Learn what you need to know about leasing a new or used vehicle.

What is a lease?

A lease is like a long-term car rental because you don’t actually own the vehicle. A leasing agreement runs over a series of months (for example, 36, 48, 60) with a set monthly payment. Leasing is available for both new and used vehicles.

The dealer and the company that owns the leased vehicle (lessor) are often not the same. The dealer helps arrange the lease and offers other services to the car buyer (lessee). Generally, the dealer does not handle the monthly lease payments and is not the organization with which you sign the lease, these functions are performed by an independently owned and operated finance company.

Speak to leasing professionals at the dealership to assist you with questions or concerns you have before you enter into a lease agreement.

Remember, like any contract, you should always understand the terms of a lease agreement before signing it as there is no cooling off period.

Types of leases


The most popular lease is an option or closed-end lease. This type of lease allows car buyers to return a vehicle at the end of the lease and either walk away or buy the vehicle for a pre-arranged amount.

You are not required to make additional payments unless there is physical damage, the kilometers driven are higher than agreed upon, or there is excessive wear and tear. Most manufacturer leases are closed-end.


The other type of lease is called a residual obligation lease or open-end lease. Residual value is the leasing company’s best guess what the car will be worth at the end of the lease. Car buyers lease the vehicle and make the scheduled payments similar to the closed-end lease.

At the end of the lease, the car buyer is responsible for covering any shortfall between the residual value and the actual price the lessor sells the vehicle for. This type of lease is not as common because car buyers risk having to make additional payments at the end of the lease term.

Advantages and disadvantages of leasing a vehicle

Value: At the end of a lease, the buyout value of the vehicle may be higher than similar vehicles available. A higher end value may mean smaller monthly lease payments.Cost: Car buyers have the option to buy the vehicle at lease end, but paying out the remaining value of the car may cost you more than purchasing a similar used vehicle
Choice: When a lease term is finished, car buyers can return or buy the vehicle, or sign a lease for a different vehicle. Extra charges: The vehicle must be returned in a reasonable condition or else additional charges may be added for excess wear and tear. Car buyers may be able to purchase additional insurance packages to cover future wear and tear.
Warranty: Leasing, like buying a new, or recent model vehicle means it will be under warranty so repair expenses should be minimal. Less flexibility: If you are leasing, you do not own the car. You've made a promise to pay monthly payments over a specific period of time. These terms will be difficult to break or renegotiate without incurring significant financial costs. There are lease takeover services available that may offer a less expensive solution to an early lease termination.
Risk: Leasing allows you to switch cars every few years without taking on the risk of low resale values. Kilometre limits: Lease agreements outline the maximum number of kilometres the vehicle can be driven. You will incur a penalty if you go over the limit. You can negotiate an additional kilometre allowance upfront before signing which may cost less than waiting until the end of the agreement.
Lower payments: Monthly payments may be lower for lease agreements than finance agreements. Responsibility: You are still responsible for maintenance, repairs, licensing and insurance, despite not owning the vehicle.
Replacing your vehicle frequently: Whether you finance or lease, changing vehicles every three to five years means you are always making a monthly car payment. Over the long-term this will be more expensive than holding onto a paid-up used car.
Leaving Ontario: Most agreements require permission for extended leaves from the province.

Factors that may contribute to excessive charges

  • damage to vehicle exterior and interior (for example, rust, scratches, paint chips, stains)
  • neglected maintenance (for example, oil changes, check engine light on)
  • wear to tires and wheels (including tread depth).
  • damage to windshield and lamp lenses (for example, scratches, cracks)
  • damaged electrical components
  • excess mileage

Tips to avoid lease-end wear and tear charges

  • Do not exceed the number of kilometers the vehicle is allowed to be driven.
  • Maintain the vehicle responsibly.
  • Take care of maintenance issues as they arise to avoid more significant problems later.
  • Repair scratches, dings, stains to upholstery and replace any missing or broken parts before lease end.

What to do ahead of the vehicle return date

  • Review manufacturers’ online tools and checklists to help determine if your vehicle will be subject to excess wear and tear charges.
  • Take photos of the vehicle’s interior and exterior to document issues that might raise the excess wear and tear charges.
  • Car buyers should contact the lessor and review the policies in the agreement to ensure there are no surprised when returning the vehicle.
  • Have repairs estimated by an unbiased dealer. This may cost less than having the lessor handle the repairs.
  • Keep all documents for your lease agreement, including maintenance records.
  • Ask your dealer for copies of any work orders or repair invoices you are missing.
  • Insist that you, or your dealer, be on site during the vehicle inspection as they are often conducted by third parties.
  • Clean your vehicle before returning it to the dealer.