Lease vs Buy a Car: The Real Math

How Leasing Actually Works

A lease is long-term renting: you pay for the car's depreciation during the lease term plus interest and fees — not the whole car. At term end (typically 24–36 months), you return it, buy it at the pre-set residual value, or lease another. Monthly payments run lower than loan payments on the same car because you are financing a slice of its value, not all of it.

Key lease terms: capitalized cost (the negotiated price — yes, negotiable), residual value (predicted end-of-lease value; higher is better for you), money factor (the interest rate, expressed obscurely — multiply by 2,400 to get the approximate APR), and mileage allowance (typically 10,000–12,000/year, with steep per-mile overage fees).

The 6-Year Math: Lease vs. Buy

Compare two 3-year leases back-to-back versus buying and holding for 6 years, on a $35,000 car:

• Lease path: roughly $400/month × 72 months ≈ $28,800 in payments, plus two rounds of acquisition fees and disposition fees (~$1,500–$2,000 total). You drive new cars throughout but own nothing at the end.
• Buy path: ~$30,000 financed (after down payment) at 6% for 60 months ≈ $33,500 total paid including interest. After 6 years you own a car worth roughly $12,000–$15,000.
• Net comparison: leasing cost ~$30,000 with no asset; buying cost ~$33,500 minus ~$13,000 residual value = ~$20,500 net. Buying wins by roughly $10,000 over six years in this typical scenario.

The math generalizes: buying and holding long-term almost always beats perpetual leasing, because leases charge you for the steepest depreciation years repeatedly while building zero equity. Model your purchase side with the Car Loan Calculator and check affordability with the Car Affordability Calculator.

When Leasing Actually Makes Sense

• You always want a new car: if you would buy new every 3 years anyway, leasing is often cheaper than buy-and-trade cycling (you skip the trade-in hassle and sales-tax churn).
• Business use: lease payments on business-use vehicles can offer cleaner tax deductions than depreciation schedules — consult a tax professional.
• Predictable low mileage: if you reliably drive under the allowance, you avoid the lease's biggest trap.
• EVs and fast-changing tech: leasing hedges against brutal depreciation on rapidly evolving technology (see our depreciation guide).
• Cash-flow priority: lower payments free monthly cash — valid if the freed cash is invested or saved, not spent.

Lease Traps to Avoid

• Mileage overages: $0.20–$0.30 per mile over the allowance adds up fast — 5,000 extra miles is $1,000–$1,500 at turn-in.
• Wear-and-tear charges: dings, stains, and worn tires get billed at turn-in; the inspection is not generous.
• Money factor markup: dealers can inflate the money factor like an APR markup — convert to APR (×2,400) and compare.
• Cap cost not negotiated: many lessees negotiate the monthly payment instead of the capitalized cost — negotiate the price first, exactly like a purchase.
• Early termination: breaking a lease early is brutally expensive — often nearly the remaining payments. Only lease if you will finish the term.
• Perpetual payments: the lifestyle trap — always having a car payment forever, never building equity.

A Decision Framework

• Lease if: you want a new car every 2–3 years regardless, drive predictable low miles, can use business deductions, or want to hedge tech depreciation.
• Buy new if: you keep cars 7–10+ years and want warranty coverage throughout the risky years.
• Buy used if: you want minimum total cost — the used-car value case usually beats both.

Conclusion

Leasing buys flexibility and perpetual newness at a premium; buying and holding buys the lowest long-term cost. Run the 6-year math for your situation — most buyers who do are surprised how decisively buying wins. Negotiate the capitalized cost, convert the money factor to APR, respect the mileage cap, and never lease longer than you will actually keep the car. Start with the Car Affordability Calculator.