Example costs: Car lease vs. finance
Meet Kate, an Ontario resident, who’s looking to get a car with less of an environmental impact than a traditional vehicle. After doing some research, she picks out a 2020 Ford Fusion Hybrid SE with an MSRP of $29,375.00.
Below is a breakdown of Kate’s possible costs if she leases or buys the vehicle, given similar rates and terms. Note that she’ll also have to pay around $180.00 to register her car with the provincial government, which includes the cost of license plates, a sticker and a vehicle permit. Also keep in mind that, if Kate chooses to lease, she could end up paying extra if she exceeds her yearly mileage limit or puts excess wear and tear on the car.
Example costs of leasing vs financing a car
Financing | Leasing | |
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Purchase price of new vehicle | $31,000.00 | $31,000.00 |
Down payment | $6,200.00 | None required |
Loan amount (after tax) | $29,140.00 | N/A |
Interest rate (APR) | 5.90% | 5.90% |
Term length | 5 years | 5 years |
Additional fees |
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Payment amount |
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Total cost by the end of term |
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*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors. |
It looks like Kate will spend around $900 less on a car lease over five years than she if she financed the car over five years. But before you start thinking car leases are more cost-effective, consider what happens next.
After the five year mark, Kate would have to start paying for another car lease or loan, which means she’ll still be making monthly payments towards a car. On the other hand, if she had financed the car instead of leasing, she would own the car outright at this point, and no longer be bound to making monthly car payments.
If Kate keeps the financed car for another few years after she’s done paying off the car loan, she’ll end up saving thousands of dollars in car payments. Even when you factor in the additional maintenance costs required to keep an older car running smoothly, it’s still much more cost-effective for Kate to finance a car and keep it for several years after paying off the loan, than it would be to continually lease a car.