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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 LeaseLease-To-Own
Ownership At Lease End You return the car You own the car after your last payment
Monthly Payments Typically lowerTypically higher (includes accrued equity)
Term Length Typically 2 – 4 yearsOften 2 – 5 years
Mileage RestrictionsStrict mileage limitsNo mileage limits
Maintenance Responsibility    Often included in the contract, depending on lease termsYour responsibility
Insurance RequirementsYou must have full coverageYou must have full coverage
End Of Term Option to return the car, lease again, or buyYou 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.


Car Leasing FAQs

Can I get a lease-to-own vehicle with bad credit? 

Yes, many lease-to-own programs allow low credit scores, and instead focus more on income stability.

Can I return a lease-to-own vehicle if I change my mind? 

Some agreements may permit early cancellations or buyouts, but you may be charged an early termination fee for terminating the contract early.

What happens if I exceed the mileage limit on a lease? 

Going over the mileage limit typically results in additional fees, which are usually charged per extra km over the limit.

Are lease-to-own payments higher than a traditional lease? 

Generally speaking, yes. That’s because a portion of each payment goes towards building equity and eventual ownership of the car.
Bryan Daly avatar on Loans Canada
Bryan Daly

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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