Leasing vs Buying a Car: What Should You Compare?
Choosing between leasing and buying a car is one of the biggest financial decisions drivers face. Both options have clear trade-offs in monthly cost, flexibility, and long-term value. This guide breaks down the key factors so you can make an informed choice.
Key Differences at a Glance
| Factor | Leasing | Buying |
|---|---|---|
| Monthly payment | Lower ($350–$500) | Higher ($550–$750) |
| Ownership | No — you return the car | Yes — it's yours after payoff |
| Mileage | Limited (10k–15k mi/yr) | Unlimited |
| Long-term cost | Higher if leasing repeatedly | Lower once loan is paid off |
| Modifications | Not allowed | Full freedom |
| Flexibility | New car every 2–3 years | Keep as long as you want |
5 Factors You Need to Compare
- Total cost of ownership: Add up all payments, fees, taxes, and the residual value (or resale value). Leasing looks cheaper monthly but costs more over 6–10 years because you never build equity.
- Annual mileage: Leases cap your yearly driving at 10,000–15,000 miles. Exceeding the limit costs $0.15–$0.25 per mile. If you commute long distances or take road trips, buying gives you unlimited mileage with no penalties.
- Residual value: A higher residual value means lower lease payments. Brands like Toyota and Honda hold value well, making their leases more affordable. When buying, strong residual value means better resale returns later.
- Money factor vs interest rate: The money factor in a lease is the equivalent of an interest rate (multiply by 2,400 to convert). Compare it to current auto loan APRs. A money factor of 0.0020 equals 4.8% APR.
- Tax implications: In most US states, you pay sales tax only on monthly lease payments, not the full vehicle price. When buying, you pay tax on the entire purchase price upfront. This can save $1,000–$2,500 on a lease.
Real-World Example: $35,000 SUV
Lease (36 months)
- Monthly payment: $420
- Down payment: $2,500
- Total paid: $17,620
- Equity at end: $0
- Mileage limit: 12,000 mi/yr
Buy (60-month loan at 6.5%)
- Monthly payment: $660
- Down payment: $3,500
- Total paid: $43,100
- Car value at 5 yrs: ~$15,750
- Net cost: $27,350
Over 3 years, leasing costs less out of pocket. But if you keep the purchased car for 7–10 years, buying wins significantly because you have no more payments and still own the vehicle.
Who Should Lease?
- Drivers who want a new car every 2–3 years
- People who drive less than 12,000 miles per year
- Those who prefer lower monthly payments and don't mind never owning
- Business users who can deduct lease payments as an expense
Who Should Buy?
- Drivers who keep cars for 5+ years
- High-mileage drivers (over 15,000 miles/year)
- People who want to customize or modify their vehicle
- Anyone who dislikes the idea of perpetual car payments
Run the Numbers for Your Situation
Every driver's situation is different. Use our free Lease vs Buy Calculator to compare the exact costs based on your car price, interest rate, mileage, and time horizon.
Open Lease vs Buy CalculatorFrequently Asked Questions
Is leasing cheaper than buying?
Leasing typically has lower monthly payments, but buying is usually cheaper over the long term because you build equity. A 36-month lease on a $35,000 car might cost $420/month, while a 60-month loan costs $660/month — but after paying off the loan you own an asset worth $14,000–$18,000.
What are the main disadvantages of leasing?
The biggest drawbacks are mileage limits (typically 10,000–15,000 miles/year with excess fees of $0.15–$0.25/mile), no equity at the end, restrictions on modifications, and potential wear-and-tear charges at lease return. You also pay more overall if you keep leasing repeatedly.
Can I negotiate a lease deal?
Yes. You can negotiate the selling price (capitalized cost), money factor (interest rate), and sometimes the residual value. A lower selling price directly reduces your monthly payment. Always compare the money factor to current auto loan rates to ensure the lease is competitive.
When does buying make more financial sense?
Buying is better when you drive more than 12,000–15,000 miles per year, plan to keep the car longer than 5 years, want to modify the vehicle, or prefer having no car payment once the loan is paid off. It is also better if you have a large down payment and can secure a low interest rate.