Car Lease vs Buy Calculator Canada

How does this lease vs buy comparison work?

The lease vs buy calculator compares the total cost of each option over the same time period. For leasing, total cost equals all monthly lease payments plus the down payment plus any excess kilometre charges. You build no equity, so the cost at the end is everything you paid. For buying, total cost equals the down payment plus all loan payments minus the vehicle's estimated resale value at the end of the analysis period.

The key difference is equity. When you buy a vehicle and finance it over 72 months, you own an asset at the end. A $45,000 vehicle kept for 5 years is typically worth $20,000 to $24,000 at resale, depending on condition and mileage. That resale value offsets the higher monthly payments. When you lease, your monthly payments are lower because you only pay for the vehicle's depreciation during the lease term, but you walk away with nothing at the end.

This calculator uses an exponential depreciation model for the buy scenario. Vehicles lose approximately 20% of their value in the first year and roughly 12% per year after that. These figures are consistent with Canadian Black Book data for mainstream vehicles. Premium and luxury vehicles may depreciate faster or slower depending on brand and model.

Provincial sales tax is handled differently in each scenario. When you buy, sales tax is charged on the full purchase price and typically rolled into the loan. When you lease, sales tax is charged on each monthly lease payment. In both cases, the calculator applies the correct provincial rate for your selected province.

When does leasing cost less than buying?

Leasing costs less in a few specific situations. If you plan to keep a vehicle for 3 years or less, leasing almost always wins because you avoid the steepest depreciation without committing to a long loan. On a $45,000 vehicle over 3 years, a lease typically costs $24,000 to $28,000 total, while a financed purchase costs $32,000 to $36,000 in loan payments with a resale value of $25,000 to $28,000, resulting in a net cost of $4,000 to $11,000. The lease is cheaper because the residual value in the lease contract absorbs the depreciation risk.

Leasing also wins if you drive fewer kilometres than the lease allowance. The lease payment is calculated based on a projected residual value, and if you keep the vehicle in excellent condition with low mileage, you benefit from that projection without any adjustment at lease end. You only pay excess km charges if you exceed the allowance.

For business owners, leasing can be more tax-efficient. Lease payments are deductible as a business expense up to the CRA monthly limit ($1,050 per month for vehicles under the prescribed amount in 2026). Buying allows capital cost allowance (CCA) deductions, but the deduction is spread over several years. Consult an accountant to determine which is better for your specific tax situation.

Manufacturer-subvented leases (where the manufacturer artificially inflates the residual value or subsidizes the money factor) create exceptionally good lease deals. If a manufacturer sets the residual at 60% when the vehicle actually retains only 50%, you are paying for 40% depreciation instead of 50%. These promotions make leasing significantly cheaper than buying the same vehicle.

When does buying cost less than leasing?

Buying almost always costs less over the long term. If you keep a vehicle for 5 years or more, the math favors buying because you eventually pay off the loan and drive payment-free. A $45,000 vehicle financed over 72 months at 6.5% costs approximately $55,500 in total payments. If you keep it for 8 years, the vehicle is worth roughly $14,000 at resale. Your net cost over 8 years is about $41,500, or $432 per month. Leasing the same vehicle for 8 years (two 48-month leases) costs approximately $56,000 to $62,000 with no equity at the end.

Buying also wins for high-mileage drivers. If you drive 30,000 km per year, a lease with a 20,000 km allowance generates 10,000 excess km per year at $0.12 to $0.20 per km. Over 3 years, that adds $3,600 to $6,000 in excess charges on top of your lease payments. When you buy, there are no mileage restrictions, and while higher mileage reduces resale value, the impact is less than excess km penalties.

The break-even point between leasing and buying depends on the analysis period, interest rates, and the vehicle's depreciation curve. For most mainstream vehicles in Canada, buying becomes cheaper than leasing once you hold the vehicle for more than 4 to 5 years. The longer you keep it after paying off the loan, the greater the advantage of buying.

Vehicles that hold their value exceptionally well (Toyota, Honda, Subaru) make buying even more attractive because the resale value remains high. Vehicles that depreciate rapidly (luxury European brands, some EV models with fast technology turnover) can make leasing more appealing because you transfer the depreciation risk to the leasing company.

How does vehicle depreciation affect the comparison?

Depreciation is the single largest cost of vehicle ownership, and it affects leasing and buying differently. A new vehicle loses approximately 20% of its value in the first year and about 50% over 5 years. On a $45,000 vehicle, that represents $22,500 in lost value over 5 years.

When you lease, you pay for depreciation directly through the depreciation portion of your monthly payment, which equals (Net Cap Cost minus Residual Value) divided by the lease term. The residual value set by the leasing company determines how much depreciation you pay. A higher residual means less depreciation cost to you.

When you buy, you absorb all depreciation but recover some of it through resale. The key risk is that actual depreciation may exceed expectations, leaving you with less resale value than anticipated. This risk is particularly acute with long loan terms (72 to 84 months) and small down payments, which can lead to negative equity for the first 2 to 4 years of ownership.

The depreciation curve flattens after year 3. A vehicle that lost $9,000 in year 1 might lose only $3,500 in year 5. This is why buying and holding for 7 to 10 years is the most cost-effective approach: you absorb the steep early depreciation and then enjoy years of low depreciation and no car payments.

Worked example: $45,000 vehicle over 5 years in Ontario

This example compares leasing vs buying a $45,000 vehicle in Ontario (13% HST) over 5 years with a $5,000 down payment and 20,000 km/year driving.

Lease scenario: Money factor 0.00250 (6.00% APR), residual 55%, 36-month term. Monthly payment (with HST): approximately $613/month. Over 5 years (re-leasing after 36 months at the same terms), total lease payments are approximately $36,780. Add the $5,000 down payment. Total lease cost: approximately $41,780. Equity at end: $0.

Buy scenario: Loan rate 6.50%, 72-month term. Sales tax: $5,850. Loan amount: $45,850. Monthly payment: approximately $770/month. Over 5 years (60 of 72 months), total payments are approximately $46,200. Estimated resale value at 5 years: $21,589. Net buy cost: $5,000 down + $46,200 payments - $21,589 resale = $29,611. Equity at end: $21,589.

Result: Buying is approximately $12,169 cheaper over 5 years. The buyer also holds $21,589 in equity. The lease results in lower monthly payments ($613 vs $770), but the total cost is higher because no equity is built.

If the analysis period is shortened to 3 years, the comparison shifts. The lease costs approximately $27,068, while the buy costs approximately $5,000 down + $27,720 payments - $27,878 resale = $4,842. Over 3 years, buying still wins, but the monthly payment burden is higher. If you need lower monthly cash flow and plan to switch vehicles every 3 years, leasing may be the better fit despite the higher total cost.

Tips for deciding between leasing and buying

The right choice depends on your specific financial situation, driving habits, and preferences. Here are six practical guidelines to help you decide.

• ✓If you keep vehicles for more than 5 years, buy. The longer you hold a vehicle after paying off the loan, the cheaper ownership becomes on a per-month basis. Leasing never gives you payment-free months.
• ✓If you drive more than 20,000 km per year, buy. High mileage generates significant excess km charges on a lease, often $2,000 to $5,000 over the lease term. Buying has no mileage restrictions.
• ✓If you want a new vehicle every 3 years with lower payments, lease. Leasing gives you predictable monthly costs, full warranty coverage, and the freedom to switch vehicles at lease end.
• ✓Always compare total cost, not just monthly payments. A lease payment of $600/month sounds cheaper than a loan payment of $770/month, but over 5 years the lease costs $12,000 more when you factor in equity.
• ✓Check the manufacturer's current lease specials before deciding. Subvented lease deals with inflated residual values or low money factors can make leasing genuinely cheaper than buying for 2 to 3 year analysis periods.
• ✓Consider opportunity cost. The difference in monthly payments between leasing and buying could be invested. If you lease at $600/month instead of buying at $770/month and invest the $170 difference at 6% return, after 5 years you have approximately $11,800 in investments. Factor this into your total comparison.