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Money Advice for Life
The Great Buy vs. Lease Debate
It’s one of the most hotly contested debates of our time: Is buying or leasing a new vehicle the way to go?
Depending on who you ask, you’ll typically get a passionate and definitive answer based on personal experience. This blog weighs the pros and cons for each alternative and attempts to crown a victor. Spoiler alert: it’s not as clear cut as you may think.
I currently drive a 2011 Ford Escape that has been an absolute dream for the past nine years. For about a year and a half, I’ve been contemplating trading it in for an upgrade but I’ve really enjoyed not having to worry about a monthly vehicle payment. The thought of trading in my SUV remained dormant in the back of my mind until one day when I was driving on Ring Road (Regina’s controlled highway that circles the city) and it hit me!
No, it actually hit me. Mid-transit, my hood flew up and smashed my windshield which left me travelling at 80 km/h on Regina’s main expressway without being able to see in front of me. Once I somehow safely navigated my way to the side of the road and got over the shock of what had just transpired, the first thing that went through my head was “it’s time for a new vehicle.”
In the past, I’ve always bought my vehicles (because that’s what Dad had always told me to do) but I’ve noticed that leasing is growing in popularity. Before I jumped on the same path, I decided to do my research to figure out the answer to the age-old question: “lease or buy?” Let’s break down both sides:
The Case for: Buying
No limits on the amount of kilometers you drive. Drive it off the lot and into the ground if you want! When you lease, you have a maximum amount of annual kilometers that you have to stay under without paying a penalty.
Your monthly payments will likely be higher than leasing, but you are paying to own. Eventually you will pay off your vehicle and will eliminate your monthly payment. I just spent five years without a vehicle payment and it made an enormous difference to my budget.
Freedom to customize, sell or trade in whenever you want. The vehicle is yours so feel free to put in those customized velvet seat covers to match the fuzzy dice hanging from your rear view mirror. You can’t do that under a lease.
No transactional fees. Depending on who you are leasing from, they may charge a “transaction fee” when you exchange your vehicle or buy it out at the end of your lease. Dealerships will claim it is to cover the paperwork that needs to be done, but these can usually be negotiated down before you sign your lease. Leasing will also require you to purchase a package policy on your insurance so be prepared for that expense as well.
Cheaper in the LONG run. Assuming your vehicle doesn’t require a ton of repairs once your warranty runs out and we’re operating in a stable market, purchasing is typically cheaper in the long run. Although your monthly payments will be more expensive compared to leasing, you will likely only need to pay for maintenance once you’ve paid off your vehicle. On the other hand, leasers will always have a monthly payment. In addition, you’ll be able to sell or trade-in your vehicle which will earn you a big chunk of change towards your next vehicle.
You don’t always have to buy new. Buying can be A LOT cheaper if you buy a used vehicle. Depending on how used the vehicle is, you will be incurring more risk for repairs but if you do your due-diligence, this can drastically boost your budget.
The Case for: Leasing
Cheaper in the SHORT term. Your monthly payments will be lower than financing a new vehicle. This allows you some more capacity to cover your monthly expenses and the ability to drive a newer vehicle without busting your budget.
Better warranty protection. Last year, I had to pay a couple hundred dollars to have my spark plugs changed. Apparently this can be done for much cheaper if you know how to do it yourself but if you are like me and feel incredibly accomplished after hanging a picture frame – finding coverage to make these repairs is definitely the best route. When leasing, the only thing you’ll need to worry about is regular upkeep (oil changes, car washes, etc.) and any damage subject to your deductible if you cause an accident.
New car every 2-4 years. When you finance a car, it will typically take you 3-5 years to pay it off and then you’ll likely spend another couple of years enjoying a life with no monthly car payment. By the time you are ready to trade-in your car, you’ll be craving the newest features. After driving without them for ten years, I would be tempted to take heated seats and a backup camera over a functional airbag at this point. A lease allows you to drive a new vehicle every 2-4 years which will help quiet your hankerings to sacrifice safety for comfort.
No money up front. When you are purchasing or financing a new vehicle, you’ll likely need to put down a big chunk of money in order to unlock smaller interest rates and shrink your monthly payments to a point where they won’t eat you alive. Buying instead of leasing typically takes more time as you’ll need to save for a while before you are ready to put a down payment on a car. You should obviously take some time to ensure leasing a new car fits your budget, but once you’ve made that decision, not having to pay any money up front can put you in the drivers seat of your new vehicle much faster.
Tax break if you are using it for business purpose. There are some tax advantages if you are leasing a car and using it for business purposes. Turbo Tax Canada breaks down these benefits in this article, but you can deduct the business percentage of your lease payments on your income tax. For instance, if you own your own business, your annual lease payment is $4,000 and you use your car for 75% business use – you may be able to deduct $3,000 on your annual tax return.
Easier to budget and no unexpected, expensive trips to the service department. I mentioned my spark plug struggle above, but that costly experience came when I took my post-warranty vehicle to the dealership to check out why my rear-windshield wiper fluid squirter (I’m quite confident this isn’t the technical term) was not working. This quick trip turned into an unexpected $2,000 purchase that included new brake pads, spark plugs, a new wiper squirter (again, not the technical term) and a few other things. This unexpected cost not only ruined my day, but it completely threw off my monthly budget and sentenced me to a month of eating ramen noodles. Because you’re always under warranty while leasing, your monthly payments are expected and you don’t need to worry about unexpected issues that will quickly burn a hole in your wallet and your budget.
No trade-in hassles at the end of the lease. Whether you are privately selling your car or looking to trade it in, it’s a huge hassle. Assuming you aren’t looking to buy-out the rest of your vehicle and you kept your vehicle in good condition, the end of your lease is quite hassle free. If you are continuing with a new lease, all you have to do is drive up with your old vehicle and drive off with a new one.
The Verdict: It Depends.
I know, I know – that’s the answer that nobody likes but it’s true. The good news is that there really is no wrong answer, but the trick is finding the best solution for you and your lifestyle. This decision is comparable to whether you want to buy or rent a house. Buying allows you more freedom to customize and is generally cheaper in the long-term, where renting removes the hassle of making repairs and gives you the flexibility to jump from house to house once your rental contract is up. If you are somebody that knows autobody, craves customization and ownership, wants to commit long-term and possesses the ability to diagnose and make repairs on your vehicle, buying may be the best route for you. If you prefer to drive a new vehicle without having to worry about maintenance costs and are comfortable with always having a monthly payment – leasing might be your best bet.
Here’s more good news – you aren’t stuck on one path for your entire life. Feel free to try out both options if it makes sense for both your budget and your lifestyle!