Should You Lease, Finance, or Buy A New Car in Canada?

The used car market jumped a mind-boggling 40% higher during the pandemic, but now with prices stabilizing, many of us wondering: Should you buy, finance, or lease your next car?

There’s no one-size-fits-all answer, but I’m here to guide you through the options. In this video, I’ll walk you through a free online calculator you can use to figure out your choice. Then, we’ll break down the pros and cons of each choice, and I’ll explain why buying used could be your best bet today.

Finance or Lease – Walking through the numbers

Let’s walk through this online lease vs. Buy a car calculator. This calculator will work with any car, and whether you’re American or Canadian, or whatever country you want to buy in. I want to stress that it’s important to not just look at the numbers, but to understand which of these variables will impact your decision the most. 

Choose a car – most common car in north america?? – I chose the Ford F150 since it’s always one of the most popular cars in NA. (See price here) – Best way is to go directly to dealership to get the pricing and rates, but the website can be a good estimate.

Cut to the explaining about how to calculate the depreciation of your vehicle

Important variable

For BUYING: Estimating your car depreciation. 

Stress the importance, and show how much it moves the needle.

Think of car depreciation like an iceberg. The shiny new car you’re driving off the lot? That’s just the tip of it. But beneath the surface, hidden from view, is the massive chunk of value that’s going to melt away in the first few years. 

To figure out how much your car will depreciate each year,you can try these methods:

1. Research Average Depreciation Rates:

  • New cars typically lose about 20% of their value in the first year and 15% each year after that for the next four years.

2. Use Online Depreciation Calculators:

  • Websites like Edmunds, and Kelley Blue Book offer tools to estimate your car’s depreciation based on its make, model, year, and mileage.

3. Check Current Marketplaces (my favourite method):

  • To gauge your car’s depreciation and the market’s strength, hands-on research is key. Start with sites like Autotrader, Craigslist, Facebook Marketplace, and Kijiji. By checking current listings for your car’s make, model, and year, you get real-time insight into its current value and how much it has depreciated. This method is my favorite because it shows exactly what cars are being listed and sold for, not just estimates.

Now back to the example

Key Takeaways

TLDR: The conclusions I got from this, if you remember nothing else from this article:

Key Takeaways:

  • High Resale Value of vehicle: Buying or financing is generally cheaper.
  • Low Resale Value of vehicle: Leasing becomes more cost-effective, especially if you can write off some of it for business purposes
  • Opportunity Cost: When buying outright or putting a large downpayment, the opportunity cost of what could be earned if the money was invested elsewhere should be considered.

Non-Financial Considerations Might Be More Important

The problem with all of these key takeaways, is that they are ALL JUST ESTIMATES. You won’t know exactly what the resale value of your vehicle will be, and you don’t exactly what your opportunity cost will be, because you usually don’t know exactly what you’ll earn in your investments.

The car market is unpredictable. For example, if you leased in 2017, you missed out on profiting from soaring used car prices during COVID-19. Owning would have let you capitalize on that shift. Since predicting the market is nearly impossible, non-financial factors might outweigh financial ones in your buy or lease decision.

  • Ownership Preference: Buy for long-term ownership and customization. Lease if you prefer new models every few years.
  • Tax Write-Offs: Leasing offers deductible payments, while buying allows for depreciation and interest deductions. Choose based on your business’s financial strategy.
  • Debt Aversion: Leasing means lower payments without long-term debt but no equity. It may feel less burdensome if you want to avoid debt.
  • Flexibility: Buying offers freedom to sell anytime. Leasing locks you into a term but may include conveniences like warranty coverage.
  • Long-Term Plans: Buy if you plan to keep your car for many years. Lease if you prefer frequent changes.
  • Environmental/Emotional Factors: Buying supports sustainability and attachment to the car. Leasing provides access to the latest eco-friendly models.
  • Maintenance: Buying means covering maintenance post-warranty. Leasing often includes maintenance during the lease term.
  • Insurance Costs: Leased vehicles can potentially require higher insurance, potentially increasing costs.
  • End-of-Lease Options: Leasing allows the option to buy the car at the end of the term, offering flexibility if you’re unsure about committing to a purchase upfront.

Here’s a summary table that you can use for the non-financial consideration:

Buying used is another option

Buying used is often the smartest financial choice. While I’ve leased vehicles for tax benefits, I’ve never bought new because used cars are typically the cheapest option. New cars can lose up to 20% of their value in the first year and 50% within three years. 

By buying cars in that sweet spot of 3-5 few years old, you avoid that initial depreciation hit and get more value for your money, plus the car isn’t old enough to have many major issues yet. Plus, used cars usually have lower insurance costs and less financial burden. With some research, you can find a reliable, well-priced used car that meets your needs, often with better features than a new one.

With the car market’s wild swings, making the right financial choice is crucial. If you want personalized plans tailored to your situation, check out the planning services we offer, and book a free consultation when ready!

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AUTHOR

Christopher Liew, CFA, CFP®

As the founder of Blueprint Financial, Christopher leads a team dedicated to creating custom plans that fit your unique goals. Together, they work to help you secure your financial future and enjoy the lifestyle that you’ve worked so hard for.
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