Leasing vs Buying a Car: The Real Cost Comparison
Leasing pays for the depreciation you use plus finance charges, rather than the whole vehicle. That is why the monthly payment is lower — you are financing the gap between the car's price and its predicted value at lease end, not the full price.
Buying costs more monthly and leaves you owning an asset. Over a long enough horizon, buying and keeping is cheaper, and the crossover point is usually somewhere around year six or seven.
The four numbers in a lease
Capitalised cost is the negotiated price of the car. It is negotiable, and many lessees do not realise this — negotiate the price first, before discussing monthly payments at all.
Residual value is the predicted worth at lease end, set by the leasing company as a percentage of MSRP. You cannot negotiate it, and a high residual lowers your payment because there is less depreciation to fund.
Money factor is the interest rate expressed oddly. Multiply it by 2,400 to get the approximate APR — a money factor of 0.00125 is roughly 3 percent. Dealers quote it in this format because it obscures the rate.
Term and mileage allowance complete the picture. Typical allowances are 10,000 to 15,000 miles annually, with excess charged at 15 to 30 cents per mile.
Where leasing costs more
At the end of a three-year lease you have made 36 payments and own nothing. Lease another car and the cycle restarts, permanently. Someone who leases continuously from 25 to 65 will have made 480 payments and own no vehicle.
Buy a car and keep it ten years and you make perhaps 60 payments followed by 60 months with no payment at all. That payment-free period is where buying wins, and it only materialises if you actually keep the car.
Where leasing genuinely wins
If you replace cars every three years regardless, leasing is usually cheaper than buying and trading, because you avoid the depreciation hit that trade-ins crystallise and you avoid out-of-warranty repairs entirely.
Business use can favour leasing for tax reasons, since lease payments may be deductible as a business expense in proportion to business use — worth discussing with an accountant rather than a salesperson.
Electric vehicles have been a particular case. Rapid technology change and uncertain residual values make a three-year lease a reasonable way to avoid holding depreciation risk on a fast-moving category. Manufacturer lease incentives on EVs have also at times been unusually aggressive.
Lease-end costs people forget
Excess mileage is the obvious one, and it accumulates quietly. A 12,000-mile allowance with 16,000 driven annually means 12,000 excess miles over three years, at 20 cents a mile, which is $2,400 due at handover.
Wear and tear charges are more subjective. Normal wear is expected; kerbed wheels, seat tears, unrepaired dents and worn tyres below tread minimums are billable. Getting a pre-inspection a couple of months before lease end lets you fix cheaper items yourself rather than paying dealer rates.
There is also usually a disposition fee of $350 to $500, waived by some lessors if you lease again with them.
Gap insurance and the mid-lease write-off
If a leased car is totalled, the insurer pays market value, which may be less than what you still owe the leasing company. Most leases include gap coverage, but confirm it rather than assume, because the shortfall can be thousands.
This applies to purchases with low down payments too, particularly in the first two years when depreciation outpaces principal repayment.
How to decide
Answer one question honestly: how long do you keep cars? If the honest answer is three years, lease and stop worrying about the ownership argument. If it is ten years, buy — ideally a reliable model, and consider a two or three-year-old example to let someone else absorb the steepest depreciation.
If you are unsure, buying is the more forgiving mistake. A car you own can be kept longer than planned; a lease cannot be extended indefinitely without cost, and terminating early is expensive.
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