Key takeaways
- Over 3 years, leasing and buying are often close; over 5–7 years buying wins by $5,000–$10,000+ because you end up owning a car instead of starting a fourth lease.
- A lease payment is typically 25–40% lower than a loan payment on the same car — you’re paying only for depreciation plus interest, not for ownership.
- Leasing makes sense if you want a new car every 2–3 years anyway, drive under the cap, and the manufacturer is subsidizing the lease (common on EVs).
- The three numbers on a lease quote that matter: capitalized cost, residual value and money factor. Negotiate the first, check the second, and multiply the third by 2,400 to get the APR.
The lease-versus-buy argument has a clear answer and a messy one. The clear answer: over any period longer than one lease term, buying costs less. The messy one: how much less depends on how long you keep cars, what you drive, how many miles, and whether the manufacturer is quietly paying part of the lease. This guide gives you the real numbers, the break-even point, and the cases where leasing is the right financial decision rather than just the lower payment.
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What you’re paying for in each
Buying (with a loan): you pay the full price of the car plus interest, and at the end you own an asset worth whatever the market says. Your true cost is the price plus interest, minus what the car is worth when you’re done.
Leasing: you pay for the depreciation the car suffers during your term, plus a finance charge on the whole value of the car, plus fees. At the end you own nothing and either hand it back or buy it at the residual value. Because the first three years are when a new car loses the most value, you’re renting the most expensive slice of the car’s life — every time.
A real comparison: $38,000 SUV, 3 vs 5 vs 7 years
Assumptions: lease at $489/month, $3,000 due at signing, 36 months, 12,000 miles/year, $395 disposition fee, leased again at the same terms when it ends. Purchase at $38,000, $3,000 down, 60 months at 7%, 7% sales tax; resale values from typical SUV depreciation (about 42% lost at 3 years, 55% at 5, 65% at 7). Driving 12,000 miles a year.
| Horizon | Leasing total (back-to-back) | Buying total (payments + interest − resale) | Difference |
|---|---|---|---|
| 3 years | $20,500 | $21,100 | Lease ahead by ~$600 (and you have no car) |
| 5 years | $34,600 | $29,900 | Buying ahead by ~$4,700 |
| 7 years | $48,100 | $33,400 (incl. ~$2,500 extra maintenance after yr 3) | Buying ahead by ~$14,700 |
The break-even lands around year four. After that, every year you keep the purchased car is a year with no payment and only maintenance, while the lessee is writing another $489 check. Your numbers will differ — run your actual quotes through the Lease vs Buy Calculator.
When leasing is the right call
- You’d replace the car every 2–3 years regardless. If that’s your habit, buying and trading in repeatedly is more expensive than leasing (dealer trade-in values are brutal). Leasing is the cheaper way to be that person.
- The manufacturer is subsidizing the lease. Automakers inflate residuals and cut money factors to move slow sellers and EVs — a subsidized lease on a $45,000 EV can be cheaper than financing a $30,000 gas car. Look for money factors below 0.00100 (≈2.4% APR) and residuals above 60%.
- You drive under 10,000–12,000 miles a year and keep cars clean. Excess mileage ($0.20–$0.30 per mile) and wear charges ($500–$2,000) are where leases turn ugly.
- You use the car for business and can deduct lease payments.
- You want warranty coverage for the whole term and zero repair risk. A 36-month lease never leaves the factory warranty.
When buying is the right call
- You keep cars 5+ years. This is most people, and it’s where the savings are.
- You drive a lot, tow, haul kids, dogs or gear — wear and mileage charges would eat you alive.
- You’re considering a used car. Used leases exist (here’s how they work), but financing a 3-year-old car is the single cheapest way to own a nice vehicle.
- You want flexibility — to sell when life changes, to modify, to drive across the country without counting miles.
- You can get a good loan rate. Credit-union used-car rates in 2026 average around 6–8% for good credit; at that level, the finance charge on a loan is often lower than a non-subsidized lease’s money factor.
How to read a lease quote
| Term | What it means | What to do |
|---|---|---|
| Capitalized cost (cap cost) | The price of the car for lease purposes | Negotiate it exactly like a purchase price. Every $1,000 off is about $30/month. |
| Cap cost reduction | Your down payment | Keep it small. If the car is totaled early, your down payment is gone (gap covers the loan, not your cash). |
| Residual value | What the lender says the car will be worth at the end | Higher residual = lower payment. Set by the lender, not negotiable — but compare brands. |
| Money factor | The interest rate, written as a decimal like 0.00225 | Multiply by 2,400 → APR (0.00225 = 5.4%). Ask for the “buy rate” without dealer markup. |
| Acquisition fee | Lender’s setup fee, $600–$1,100 | Sometimes negotiable; usually rolled in. |
| Disposition fee | Charged when you return the car, $300–$500 | Often waived if you lease the same brand again. |
| Mileage allowance / overage | Usually 10k, 12k or 15k per year; $0.20–$0.30 per excess mile | Buy extra miles up front at a lower rate if you’ll need them. |
The three lease mistakes that cost the most
- Putting a big down payment on a lease. It lowers the payment but it’s money you never get back, and it vanishes if the car is totaled. Keep “due at signing” to fees and the first payment.
- Underestimating mileage. 3,000 miles over on a 36-month lease is $750–$900 at turn-in. Track your miles in the first six months and buy more if needed.
- Rolling negative equity from an old car into the lease. It inflates the cap cost and you’ll be making payments on a car you no longer own. If you’re underwater, see the gap calculator and consider waiting.
The middle path most people miss
Buy a 2–4-year-old car coming off someone else’s lease. Off-lease cars are well-maintained (the lease required it), low-mileage (the cap enforced it), and priced after the steepest depreciation. Financed over 48–60 months at a credit union, this routinely costs less per month than leasing the same model new — and at the end you own a car. Set your budget with the affordability calculator and compare total costs with the True Cost of Ownership calculator.
Enter the lease offer and the purchase offer and see honest 3, 5 and 7-year totals — including resale, mileage penalties and fees.
Super Car Digest · $14
The Used Car Buying Playbook
Shopping for a used car? Most buyers overpay in four predictable places. This playbook closes every one of them. Budget worksheet, 15-minute VIN screen, test-drive routine, word-for-word negotiation scripts and a 10-point contract check.
Get the Playbook →Frequently asked questions
Is it cheaper to lease or buy a car?
Per month, leasing. In total, buying — by a wide margin if you keep the car more than four years. Leasing is only cheaper overall if you’d trade cars every 2–3 years anyway or the lease is heavily subsidized.
Why is leasing a car a bad idea?
It isn’t always. The problem is leasing repeatedly for decades: you permanently rent the most expensive years of a car’s life and never build equity. One subsidized lease on an EV can be a great deal; a lifetime of leases costs tens of thousands more than buying and keeping.
Should I buy my car at the end of the lease?
Compare the residual (buyout price) to the car’s current market value. In 2021–2023 many lessees had thousands in equity; in 2025–2026 values have normalized, so check KBB first. If the buyout is at or below market value and you like the car, buying it is often the best deal available — you know its history.
Does leasing hurt your credit?
No more than a loan. A lease appears as an installment account; on-time payments help your score. Ending a lease early or returning a car with unpaid charges can hurt.