off the remaining lease balance and can make it nearly impossible to exit the lease before the term ends.

Lease Disposition Fee

When you turn in your vehicle at the end of the lease, some companies will charge you a lease disposition fee. This can cost hundreds of dollars, depending on the company you’re working with. Some companies will waive this fee if you buy out the lease, use the lease car as a trade-in on a new vehicle, or lease another new vehicle when turning in your current lease.

Wear-and-Tear Fees

Lease contracts will specify that the vehicle must be returned in good condition. If there is any damage to the vehicle or excessive wear and tear, the lease company may charge you a fee to cover the repairs.

Kilometer Limitations

Leases will almost always include kilometer limitations — generally 20,000-24,000 km per year. So, if you have a three-year lease, you can only drive the vehicle 60,000-72,000 km. If you exceed this limitation, you may incur a 7- to 15-cent-per-km fee at the end of your lease agreement.

Maintenance Requirements

Though some leases may include free maintenance, they may also dictate where you receive this maintenance. This generally means you must have your leased vehicle maintained by one of the automaker’s franchised dealerships. This can be inconvenient, as the dealership may not be near your home or it may be difficult to get an appointment.

Also, if the maintenance isn’t included as part of the lease, having your vehicle maintained by the dealership is generally more expensive than a third-party repair shop.

Skip the Lease and Save Money With Clutch

While the lower monthly payments a lease offers relative to financing a new car can be enticing, the limitations and fees associated with a lease can be overwhelming. Skip all this hassle and get a great price by purchasing a quality pre-owned vehicle from Clutch, Canada’s largest online used car retailer.

All our vehicles go through a 210-point inspection and reconditioning process before we sell them, ensuring they’re in top-notch condition. We also include a  free 90-Day Protection Plan for good measure. Plus, you get a 10-day money-back guarantee. If you don’t love your Clutch car during that period, we’ll come pick it up for free. No questions asked.

We can also set up the financing for you with a great interest rate and take your current vehicle in on trade to help lower your monthly payments.

Check out our quality pre-owned vehicles and choose the best car for you, then we’ll help you secure financing and then deliver the vehicle to you. And you’ll get all this without ever setting foot inside a car dealership.

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