Should You Buy or Lease a Vehicle for Your Business in Canada?

Should You Buy or Lease a Vehicle for Your Business in Canada?

Posted on October 14, 2022

Are you running a business where you need a reliable vehicle? Something you will need to think about is whether you will buy or lease a vehicle for your business.

There are many variables at play, so we are going to give you a comprehensive overview of everything that is involved, so you can make the right decision.

What is a Car Lease?

A car lease is an agreement that you will use the vehicle for a pre-determined amount of time; at the end of the agreed period, you will return the vehicle minus any reasonable wear and tear.

The money you paid for the lease does not build any equity in the vehicle; since there is no equity being built, you can use the entire lease payment as a business expense (check with your accountant) which can be helpful when trying to mitigate taxes.

The one major caveat that comes with leasing a vehicle is the milage that is tacked on.

If you are running a delivery business where you need to do a considerable amount of driving every day, then a lease is probably not going to work for you because every lease comes with a milage limitation, if you go over that amount then you need to pay an additional fee for every kilometer over the limit.

Leases are easier to afford because there is no equity element, and the taxes are factored into the monthly payment, where you are only paying taxes on the portion of time you are using the vehicle instead of the full retail cost upfront.

Buying a car

When you buy a car, you are taking ownership of the vehicle and will be making payments that are a combination of interest and principle.

You may be able to write off a portion of the interest you pay on the car loan, but this is something your accountant can clarify.

To qualify for a car loan, you will need to have a stronger credit and financial profile than someone who is getting a lease.

In order to secure the best car loan in Canada right now, your credit score will have to exceed 700, and you will need to prove your income.

2021 car loan rates in relation to credit score

Documenting your income can be difficult if you are self-employed; one of the easiest ways to meet that requirement is to print up your latest income tax assessments and banking statements for the last 12-24 months.

This should address the underwriting requirements of most mainstream lenders.

Golden car buying advice

The best advice we can give you when trying to find the right deal for your vehicle is to work with a local dealership.

These dealerships know all the ins and outs of car loans and can get you the financing that works for your budget; whether you lease or buy a vehicle for your business, local is the best way to ensure a positive outcome.

We will use all our skill and experience to deliver the lowest possible auto loan rates, guaranteed. Contact Car Nation Canada Direct to learn how we can help.