Even though interest rates haven’t been actively climbing in 2025, drivers across Canada are still feeling the effects of the big rate spikes from the past few years. Leasing a car today looks different from how it did before the pandemic because borrowing costs remain higher, and leasing companies haven’t fully lowered their programs to early-2020 levels.
If you’re exploring a lease this year, the experts at Race Auto Group are here to help you understand how today’s higher rate environment affects your monthly payments, the structure of a lease, and whether leasing is still the best choice for your budget.
Why 2025 Leasing Costs Still Feel High
Today’s car leases are shaped by the rate hikes that happened in 2022 and 2023. The Bank of Canada has started lowering its policy rate, but leasing programs don’t adjust as quickly.
Automakers, lenders, and leasing companies set their own internal “cost of borrowing,” and those costs remain higher than they were a few years ago.
Even though rates aren’t rising month-to-month anymore, payments on financing options for used cars still reflect a higher-rate environment that hasn’t fully eased.
A few key factors explain why lease payments haven’t dropped:
- Borrowing is still more expensive for lenders than it was pre-COVID.
- Residual values have normalized, so vehicles depreciate more predictably again.
- Lease incentives are smaller, since manufacturers aren’t discounting programs the way they did during supply shortages.
- Consumers are financing over longer terms, making leasing less aggressively promoted.
How Higher Interest Rates Affect Car Lease Payments
Several parts of a lease are directly tied to interest rates. When rates rise, each of these areas becomes more expensive.
1. Money Factor (Lease APR) Increases the Cost of Borrowing
The money factor is the interest portion of a lease. When borrowing costs rise, lenders raise the money factor. Even a small increase can raise your lease payment.
A higher money factor means you pay more to “rent” the vehicle over the lease term.
2. Lower Residual Values Lead to Higher Monthly Costs
Residual value is what the vehicle is expected to be worth at the end of the lease. When used-car prices surged in 2021–2022, residuals were high, and lease payments stayed lower.
Lower residual = more depreciation = higher monthly payment.
In today’s market, this has a bigger impact on your payment than many drivers realize.
3. Higher Acquisition and Administrative Fees
environment, lenders may adjust acquisition fees or administrative charges, adding a few extra dollars per month. These don’t make or break a lease, but they contribute to the overall cost.
Leasing a Car in 2025: Pros and Cons in Today’s Rate Environment
Deciding whether leasing or buying is cheaper is still a big decision, but the math has changed. Here’s how to think about the pros and cons of leasing a car with today’s higher borrowing costs.
Pros of Leasing a Car in 2025
Lower monthly payments than financing in many cases
Even though rates are higher, a lease often still costs less per month than buying the same vehicle.
Driving a newer model every few years
This appeals to drivers who want the latest features, safety tech, and fuel efficiency.
Predictable ownership costs
Most leases stay within warranty coverage, reducing unexpected repair expenses.
No long-term ownership commitment
You return the car at the end of the lease instead of worrying about resale value.
Ideal if you prefer short-term budgeting
Leasing gives you a clear payment structure without long-term financial attachment.
Cons of Leasing a Car in 2025
Higher interest costs compared to early-2020 lease programs
Payments today aren’t as low as they used to be, even with similar vehicles.
Mileage restrictions
Going over the limit can add fees when the lease ends.
Wear-and-tear charges
Excess damage may result in additional costs when returning the vehicle.
No equity at the end
You don’t own the car or build value the way you do when financing.
Lease buyouts can be expensive
Elevated rates make buyout financing less attractive for some drivers.
Should You Lease or Finance When Rates Are High?
The best choice between leasing and financing options for used cars depends on how long you want to keep the vehicle, how predictable you want your costs to be, and how much flexibility you need. Here’s a simple framework to help you decide.
Leasing may make more sense if:
- You prefer lower monthly payments.
- You want a new vehicle every few years.
- You drive predictable mileage.
- You don’t want long-term maintenance concerns.
Financing may be better if:
- You plan to keep the car for many years.
- You want to build equity.
- You drive more than the typical lease allows.
- You want complete control over modifications or usage.
Quick comparison checklist:
- Compare total cost over the same period, not just monthly payments.
- Consider how long you usually keep your vehicles.
- Think about commute distance and annual mileage.
- Check your credit score, since better credit has added benefits in 2025’s rate environment.
Race Auto Group Helps You Make a Smart Decision
Choosing between leasing and financing can feel overwhelming, especially when rates are higher than they used to be. Race Auto Group’s flexible financing process breaks things down. You’ll see exactly what leasing costs, what financing costs, and which option fits your budget. Contact our team today!
FAQs
Are car lease rates actually rising in 2025?
Lease rates aren’t rising month-to-month right now, but they remain elevated because lenders are still pricing leases based on the rate hikes from the past few years.
Is leasing cheaper than financing?
Often, yes. Even with higher borrowing costs, many leases still offer lower monthly payments than financing the same vehicle.
How do rising car lease rates compare to auto loan rates?
Auto loan rates have softened slightly, but both loans and leases remain more expensive than they were in the early 2020s.
Can I negotiate a better lease rate?
You can negotiate factors like vehicle price, mileage limits, and optional fees. Understanding your numbers helps you secure better terms.
