Is leasing or buying a car cheaper?

Leasing is cheaper per month but buying is cheaper over time if you hold the car. Leasing a $35,000 car for 3 years might cost $400/month ($14,400 total) with $3,000 down — but you own nothing at the end. Buying the same car at 7% interest over 60 months costs $693/month ($41,580 total) — but you own a car worth roughly $19,000–$22,000 at year 5. The buy-and-hold strategy typically saves $8,000–$15,000 over 10 years compared to perpetual leasing of the same vehicle category. Leasing wins only if you factor in the time value of the monthly savings and always have a car payment.

What are the hidden costs of leasing a car?

The most common: (1) mileage overage charges — most leases cap at 10,000–12,000 miles/year; overages cost $0.15–$0.30/mile at lease end; driving 15,000 miles/year on a 12,000-mile lease costs $900–$1,800 extra per year; (2) excessive wear charges — scratches, dents, worn tires, or damaged interior above "normal wear" trigger charges of $200–$2,000 at turn-in; (3) disposition fee — $300–$500 charged at lease end unless you buy or re-lease from the same dealer; (4) gap insurance requirement — most leases require gap coverage in case of total loss early in the term.

Who should lease a car vs buy?

Lease if: you drive fewer than 12,000–15,000 miles per year, always want a new car every 2–3 years, primarily use the car for business (lease payments are deductible expenses), and can reliably maintain the car in excellent condition. Buy if: you drive more than 15,000 miles per year, plan to keep the car 5+ years, want to modify or customise it, or want to eliminate all car payments eventually (paid-off cars cost only insurance and maintenance). The break-even point where buying beats leasing is typically 4–5 years of ownership on the same vehicle.

What is the money factor in a car lease?

The money factor is the lease equivalent of an interest rate. Multiply it by 2,400 to convert to an approximate APR. A money factor of 0.00200 = 4.8% APR. Dealers rarely advertise the money factor directly — you must ask. A high money factor (above 0.003, or ~7.2% APR) on a lease is a warning sign. Compare the money factor to current auto loan rates: if you can finance the car at 5.9% but the lease money factor implies 7.5%, the lease financing is expensive regardless of the monthly payment appearing low.

Can you negotiate a car lease?

Yes — and the most important item to negotiate is the capitalised cost (the effective purchase price in the lease), not the monthly payment. Dealers sometimes inflate the cap cost on leases because buyers focus only on monthly payment. Negotiate the cap cost the same way you would negotiate a purchase price. The residual value and money factor are typically set by the manufacturer's finance arm and cannot be negotiated. Reduce the cap cost, increase the down payment strategically (only to lower the monthly payment, not to reduce risk — down payments on leases are not refundable if the car is totalled), and shop money factor via competing dealers.

Lease vs Buy Car: The Complete Financial Comparison (2026)

Leasing costs less monthly but leaves you with nothing at the end. Buying costs more monthly but builds equity. On a $35,000 car: 3-year lease total = $14,400; 3-year loan total = $22,500 but you own a car worth $22,000. This guide compares the real numbers over 3 and 6 years and identifies who should lease and who should buy.

Leasing a car costs less monthly but you own nothing at the end. Buying costs more monthly but builds equity. On a $35,000 car: a 3-year lease totals roughly $17,400 in payments for zero ownership. Financing the same car over 60 months costs $22,500 in payments but leaves you with a car worth $19,000–$22,000. After 6 years of perpetual leasing, total outlay exceeds $34,000 with nothing to show. After 6 years of ownership, the car is paid off, worth $14,000–$18,000, and costs only insurance and maintenance.

The core lease vs buy comparison

At 6 years, the buy path costs slightly more cash — but you own a car worth ~$17,000. The lease path spends $34,800 and owns nothing.

	3-year lease	5-year purchase (financed)
Vehicle price	$35,000	$35,000
Down payment	$3,000 (drive-off)	$3,500 (10%)
Monthly payment	$400	$628 (7% APR, 60 mo)
Total payments (incl. down)	$17,400	$41,180
Vehicle owned at end	No	Yes — worth ~$20,000
Net cost after equity	$17,400	$21,180
Annual mileage cap	12,000 mi/year	Unlimited

The lease "wins" by $3,780 over 3 years on net cost — but only if you return the car, drive under the mileage cap, and keep it in excellent condition. Mileage overages, wear charges, and a disposition fee can quickly erase this advantage.

The hidden costs of leasing

Mileage overages

Most leases cap mileage at 10,000–12,000 miles per year. Overage charges range from $0.15 to $0.30 per mile. Driving 15,000 miles per year on a 12,000-mile lease generates 3,000 excess miles annually × $0.25 = $750/year, or $2,250 over a 3-year lease. This alone eliminates the cost advantage. If you regularly drive more than 12,000–13,000 miles per year, leasing almost certainly does not make sense.

Wear and tear charges

Lessees are responsible for damage beyond "normal wear" — a standard that varies by manufacturer. Common charges at lease-end:

Dings and dents larger than a credit card: $150–$400 each
Tire wear (below 4/32" tread): $200–$400 per tire
Interior stains or burns: $200–$600
Windshield chips or cracks: $200–$500

Families with children or active lifestyles regularly incur $500–$2,000 in wear charges at lease return. These costs rarely appear in lease comparison articles.

Disposition fee

Most leases charge a disposition fee of $300–$500 at turn-in unless you lease or purchase another vehicle from the same dealer. This is a mandatory exit cost built into the lease that reduces the apparent savings.

Gap insurance requirement

Most lease agreements require gap insurance (covering the difference between what you owe and the car's actual value if totalled). This is typically rolled into the monthly payment, but it adds $10–$20/month that a car buyer may not need if they have collision coverage with their own insurer.

Who should lease

Leasing is the better financial decision when all of the following are true:

You drive fewer than 12,000 miles per year (verify your actual driving, not your estimate)
You reliably maintain the car in excellent condition
You want a new car every 2–3 years and can accept a permanent monthly payment
You use the vehicle for business and deduct lease payments as a business expense
The residual value and money factor produce a monthly payment well below the buy scenario

Who should buy

Buying is the better financial decision when any of the following are true:

You drive more than 13,000–15,000 miles per year
You plan to keep the car beyond 4 years (the payoff inflection point)
You want to customize or modify the vehicle
Your goal is to eventually eliminate the car payment
You have children, pets, or an active lifestyle that causes regular interior or exterior wear
You do not want to worry about mileage or wear condition

How to evaluate a lease deal: the money factor

The money factor is the interest rate embedded in a lease. Convert it to APR by multiplying by 2,400. A money factor of 0.00250 = 6.0% APR. Dealers rarely advertise the money factor — always ask.

Negotiate the capitalised cost (the price of the vehicle within the lease), not just the monthly payment. A dealer can reduce the monthly payment by extending the term or inflating the residual — without changing the actual vehicle price. The best lease deals have a low money factor and a high residual value, which reduces monthly payments without increasing the effective price of the car.

Compare money factor to current auto loan APRs. If you can finance the same car at 5.9% but the lease money factor implies 8.4%, the lease financing is expensive regardless of what the monthly payment looks like.

The buy-and-hold payoff

The clearest financial case for buying emerges at year 6 and beyond. A paid-off car with $17,000 of remaining value costs $0/month in payments — only insurance, registration, and maintenance. A perpetual leaser pays $400–$500/month indefinitely and owns nothing. Over a 10-year period, the buyer who drives a paid-off car for 5 years after the loan ends saves $24,000–$30,000 in payments versus the perpetual leaser — money that compounds at whatever rate the savings are deployed.

Key takeaways

Lease monthly payments are lower, but net cost over 3 years is typically only $3,000–$5,000 less than buying — before accounting for mileage overages and wear charges.
The lease advantage disappears by year 4–5 of car ownership; beyond that, the buy-and-hold strategy is dramatically cheaper.
Negotiate the capitalized cost (car price) in a lease, not the monthly payment. Always ask for the money factor and compare it to current loan APRs.
Business owners who deduct vehicle costs should consult a tax professional: the deductibility of lease payments vs depreciation on a purchased vehicle creates a tax dimension that can shift the decision in either direction.

Run your specific numbers with the Auto Lease vs Loan Calculator, which accounts for your money factor, residual value, estimated mileage, and total cost of ownership. To model how vehicle depreciation affects the buy scenario's net cost, see the Vehicle Depreciation Calculator. For related reading, see car lease vs buy: true total cost and how to calculate home affordability.