Should I Lease or Finance My New Honda?

Should I lease or finance my new Honda?

Whether to lease, finance or pay cash for a new car is one of the questions that Oakville Honda's customers ask the most. The answer depends on a number of factors and each case is different.

With a lease, you are paying for the cost, or more accurately the depreciation, of the vehicle during the time period you will be driving it. When you lease a car, the leasing company actually owns the car, the ownership is in their name, and your contract is with them.

When you finance a car, you own it, and the ownership is in your name.

As an example, you find a Honda Civic Touring in our inventory list, and it is priced at $30,000. You decide you will drive it for 3 years before you will want another new vehicle. In 3 years, the value of the car is estimated to be $15,000, meaning you will use $15,000 of the value of that $30,000 car. Obviously, payments on $15,000 will be a lot less than on $30,000 and the lower monthly payment is one of the main reasons people choose to lease rather than finance their vehicle.

There are also tax considerations when deciding on leasing or financing your car. When you lease, the HST is applied to your monthly payment, which is based on the $15,000 of the car's value that you will be using it for. When you finance a car, the entire HST is applied to the sale price and your monthly payment includes that tax amount in the financed price.

One of the main deciding factors on choosing between a lease or financing is how long you intend to own your car. Some people love to drive their cars for many years and kilometers until they die. By doing this, they may have several years without a car payment. Other people like to drive a new car every 3 or 4 years.

The biggest challenge people face with a lease is the mileage allowance. With a lease you are restricted to a certain mileage, which is predetermined by contract, in advance. If you know you are going to drive more than your allowable limit, you should build that extra mileage into your contract up front at a cheaper rate, rather than pay the excess mileage fee at lease end at a higher rate per kilometer. This will save you money.

There are also income tax differences for business people between leasing and financing a car. With leasing, you are allowed to deduct your entire monthly payment whereas with financing you must depreciate your car according to guidelines set out by the Canada Revenue Agency.

Another consideration when deciding whether to finance or lease are the cash payment discounts offered by car manufacturers. As an example, a manufacturer may offer a $2,500 cash rebate on a new car. If you finance that car, you can still get the $2,500 cash rebate if you get the financing from your own bank or lender. That cash rebate needs to be included in your calculations when considering your options. As discussed previously, lowering the financed price also lowers the tax you pay.

Oakville Honda's product specialists are ready to assist you and committed to offer you World Class Service!