Quick Comparison
| Factor | Buy (Finance) | Buy (Cash) | Lease |
|---|---|---|---|
| Monthly payment | Higher | $0 | Lower |
| Ownership | Yes (after payoff) | Yes | No |
| Total cost (7-10 years) | Lower | Lowest | Highest |
| Down payment | 10-20% typical | 100% | $0-$2,000 |
| Mileage limits | None | None | 16,000-24,000 km/year |
| Maintenance after warranty | Your responsibility | Your responsibility | Covered (during lease) |
| Modification/customization | Yes | Yes | No |
| End of term | Own the car | Own the car | Return or buy out |
| Trade-in value | Yes | Yes | No (unless positive equity) |
| Best for | Long-term owners | Cash-rich, long-term | Business use, new car every 3-4yrs |
Total Cost Comparison: $40,000 Vehicle Over 10 Years
Option 1: Buy New (Finance, 5-Year Loan, 7% Rate)
| Year | Payment | Cumulative Paid | Car Value |
|---|---|---|---|
| 1 | $9,504 ($792/mo) | $9,504 | $32,000 |
| 3 | $9,504 | $28,512 | $24,000 |
| 5 (loan paid off) | $9,504 | $47,520 | $18,000 |
| 7 | $0 | $47,520 | $13,000 |
| 10 | $0 | $47,520 | $8,000 |
| Total ownership cost | $47,520 - $8,000 trade-in = $39,520 |
Option 2: Lease New (Repeated 4-Year Leases)
| Lease Term | Monthly Payment | Total Lease Cost | End of Lease |
|---|---|---|---|
| Lease 1 (Years 1-4) | $500/mo | $24,000 | Return car |
| Lease 2 (Years 5-8) | $525/mo (new car, inflation) | $25,200 | Return car |
| Lease 3 (Years 9-10, 2 of 4 years) | $550/mo | $13,200 | Still leasing |
| Total lease cost (10 years) | $62,400 | Own nothing |
Option 3: Buy Used (3 Years Old, $28,000, Finance 5 Years)
| Item | Amount |
|---|---|
| Purchase price (3-year old) | $28,000 |
| Total financed (5 years, 7%) | $33,264 |
| Drive for 10 years (car now 13 years old) | No payments for years 6-10 |
| Trade-in value at year 10 | $3,000-$5,000 |
| Total cost | $28,264-$30,264 |
Summary
| Option | 10-Year Total Cost | Own Car at End? |
|---|---|---|
| Buy new (finance) | ~$39,500 | Yes ($8K value) |
| Lease repeatedly | ~$62,400 | No |
| Buy used (3yr old, finance) | ~$28,000-$30,000 | Yes ($3-5K value) |
| Savings: Used vs Lease | ~$32,000-$34,000 |
Monthly Payment Comparison ($40,000 Vehicle)
| Method | Monthly Payment | Duration | Total Payments |
|---|---|---|---|
| Cash purchase | $0 | — | $40,000 (one-time) |
| Finance (5yr, 7%) | $792 | 60 months | $47,520 |
| Finance (7yr, 7%) | $604 | 84 months | $50,736 |
| Lease (4yr) | $480-$550 | 48 months | $23,040-$26,400 |
Depreciation: The Hidden Cost
| Vehicle Age | Value Remaining | Annual Depreciation |
|---|---|---|
| New (day 1) | $40,000 | — |
| Year 1 | $32,000-$34,000 | 15-20% |
| Year 2 | $28,000-$30,000 | 10-12% |
| Year 3 | $24,000-$26,000 | 8-10% |
| Year 5 | $18,000-$20,000 | 5-8% |
| Year 7 | $12,000-$15,000 | 3-5% |
| Year 10 | $7,000-$10,000 | 2-3% |
By buying a 3-year-old car, you avoid the steepest depreciation (35-40% in 3 years) and save $12,000-$16,000 on a $40,000 vehicle.
Lease Costs to Watch For
| Cost | Typical Amount |
|---|---|
| Excess mileage (over limit) | $0.10-$0.25/km |
| Disposition fee (at return) | $300-$500 |
| Excess wear and tear | $500-$2,000 |
| Early termination penalty | $2,000-$10,000+ |
| Gap insurance | Included or $300-$500 |
| License/registration | Same as buying |
Mileage Penalty Example
| Annual Limit | Your Driving | Excess/Year | 4-Year Penalty (at $0.15/km) |
|---|---|---|---|
| 20,000 km | 25,000 km | 5,000 km | $3,000 |
| 20,000 km | 30,000 km | 10,000 km | $6,000 |
Tax Benefits (Self-Employed/Business Use)
| Deduction | Lease | Buy (Finance) | Buy (Cash) |
|---|---|---|---|
| Monthly deduction cap | $950/mo + HST (2025) | CCA (capital cost allowance) | CCA |
| HST on payments | Deductible (business %) | Input tax credit (business %) | Input tax credit |
| Interest deduction | Included in lease payment | Up to $300/month (2025) | N/A |
| Business-use % deductible | Yes (gas, insurance, maintenance too) | Yes | Yes |
| Simplicity | Very simple (monthly expense) | More complex (CCA calculations) | CCA calculations |
Example: 50% Business Use, $600/Month Lease
| Item | Annual Cost | Business Deduction (50%) |
|---|---|---|
| Lease payments ($600/mo) | $7,200 | $3,600 |
| Gas | $3,000 | $1,500 |
| Insurance | $2,000 | $1,000 |
| Maintenance | $500 | $250 |
| Total deductions | $6,350 | |
| Tax savings (at 30% rate) | ~$1,905 |
Decision Framework
| Your Situation | Best Choice | Why |
|---|---|---|
| Keep cars 7+ years | Buy (new or used) | Lowest total cost |
| Want newest car always | Lease | New car every 3-4 years |
| Drive 25,000+ km/year | Buy | Avoid mileage penalties |
| Self-employed (business use) | Lease | Simpler tax deduction |
| Cash-rich, want lowest cost | Buy used with cash | Absolute cheapest option |
| Limited budget (need lower payments) | Lease (short term) or buy used | Lease has lower monthly, but buy used is better long-term |
| Want to modify/customize | Buy | Lease restricts modifications |
| Credit score building | Finance (buy) | Loan builds credit; lease may not |
| Uncertain future (may move, job change) | Lease | Easier to walk away at term end |
Best Strategy: Buy Used, Invest the Savings
| Step | Details |
|---|---|
| 1 | Buy a reliable 3-year-old car ($25,000-$30,000 vs $40,000 new) |
| 2 | Finance if needed, or use savings |
| 3 | Keep for 7-10 years |
| 4 | Invest monthly savings ($200-$400/mo) in TFSA |
| Savings over 10 years | $24,000-$48,000 invested → grows to $35,000-$75,000 |