Leasing vs. Financing a Car in Ontario: How It Can Affect Your Car Insurance

March 16, 2023

If you're shopping for a new vehicle in Ontario, you’ve likely come across the classic dilemma: Should you lease or finance your car? Both options have their advantages and drawbacks depending on your lifestyle, budget, and future plans. But one detail many drivers overlook? How this decision impacts your car insurance.

Whether you're looking to save money in the short term or invest in long-term ownership, it’s important to understand how leasing or financing affects your insurance needs. This guide breaks down the differences in detail—and helps you make a more informed choice when it comes to protecting your vehicle and your wallet.

For more information about how car insurance works in Ontario, check out our auto insurance page.

What is Leasing?

Leasing a car means you're essentially renting it for a predetermined term, typically between two to four years. During this time, you make monthly payments to use the vehicle, but you don’t actually own it. Instead, you agree to a lease contract with specific conditions, which may include:

Mileage limits, often ranging from 16,000 to 24,000 kilometres per year. Exceeding these limits can result in additional charges.
Routine maintenance and upkeep, which you're responsible for throughout the lease.
Return conditions, where you must bring the car back in good shape, accounting for normal wear and tear.

At the end of your lease term, you can either return the vehicle to the dealership or, in some cases, purchase it at a predetermined price. Because the leasing company owns the car, they also dictate the insurance requirements, which are generally more stringent than those for financed vehicles.

This is important because when it comes to insurance for a leased car versus a bought car, leased vehicles often require higher liability limits, along with comprehensive and collision coverage.

What is Financing?

Financing a car means you are purchasing it with the help of a loan. You borrow the money needed to buy the car and pay it back over time, usually with interest. Once the loan is paid off, the car is entirely yours.

When you finance, you're free to drive as many kilometres as you like, make modifications, and even sell the vehicle whenever you choose. There’s no leasing company involved. Just you, your car, and potentially a lienholder if you still owe money on it.

From an insurance perspective, financed cars still need robust coverage, but you often have more flexibility in how that coverage is structured. If you’re searching for car finance options with insurance that matches your ownership plans, financing may be the more customizable route.

Leasing Versus Financing: Understanding the Differences

When it comes to choosing between leasing or financing a car, the differences go beyond just ownership. Each option has unique financial and insurance implications that could influence your decision.

With a leased car, you are essentially paying to use the vehicle for a limited time. You have no ownership stake and must abide by strict contract terms, including how you drive and care for the car. Leasing often appeals to people who like driving newer vehicles every few years and don’t want to worry about long-term maintenance or resale.

Financing, on the other hand, is ideal for those who plan to keep a car for the long haul. You’ll pay more upfront and over time, but in the end, you own the car. That ownership brings freedom, as you can customize it, drive it as much as you want, and sell it when you’re ready.

From an insurance standpoint, leasing typically comes with more rigid coverage requirements. You may need to carry higher limits and specific add-ons to satisfy the leasing company. In contrast, financing allows for more flexible insurance options once the loan is paid down or cleared entirely.

These ownership differences also influence how much you pay in premiums, what coverages you’re required to carry, and how claims are handled.

How Leasing and Financing Affect Car Insurance

Let’s dive into the key ways that leasing and financing can impact your insurance coverage in Ontario.

Additional Interest

When leasing or financing, a third party, either the leasing company or the lender, retains a financial interest in your vehicle. Because of this:

They must be listed as an Additional Interest on your auto insurance policy.
Your insurer is required to notify them if your policy is cancelled, or if you make changes like lowering coverage limits or increasing deductibles.

This step protects the financial interest of the leasing company or lender, and it’s mandatory for both leased and financed vehicles in Ontario. It doesn’t change your driving experience, but it’s a key administrative requirement.

Required Coverages

Every driver in Ontario must carry a standard set of auto insurance coverages. However, both leasing and financing companies may impose stricter requirements to protect their investment.

Standard Mandatory Coverage in Ontario:

Accident Benefits: Covers medical expenses and income replacement after a crash, regardless of fault.
Liability Coverage: Protects you if you're found legally responsible for injury or damage to others. Ontario’s legal minimum is $200,000, but most leasing companies require at least $1 million.
Direct Compensation – Property Damage (DCPD): Covers damage to your car when another driver is at fault.
Uninsured Automobile Coverage: Protects you if you're hit by an uninsured driver or involved in a hit-and-run. This coverage is required in Ontario and typically provides compensation up to the legal minimum liability limits. However, it does not offer protection if the other driver is underinsured.

Additional Coverage Often Required:

Collision Coverage: Pays for repairs to your vehicle after an at-fault accident.
Comprehensive Coverage: Covers non-collision-related damage like theft, fire, or vandalism.
Depreciation Waiver: Common for leased cars, this ensures you get full value without depreciation in a total loss claim.
Family Protection: Protects you and your family if you're injured in a crash caused by someone who doesn’t have enough insurance. It covers the difference between the other driver's policy and your own, up to your liability limit. This add-on is especially valuable in Ontario, where many drivers carry only the legal minimum coverage.

If you lease, these coverages are usually non-negotiable. If you finance, the lender may require similar protections, especially early in the loan, but you may have more leeway as you pay down the balance.

Understanding these leased car insurance requirements versus those for financed cars can save you from surprises down the road.

Claims Process

How a claim is handled can vary based on how you acquired the car.

Leased Car: In a total loss situation, your insurance payout typically goes directly to the leasing company, as they are the vehicle’s legal owner. They’re involved in decisions about repairs and settlements.
Financed Car: You’re listed as the owner, so any insurance payout usually comes to you or the lender if you still owe money. You often have more say in repair shops and settlement options.

This distinction can be especially important if your car is written off after a collision. Financed vehicles may give you more control over the process.

Bottom Line: Your Choice Affects Your Coverage

Leasing usually means stricter insurance rules, while financing offers more wiggle room—especially after the loan’s done. Either way, your insurance should match your vehicle’s status.

Here’s what to keep in mind:

Check your mandatory coverage and any lender/lease requirements.
Understand who gets paid in a claim and why.
Talk to a trusted insurance broker (hint: that’s us!) to explore your best options.

Visit us at our Oshawa office or drop by our Port Perry office to chat in person.

If you're also thinking about insuring a second vehicle or something special, check out our classic car insurance options for collector or vintage models.

Tags: Car Insurance, Financing, Leasing

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