What is a Car Lease?

Think of a car lease as a long-term rental. You pay a monthly fee to use a brand-new vehicle for a set period-typically 2 to 4 years. When the term is over, you simply return the car to the dealership. You're not paying to own the car; you're paying for its depreciation (the amount of value it loses) during the time you drive it, plus interest and fees.

How a Car Lease Works in Canada

When you lease, your monthly payment is calculated based on a few key factors. It might seem complicated, but it boils down to this: the dealership estimates what the car will be worth at the end of your lease (the 'residual value'). You pay the difference between the car's initial price and that future value, split into monthly payments, plus interest.

• Lease Term: The length of your agreement, usually 24, 36, or 48 months.
• Kilometre Allowance: A limit on how far you can drive each year, often 20,000 km or 24,000 km. Going over this limit results in extra charges.
• Down Payment: An optional upfront payment to lower your monthly costs. While it makes the monthly bill smaller, it's money you won't get back.
• Money Factor: This is essentially the interest rate on your lease, expressed as a small decimal. To get a rough idea of the equivalent annual percentage rate (APR), you can multiply the money factor by 2400.

The Pros and Cons of Leasing in 2026

Leasing is a fantastic option for some drivers, but not for everyone. It's important to weigh the benefits against the drawbacks for your specific situation.

Advantages of Leasing:

• Lower Monthly Payments: Because you're only paying for the car's depreciation, lease payments are often significantly lower than loan payments for the same vehicle.
• Drive a New Car More Often: Enjoy the latest technology, safety features, and that new-car smell every few years.
• Warranty Coverage: Most lease terms fall within the manufacturer's bumper-to-bumper warranty period, meaning major repair bills are unlikely.
• No Resale Hassle: At the end of the term, you just hand the keys back. You don't have to worry about selling the car or its trade-in value.

Disadvantages of Leasing:

• No Ownership: You don't build any equity. The payments you make don't go towards owning the vehicle.
• Kilometre Limits: If you drive a lot, the per-kilometre overage fees can add up quickly and become very expensive.
• Wear and Tear Charges: You're responsible for keeping the car in good condition. Dents, scratches, or excessive wear can lead to charges when you return it.
• Less Flexibility: Ending a lease early can be difficult and costly. It's a firm contract for the full term.

What Credit Score Do You Need to Lease a Car?

In Canada, most manufacturers' financing arms (like Ford Credit or Honda Financial Services) look for a good to excellent credit score, typically 660 or higher. A strong score shows them you have a history of paying bills on time and are a lower risk.

If your credit isn't quite there, don't worry. Options still exist. While you may need a larger down payment or have a higher interest rate (money factor), it is still possible to get approved for a lease. Working with a financing expert can help you find lenders who specialize in different credit situations.

What Happens When Your Lease Ends?

As your lease term comes to a close, you have three main choices. The dealership will usually contact you a few months in advance to discuss them.

1. Return the Vehicle: This is the simplest option. You'll schedule an inspection, settle any final charges for excess wear or kilometres, and walk away.
2. Buy the Vehicle: If you've fallen in love with the car, you can purchase it for its predetermined residual value. You can pay cash or get a loan to finance the purchase.
3. Start a New Lease: Many drivers choose to roll right into a new lease on a brand-new model, often with the same dealership.

Ultimately, leasing is a financial tool. For drivers who value lower monthly payments and the latest features over long-term ownership, it can be the smartest way to get on the road in 2026.