How to compare leasing and buying fairly
Comparing monthly payments is misleading: the lease payment is almost always lower, but at the end of a lease you own nothing, while a buyer owns a car with real value. A fair comparison looks at the same period, the lease term, and counts what the buyer would get back by selling the car or keeping its value.
Lease vs buy formula
Net cost to buy = down payment + loan payments made + (loan balance left − car value at the end)
Cheaper option = the one with the lower total
Worked example
A $40,000 MSRP car is negotiated to $38,000 with 7% sales tax.
- Lease: 36 months, $3,000 at signing, 58% residual, 6% APR, $995 acquisition and $395 disposition fees. The payment is $538.64 and the lease costs $22,786.13 in total.
- Buy: $3,000 down, 6.5% APR for 60 months on $37,660. The payment is $736.86. After 36 months you have paid $29,527.00 and still owe $16,541.48, but the car is worth about $23,200, so you keep $6,658.52 of equity. The net cost of buying is $22,868.49.
Over three years the two are almost tied: leasing is $82 cheaper. Keep the car for six or eight years after the loan is paid off, though, and buying usually wins clearly, because you stop paying while still driving.
When leasing makes sense
- You want a new car every two or three years and always under warranty.
- You drive less than the mileage allowance, usually 10,000 to 12,000 miles a year.
- The manufacturer offers a subsidized lease with a high residual or low money factor.
- You use the car for business and can deduct lease payments (ask your tax adviser).
When buying makes sense
- You keep cars for many years.
- You drive a lot of miles or are hard on interiors.
- You want to modify the car or sell it whenever you like.
Check each side separately with the car lease calculator and the car loan calculator, and estimate the car's future value with the car depreciation calculator.
Frequently asked questions
Is it cheaper to lease or buy a car?
Over the first few years the cost is often similar once you count the value of the car you own when buying. Over the long run buying is usually cheaper, because after the loan is paid off you keep driving without payments.
Why is a lease payment lower than a loan payment?
A lease payment only covers the car's expected loss in value during the lease plus a finance charge, while a loan payment pays off the whole price of the car.
What happens at the end of a lease?
You return the car and pay any disposition fee and charges for extra miles or excess wear, or you buy it for the residual value stated in the contract.
Should I put money down on a lease?
Usually only the first payment and fees. A large down payment on a lease is typically lost if the car is stolen or totaled early in the lease.
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Last updated October 2026.