Leasing a car in Canada isn’t a difficult process, but it does take a lot of planning. Learning where to start — and how to spot a good deal — can help you save time and money at the dealership. Read this guide to get the most out of your next lease agreement.
6 reasons why you may want to lease a car
If you like the sound of these 6 features, leasing a car in Canada may be for you:
1. Flexibility
A lease is going to give you the most flexibility with the least hassle. You can change the type and size of your car as your needs change. And the more you lease, the more you save.
Love a manufacturer? You may be able to score a loyalty bonus. Want to change brands? Competitors often offer a conquest bonus to people who switch from a qualified lease. You might not get the same kinds of discounts when you buy.
2. Newest technology
Vehicle technology is updated each model year. Leasing lets you take advantage of changes in infotainment systems, safety regulations and design.
Think about the rise of bluetooth and Wi-Fi hotspots. Only luxury trims had them in the beginning, but now every car comes equipped.
If you want to be part of the next trend, a lease gives you the opportunity — without needing to buy the most tricked-out trim available.
3. Lower monthly payment
It’s no secret that leases are cheaper in the short term. Because you’re only paying for a portion of the car’s ownership and depreciation, you’ll pay less than if you’d financed. This is especially true for luxury cars. The high price point combined with high depreciation make leasing a much more appealing option for drivers seeking an expensive ride.
But don’t forget — leasing will always cost more money in the long run. You should compare the costs between leasing and buying to see which option makes more sense for your preferences and lifestyle.
4. Tax deductions
If you own a business that involves a lot of driving, leasing may be a good option. The CRA allows you to deduct a portion of your monthly lease payments. But the tax deductions are best for luxury brands, so choose the car you work with wisely.
5. Less maintenance
Many manufacturers offer discounted or free maintenance programs, saving you hundreds of dollars over the life of your lease. Maintenance and repairs are a major competent of the cost to owning a car. If your lease includes free maintenance, you could end up saving a lot of money.
Even if yours doesn’t, you’ll still save. Cars require more maintenance and repairs as they age. If you’re switching things up every few years, you won’t have to keep up with rising maintenance costs.
6. Warranty and maintenance coverage
Because a lease will only last 2 to 4 years, your car will be covered under the manufacturer’s bumper-to-bumper warranty. This means you won’t be on the hook for any mechanical problems that crop up. Even better, you won’t need to worry about things like extended warranties.
Why leasing may not be the best idea
Leasing is a great choice for some — but it has its fair share of downsides, too:
More expensive than ever. Leasing a car doesn’t save the same kind of money it used to. Rising costs and lower residual values mean you may be paying more each month — with nothing to show at the end.
Good credit required. You may not be paying interest on a loan, but you’ll still need good credit to get a low money factor rate.
Caps on the number of kilometres. Leases are typically capped at 12,000 km per year — which may not be enough if you have a long commute everyday.
Excessive fees. Between the disposition fee and high down payment, you’ll have to hurdle some major upfront costs — not to mention lease-end fees at the end of your contract.
Penalties for breaking contract. If you need out of your lease, prepare to pay a large penalty fee. Some companies will allow you to swap leases with someone else, but if not, you could be stuck with your contract if you can’t afford to break it.
What should I do if my lease is ending?
If your lease is ending this year, consider these options to help save money:
Extend your lease. If you aren’t sure about leasing or buying, you may be able to extend your lease up to a year to have more time to research your options.
Buy your car. Most lease contracts have a buy-out clause. If you’ve fallen in love with your car, it may be less expensive to commit to it.
Shop preowned. Manufacturers offer great deals on certified preowned (CPO) vehicles. You’ll avoid the sticker-shock of buying new, while still getting a well-maintained car — usually a former lease.
Like car loans, leases aren’t one size fits all. While different dealerships might have their own special programs, most leases typically fall into 2 categories:
Closed-end lease. The most common for individuals, closed-end leases typically allow you to return your car at lease end without worrying about the difference between the residual value of the car and its actual value. You also usually have the option to purchase the vehicle or extend the lease.
Open-end lease. More common for businesses, an open-end lease puts all the responsibility on the lessee. This means you’ll have to pay the difference between the car’s residual value and its actual value at the end of your lease. So if your car isn’t worth as much as the dealership estimated at the beginning of your lease agreement, you may owe money — in addition to other closing fees.
Step 2: Create a budget
Figure out how much you can afford to pay monthly for your lease. Add up your mortgage or rent payment, utilities and other recurring monthly expenses and subtract that from your monthly income after taxes. This will give you an idea of how much money you have left over each month to put toward your lease payments. Don’t allocate all of that leftover cash for your lease, though. You should still have a safety net to use in case any emergency expenses pop up during the year.
On top of thinking about your monthly lease payments, you’ll also want to save up for some of the other costs that come with a lease. While these usually vary by dealership, they might include:
Down payment
First month’s payment
Security deposit
Acquisition fee
Disposition or buyout fee
Documentation, title and licensing fees
Sales tax
Keeping these costs in mind when you begin shopping can help you find a make and model that fits your budget. The Canadian Automobile Association (CAA) has a good tool for estimating the cost of your vehicle beyond the purchase price. You might also want to contact your insurance company once you have an idea of the car you plan on leasing — it could impact your current premiums.
If you don’t already know what kind of car you want, take the time to carefully research what’s out there. You might want to pay special attention to cars that have a strong residual value — dealerships usually charge less for these vehicles since they’ll be worth more at the end of your lease agreement.
Use resources like the Canadian Black Book, autoTrader.ca and CARFAX Canada to see how much you might expect to pay for a lease for certain makes and models. You may also want to check deals offered by the manufacturer and local dealerships. Some might have special leasing offers that come with low APRs or don’t require cash down at signing depending on the model.
Some dealerships may even have used cars available for lease, so see if any of these fit your style before settling on the latest and greatest model.
Step 4: Request quotes from multiple dealerships
Contact multiple dealerships to gather quotes, keeping these 3 numbers in mind:
Lease term: Usually 24 or 48 months
Drive-off fees: Vary by location but can range from several hundred to several thousand dollars
Mileage: Usually 10,000 to 20,000 km per year
Ask what your monthly payment would be for your chosen term and mileage limit, noting the potential APR and the car’s estimated residual value as well. You’ll also want to ask about your lease-end options, especially if you think you might want to purchase the car when your agreement is up.
For example, you might tell the salesperson that you want to lease a 2020 Toyota RAV4 for 3 years, expect to drive around 12,000 km per year, don’t want to pay more than $1,500 in drive-off fees and want the option to purchase the vehicle at the end of your lease.
Step 5: Pick the best lease deal
Once you have quotes from a few dealerships, choose the one that gives you the most bang for your buck. This might include a cashback bonus, a low APR or a small down payment — whatever setup benefits you most. In fact, some dealerships will even adjust your offer based on other dealerships, so don’t be afraid to try out your negotiation skills and leverage your dealership with offers from other sellers.
Step 6: Finalize your lease
If you’re happy with your lease terms, it’s time to sign the paperwork. Most dealerships also require you to provide proof of insurance at this time. After the last documents are signed, the car will be yours for the next few years. Just be sure to keep up with maintenance and track your mileage to avoid extra fees at the end of your lease.
How to get a good deal on a lease
Here are a few tips to keep in mind to help you find a lease that benefits you the most.
1. Pick a car that maintains its value
While you’re on the hook for interest, taxes and fees when you lease a car, you’re also responsible for depreciation for the years you drive it. Over a 3-year period, the value of a vehicle tends to go down by 40-50%. The better your car holds its value, the lower your lease payments will likely be.
Online resources like the Canadian Black Book and ALG publish annual lists of car models that keep the most value. According to ALG’s 2019 Residual Value Awards, some of the vehicles in Canada that retain the most value over a 3-year period are the:
Subaru Impreza (Compact Car)
Chevrolet Bolt EV (Electric)
Honda Accord (Midsize)
Toyota Avalon (Fullsize)
Mercedes-Benz S Class (Premium Executive)
Subaru WRX (Sportscar)
Subaru Outback (Midsize Utility 2nd Row Seating)
Jeep Wrangler (Off-Road Utility)
Honda CRV (Compact Utility)
Toyota Sequoia (Fullsize Utility)
Toyota Tacoma (Midsize Pickup)
Toyota Tundra (Fullsize Pickup)
Honda Odyssey (Minivan)
2. Understand the car’s price
Once you’ve found a car you’re interested in leasing, research prices before you visit a dealership. Models come with different options and features, so view average sales prices from sources like autoTrader.ca, the Canadian Black Book and CARFAX Canada to keep yourself informed. Keep an eye on the invoice price — the price the dealership paid for the car — and any other rebates that might apply so you can negotiate more easily. This is often the lowest price you could possibly pay and can help you during negotiations. Sites like Unhaggle and CarCostCanada can help you research the lowest possible price and even point you to dealerships offering the type of car you want.
3. Check manufacturer leasing specials
Manufacturers often offer leasing specials to help create more demand for a specific model. Many focus on getting the monthly payment low — usually by reducing the interest rate — or requiring a minimal down payment. When browsing deals, pay attention to how much you’ll have to put down, signing fees you might have to pay and how long the lease will last.
You should also be on the lookout for restrictions like mileage limits and maximum allowable wear and tear – go beyond these allowances, and you’ll have to pay additional fees. Compare leasing promotions to deals offered by other manufacturers to make sure the incentives will actually benefit you.
4. Get quotes from multiple dealerships
Once you know which car has a good resale value and you understand its average price, take some time to request quotes from multiple dealerships. See if dealers have the specific model – plus any add-on features you want – in stock, and find out what leasing offers are available.
Specify how much you can afford to pay up front, including the down payment and drive-off fees. Then ask what kind of interest rate — known as the lease factor — you can expect. You can use our guide to calculating the cost of your lease to see how much a lease payment will be based on the car’s price, interest rate and fees.
5. Compare leasing offers and prepare to negotiate
Read through the fine print of the different offers you’re considering to understand all the costs involved. A leasing special that offers a lower interest rate but comes with higher fees and a larger down payment may cost you more in the long run than opting for a higher rate with fewer fees and less money up front.
After you’ve gathered a few quotes and compared them thoroughly, go for the deal that offers the most bang for your buck. If 2 dealerships offered similar terms, you might be able to use a competitor’s quote as fuel for negotiations. Ask if the dealership can match a competitor’s quote or offer better terms. It might be tedious, but you’ll want to go over every fee involved when selecting your lease terms to ensure you’re getting the best deal available to you.
6. Customize your lease to meet your needs
If you’ve found a good leasing offer, be specific when discussing terms with the dealer. Most people choose a 36-month lease with the ability to drive 10,000 km per year, but work with the salesperson to customize it to fit your exact needs. Negotiating a higher mileage limit from the get-go can help you avoid overage fees down the road.
You’ll also want to ask about your end-of-lease options — especially if you think you might want to buy the car when your term is up.
7. Understand your options at lease end
Don’t skip over the fine print when it comes to returning your car. Even if you don’t plan on purchasing the car at the end of the lease, you’ll still be responsible for any excessive mileage or wear and tear. Be prepared to negotiate the fees you’ll be expected to pay.
What are the typical fees involved in a car lease?
While there may be extra costs to your lease — such as a security deposit or down payment — these are the most common fees you’ll face when leasing a car in Canada:
Acquisition fee. Also known as a bank fee, the acquisition fee is simply the amount charged by the leasing company to set up the lease. It can be high — anywhere from $400 to $900 or more — and is typically not negotiable.
Documentation, licensing and registration fees. Just like with a car purchase, you’ll need to pay various fees depending on where you live and dealership. You can check your provincial/territorial laws for most — and you may be able to negotiate the documentation fee with your dealership.
Disposition fee. A disposition fee covers the expense of cleaning, making minor repairs and selling your vehicle. It may be negotiable, but you should still expect to pay several hundred dollars. And if there is any excessive wear and tear, you may be charged additional fees.
Excess mileage fee. This is charged only if you go over the set mileage limit on your lease contract. But it can be high — usually between $0.07 and $0.15 per km. If you’re close to the limit, you may be able to purchase more miles at a lower rate by contacting the dealership.
Lease termination fee. If you choose to end your lease before the term expires, you may be responsible for a lease termination fee on top of everything else you have to pay. It could cost you several thousand dollars to break your lease, so only do so as a last resort.
Also known as net capitalized cost, this is the number your monthly payments are drawn from. It includes the vehicle cost minus the down payment as well as any fees or charges that aren’t paid at the beginning of the lease term.
Also known as gross capitalized cost or cap cost, this is the negotiable selling price of the car as well as additional fees that are included in the monthly lease payment.
Also known as cash down, this is the money you pay up front to lease a car, similar to a down payment.
A vehicle’s decrease in value during the lease term. Most vehicles depreciate 40% to 50% over the course of an standard 3-year lease.
When you end your lease before the scheduled date. This often leads to an early termination fee.
Covers the difference between the outstanding amount you owe on your lease agreement and your insurance payout if your car is stolen or totaled.
The person taking out a lease on a vehicle owned by a third party.
The person or company that leases a vehicle to an individual or business.
Also known as a mileage limitation, this is the fixed mileage amount during a lease contract. It’s often set between 10,000 and 20,000 kilometres per year the vehicle is leased, though it’s often negotiable.
Also known as a lease factor, this is used by some lessors to determine the interest charged on a lease. To calculate your interest rate, simply multiply the money factor by 2,400. For example, a money factor of .002 amounts to an interest rate of 4.8%.
Covers depreciation, amortization — which is paying off debt through regular principal and interest payments —and finance charges. Typically, sales tax and fees are also added to the monthly payment.
The ability to buy a vehicle during or at the end of the lease period. You may be charged a purchase option fee.
A vehicle’s projected value at the end of the lease. This is set at the beginning of the lease term and deducted from the adjusted capitalized cost to determine depreciation. At the end of the lease term, it may be higher or lower — resulting in you owing money or receiving compensation for the amount you over paid.
The amount you put down on the vehicle to cover any damages that occur during the lease term.
A plan or program where the manufacturer subsidizes the cost of leasing a vehicle.
Bottom line
Leasing a car in Canada can be a convenient way to keep things fresh and try out new tech features every few years. Looking into cars with high residual values and comparing quotes from different dealerships can help you snag a competitive deal.
Frequently asked questions
Yes, it’s possible to lease a car without making a down payment, though your monthly payments will likely be higher since you’re not paying down your leasing costs front.
It depends on the time of year you choose to lease, the type of car you want to drive and a variety of other factors. In general, the best lease deal will depend entirely on what you want out of a lease. You can browse online sites like autoTrader.ca to find a list of deals in your area.
When you’re in possession of a leased vehicle, you’re responsible for its general maintenance — although some companies might cover this — as well as any damages that occur during the lease term.
You might want to consider leasing an electric vehicle instead of buying — at least until the green technology stops improving at such a rapid rate.
It depends on your needs and the monthly payment you can afford. Going with a lower down payment may be beneficial if you can afford the higher monthly cost. This is because the money you put down is essentially lost: If the car is totaled during the lease, you’ll be out both that money and the car. If you spread that cost out over several years, you may lose less overall.
Perhaps, though these deals are usually reserved for people with excellent credit and a high income. Even if you don’t quite make the cutoff for one of these special offers, you can still use your credit score to negotiate a lower interest rate or smaller down payment.
Maybe, though most dealerships aren’t eager to offer this option. But if you state that delivery is a condition of acceptance, you may be able to sway yours. Having your car delivered can help you avoid last-minute sales pitches and the added stress of having to endure the dealership’s financing office.
You may be able to find an auto concierge service that will perform this service for you for a fee. Check out our guide to car buying services to learn more.
If you’ve fallen in love, have a potential buyer lined up or can negotiate a lower buyout price, you might want to buy your leased car. Even if you don’t want to keep it, you can always sell it for a down payment on another car. You can learn more with our article on 5 reasons you may want to buy out your lease.
There is no minimum credit score required to lease a car, so those with bad credit can lease a car. Leasing a car can improve your score as long as you make your payments on time.
Kellye Guinan is a freelance editor and writer, specializing in consumer lending. Her writing and analysis has been featured on Bankrate, MSN and MediaFeed. She holds degrees in anthropology and German language and literature from Middle Tennessee State University.
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Manufacturers often offer leasing specials to help create more demand for a specific model. Many focus on getting the monthly payment low — usually by reducing the interest rate — or requiring a minimal down payment. When browsing deals, pay attention to how much you’ll have to put down, signing fees you might have to pay and how long the lease will last.