Financing may be a common way to buy a car, but there are other options available, including lease-to-own and traditional leasing. Your choice between these two options depends on your income, credit score and long-term needs. While traditional leasing offers lower payments, lease-to-own lets you steadily pay towards ownership of the vehicle.
Let’s compare the two to help you decide if either works for you when it comes time to get a new car.
Key Points
- A lease-to-own agreement lets you lease a car with the option to buy it at the end of the term, steadily working towards ownership and building equity.
- A traditional lease allows you to use a vehicle for a certain amount of time without owning it, while making regular lease payments.
- Leasing lets you use a vehicle for a set time without ownership and get a new car more frequently, while lease-to-own allows you to own the car at the end of the lease.
Can You Lease-To-Own A Car In Canada?
A lease-to-own agreement is a financing option that involves leasing a vehicle with the goal of owning it at the end of the term. Unlike traditional leasing, a percentage of your monthly payments goes toward the purchase price of the vehicle. In this way, you can steadily work towards ownership.
Lease-to-own agreements typically come with higher monthly payments compared to traditional financing, though you’ll be able to gradually own the vehicle. At the end of the lease, you can choose to purchase the car outright or return it.
- Term: Often 2 to 5 years, depending on the agreement.
- Payments: Typically higher than leasing because they include equity buildup.
- Mileage Restrictions: Usually no mileage limits.
- Ownership: You own the vehicle after the last payment.
Pros And Cons Of Lease-To-Own Agreements
Like traditional leasing, lease-to-own agreements come with some notable benefits and downfalls.
Pros Of Lease-To-Own Agreements
Lease-to-own agreements come with the following perks:
- Ownership At Lease End. Once the leasing period ends, which will usually be 1-2 years (as opposed to 2-4 years with a traditional lease), you will become the official owner of the vehicle.
- Bad Credit Is Acceptable. Even if your credit score is low, you should still have very little trouble getting a lease-to-own agreement.
- No Long-Term Loan Commitment. If you’d prefer not to lock in a long-term financing arrangement, a lease-to-own agreement may help you avoid this extended commitment.
Cons Of Lease-To-Own Agreements
Consider the following disadvantages of lease-to-own agreements before signing up:
- Higher Monthly Payments. Lease-to-own payments are usually more expensive than traditional leasing.
- Possible Loss Of Down Payment. If you want to terminate your contract early, instead of buying the car, you’ll be forfeiting your down payment as collateral.
- Maintenance And Repairs Aren’t Covered. Unlike leasing, repairs and maintenance are not covered under a lease-to-own contract. If desired, the driver needs to purchase an additional warranty, which will likely not be included.
Lease-To-Own Vehicle Agreement Vs. Traditional Leasing: A Comparison
To help you decide whether you should opt for a traditional lease or a lease-to-own arrangement, consult the following side-by-side comparison chart:
| Traditional Lease | Lease-To-Own | |
| Ownership At Lease End | You return the car | You own the car after your last payment |
| Monthly Payments | Typically lower | Typically higher (includes accrued equity) |
| Term Length | Typically 2 – 4 years | Often 2 – 5 years |
| Mileage Restrictions | Strict mileage limits | No mileage limits |
| Maintenance Responsibility | Often included in the contract, depending on lease terms | Your responsibility |
| Insurance Requirements | You must have full coverage | You must have full coverage |
| End Of Term | Option to return the car, lease again, or buy | You own the car outright |
What If I Have Bad Credit?
A good credit score can increase your odds of getting a lease with more favourable terms. However, bad credit won’t necessarily be a deal-breaker, especially if other aspects of your financial health are strong. That said, it ultimately depends on the leasing company, and which leasing option you choose.
Can I Get A Lease-To-Own With Bad Credit?
Yes, lease-to-own agreements can be a good option for those with bad credit, as they often have less stringent credit criteria compared to traditional financing. Some lease-to-own programs don’t require a credit check, which makes these arrangements more accessible to those who’ve had little luck with other lenders. Instead, approval is based on other factors, such as your income.
Can I Get A Traditional Lease With Bad Credit?
Traditional leasing typically requires a good credit score. However, it’s still possible to get a lease even if your score isn’t perfect. While car dealerships and lenders typically conduct a credit check to assess your eligibility and to set the lease terms, you may still be able to lease a car. However, you may be required to make a higher down payment and be charged higher fees.
Learn more: Bad Credit Car Leasing in Ontario
Which Leasing Option Works Best For You?
If you’re trying to decide between traditional leasing and a lease-to-own agreement for your next vehicle, like with any large financial transaction, it’s important to think about your own financial situation.
| When You Should Consider Traditional Leasing | When You Should Consider Lease-To-Own |
| You want lower monthly payments. | You want to eventually own the car. |
| You want a new car every couple of years. | You want to use the car extensively without mileage caps. |
| You don’t want a long-term commitment to the vehicle. | You want to build equity in a car. |
| You have good credit. | You have bad credit. |
What Is Traditional Leasing?
Traditional leasing is a financing option that allows you to rent a vehicle for a fixed period — typically 2 to 4 years — while making monthly lease payments. Unlike buying or financing, traditional leasing doesn’t involve building equity in the car. At the end of the lease term, you return the vehicle or lease a new one. Or, you may have the option to buy the car.
Leasing typically offers lower payments compared to financing. It also comes with warranty coverage and the flexibility to drive a newer vehicle more often without long-term ownership. However, leasing comes with mileage caps and fees for excessive wear and tear.
- Term: Typically 2 to 4 years.
- Payments: Usually lower than financing.
- Mileage Restrictions: Caps on the number of kilometres you can drive each year, with added fees for exceeding these limits.
- Ownership: You don’t own the car, unless you exercise the option to buy it at the end of the lease term.
Learn more: Leasing A Car In Canada
Pros And Cons Of Traditional Leasing
Consider the benefits and drawbacks of traditional leasing before choosing this option.
Pros Of Traditional Leasing
Advantages of traditional leasing include the following:
- New Vehicle More Frequently. You’ll be able to drive a newer, more reliable vehicle that you might not be able to afford otherwise.
- Basic Maintenance Covered. Typically, you don’t need to pay for any repairs or required maintenance for a leased vehicle, as long as those issues are covered by the lease agreement, such as basic wear-and-tear. If covered mechanical work needs to be done on the car, you can bring it back to the dealership for free in-house servicing.
- Lower Payments Compared To Financing. Both the down payment and subsequent monthly payments will often be cheaper than those you would get with dealership financing.
Cons Of Traditional Leasing
Disadvantages of traditional leasing are as follows:
- Mileage Restrictions. Lease agreements often come with a set limit for the amount of mileage that the driver is permitted to put on the vehicle. Once the lease period ends, any extra mileage could be subject to an extra fee.
- Extra Fees For Excessive Wear-And-Tear. Following the termination of the lease contract, drivers will also be charged for any external or internal damage that the car has received. While lease agreements often cover normal wear-and-tear, any additional accidents, scratches, cracks or dents as a result of the driver’s actions will not be covered.
- More Money Spent Over Time. If you continue to lease cars throughout the years, you might end up paying more than you would if you bought the car.
Final Thoughts
Both lease-to-own agreements and traditional leasing offer their own perks, depending on your preferences and financial goals. While lease-to-own agreements help you eventually build equity toward ownership, traditional leasing tends to offer lower monthly payments and more flexibility. Be sure to consider the benefits and drawbacks of each before making a decision.
