The Difference in Financing and Leasing

What is the difference in leasing a car in Canada and financing a car in Canada? To easily explain this I will will refer to the “lease” as a co owned vehicle and I will refer to the finance as an “owned” vehicle. “co-owned” meaning the dealer and the client. “owned” meaning the client. This may seem scary but its really not, and it is common when looking to purchase a vehicle in Canada . A lot of dealerships now are using in house financing for a car . This could be structure like a finance and or structured like a lease. When a car dealer structures it like a finance and calls it a lease this will simply mean that the dealer has easier rights to retrieve the vehicle if the client decides not to pay. When it is a  car Finance contract or a conditional sales contract the lender will need to spend more money and time to retrieve the vehicle if the client goes delinquent. Now, to break this lease down further. Most leases will come with some sort of lease fee. This fee can be added to the selling price or shown on a monthly basis. This will depend which lender you are using. With the fee shown on a monthly basis it may allow you to save some money if you decide to pay the loan out early. If you go with a lease where the fee is built into the selling price the interest rate on the lease may be a bit cheaper but the fees will be part of the overall amount of the car loan principle(amount the interest in calculated on). I am not saying one way is better than the other, just a different way to calculate the complete loan. With leases their is usually, but not always, a buyout at the end. This is called the residual. This means that on a lease your payment is usually smaller than it would be on a finance. This is because of the residual that i owed at the end of the term. For example, if the term of the loan is 48 months and the buyout is $2000, then naturally your payment would be cheaper versus a finance where the term in 48 months with no residual. This will allow a person to handle the payments a lot easier but you would have to come up with the residual amount at the end of the 48 months, to own the vehicle. Some companies will let you re-term the residual as well. This is a benefit to the clients that don’t have the extra money at the end of term to buyout the loan completely. As I mentioned before not all companies have a residual at the end of the lease term. Also keep in mind that on a lease a down payment is needed to cover first month payment.

Now over to financing a car . Financing, again, means you own the vehicle while you are paying. This means the title is in your name alone, and not the lenders and yours. This being said, the lender will always have a lien on the vehicle until it is paid off. This wont change in either case, but the title itself will be a single persons name, as mentioned prior. A finance term is usually longer than a lease term, but of course will depend on the year of the vehicle and the allowances by the lender. On a car finance their isn’t any monthly fees that will get added like a lease. On a finance their might be a charge for the lender to put the loan together. Finance fees are usually normal as the lender or dealer will use their resources to get the loan approved.

This is the difference between leasing a car and financing a car in a nutshell. Of course their will be some unanswered questions but feel free to ask away.

Just my 2 Cents