Buying versus leasing a car - What's right for you?

Thanks to Kathleen - Credit Specialist

When you're getting a new vehicle, you've got lots of decisions to make. Compact or Sedan? Standard or Automatic? Are heated seats really worth the extra money? And then comes probably the biggest decision of all - are you going to lease or buy?

While many people have opinions on this topic, there really is no right answer. Both options have benefits that appeal differently to different people. To know what works best for you, you just have to figure out how you will use your vehicle and look at how each option stands up to your needs.

When you lease, you make monthly payments in exchange for the exclusive use and possession of a vehicle instead of actually buying one. So this is a great option if you want to drive a new vehicle every few years.

However, it is very important that you become aware of the conditions that come with leasing. For example, there is often a maximum number of kilometres you can drive in a year, the vehicle must be regularly serviced according to the terms and conditions of the lease and there are penalties if you break the lease before the end of the term.

When you buy a vehicle, you usually get financing from a bank, so you're still making monthly payments. Car loans range from 1 to 7 years so that monthly amount can really vary to fit your budget.

You also have the flexibility to pay it off faster. And once your loan is paid, you'll have a fully-owned vehicle. The best part is, those monthly payments will stop, freeing up cash for other things.

The decision really comes down to how you'll use your vehicle and what you can afford. Will you want to upgrade every few years, or will you have your vehicle for 5 years or longer?

How much will you be driving it? And finally, for the vehicle you're looking at, how do the lease payments and potential surrender charges compare to a monthly loan payment?

Once you know what you want - and need - out of your vehicle, deciding whether to lease or buy is easier. Then, you can move on to your next decision. Like, do you go for metallic black or classic white...? Or maybe fire engine red is more your style?


Visit the RBC Advice Centre for more information.