Lease vs Buy a Car: The Full Answer
By Lease vs Buy Car Editorial Team — Auto-finance editors
Last updated · Editorial policy
For most people, buying a car and keeping it beats leasing — usually by thousands of dollars — because most people keep cars well past the loan payoff, and every payment-free month after that is money a lease never gives back. Leasing is competitive only if you genuinely replace cars every two to three years, stay under the mileage allowance, and put real value on always driving a car under warranty. Under this site's documented typical assumptions, buying overtakes back-to-back leasing around month 43 and finishes a six-year comparison roughly $7,200 ahead.
Every figure below comes from one worked example with clearly labeled assumptions: a car with a $45,000 MSRP negotiated down to $42,500, a 36-month lease at a 0.00250 money factor, and a 60-month loan at 7% APR. These are typical values, not live market rates — every default and its rationale is documented on the methodology page, and the lease vs buy calculator runs exactly these formulas on your own inputs.
The one question that decides it
How long will you keep the car? Nothing else comes close. Money factors, residuals and fees move the answer by hundreds of dollars; the holding horizon moves it by thousands.
The reason is timing. A car's steepest depreciation happens in its first two or three years, and a lease is priced to charge you for exactly that slice — so leasing concentrates the most expensive phase of car ownership and repeats it indefinitely. Buying is the mirror image: expensive up front, then progressively cheaper as the loan ends and the value curve flattens. In the worked example the cumulative-cost lines cross at about month 43 — before that point the serial lessee has spent less; after it, the buyer pulls ahead and never looks back. That crossover is the whole decision, and it gets its own treatment in the break-even guide.
What leasing really costs
The honest unit of account for leasing is not one lease — it's the chain. When a lease ends you still need a car, and most lessees sign another one, so the real cost is due-at-signing plus every payment plus the disposition fee plus any mileage charges, repeated for as long as you drive, with zero equity at every step.
Here is one link of that chain. The adjusted capitalized cost is the $42,500 negotiated price plus a $695 acquisition fee rolled in, minus $2,000 of cap cost reduction = $41,195. The residual is 57% of the $45,000 MSRP = $25,650. The monthly payment splits into three parts:
| Payment component | Monthly amount |
|---|---|
| Depreciation fee — ($41,195 − $25,650) ÷ 36 | $431.81 |
| Rent charge — ($41,195 + $25,650) × 0.00250 | $167.11 |
| Sales tax — 7% on each payment | $41.92 |
| Total monthly payment | $640.84 |
Look at the first row: $431.81 of the $640.84 payment — about two-thirds — is pure depreciation. Due at signing is $2,640.84 (the first payment plus the $2,000 reduction). At turn-in you owe a $395 disposition fee and $0.25 for every mile over the allowance of 12,000 miles a year. Add up a full cycle — the reduction, 36 payments, disposition — and one three-year link costs about $25,465 before any mileage charges. Then the next link starts. The payment math is unpacked line by line in how car lease math works.
What buying really costs
The buyer finances the whole car: $42,500 plus 7% sales tax plus $500 in registration and doc fees, minus a $2,000 down payment = $43,975 borrowed at 7% APR for 60 months, which comes to $870.76 a month (test variations in the auto loan calculator). That is $229.92 a month more than the lease — a real gap, and for the first five years the buyer genuinely pays more.
Then two things change everything. First, at month 60 the payments stop: in the six-year comparison the buyer drives twelve payment-free months while the serial lessee keeps writing $640.84 checks. Second, the buyer owns an asset. With a typical depreciation curve — 20% in year one, then 15% of remaining value each year — the car is still worth about $15,086 at year six, and that equity nets against everything spent. The model also charges buying honestly for aging-car costs: $500 a year of maintenance under the three-year warranty, $1,200 a year after it (assumptions, documented on the methodology page). Net of all of it, buying finishes roughly $7,200 ahead at six years — and the gap keeps widening every year after.
The five levers
Five inputs decide almost every lease-vs-buy comparison. In rough order of power:
- Holding horizon. Exit at year three and leasing is still ahead by a few thousand dollars on our documented defaults; hold to year ten and buying wins in a landslide. The crossover sits in between — around month 43 on those defaults. Every other lever fine-tunes this one.
- The depreciation curve. A lease payment is mostly depreciation, so a car that holds its value gets a high residual and a cheap lease — and loses its buyer less money too. See car depreciation explained for how the curve works.
- Money factor vs loan APR. Multiply the money factor by 2,400 to get its APR: 0.00250 is about 6%, against the example's 7% loan. When a manufacturer subsidizes the money factor, that spread widens and leasing gains ground.
- Mileage. The example allows 12,000 miles a year and charges $0.25 per excess mile. Drive 15,000 miles a year and turn-in costs an extra $2,250 per term — details in lease mileage and fees.
- Fees. $695 acquisition plus $395 disposition adds $1,090 per cycle — roughly $30 a month that never appears in the advertised payment, and serial leasing pays it every cycle.
When leasing genuinely wins
- You replace cars every two to three years anyway. You would absorb peak depreciation either way; the lease just prices it up front and removes the hassle and risk of selling.
- Your horizon is one term or less. A known move or life change two or three years out makes buy-then-sell expensive: steep early depreciation plus transaction friction, concentrated in the worst part of the curve.
- The manufacturer is subsidizing the lease. A below-market money factor or an inflated residual can make a lease cheaper than unsubsidized math would ever allow. You spot it by converting the money factor to an APR and comparing the residual across competing models.
- You are worried about technology churn. Especially with EVs, resale value years from now is genuinely uncertain — a lease pins your exit price at the residual, so the lessor carries that guess. Incentives also sometimes flow through leases in ways an outright purchase does not qualify for; the rules change often, so verify what currently applies before counting on it.
When buying wins big
Long horizons are buying's home turf. Once the loan is paid off, every additional year of ownership costs the owner nothing in payments while the serial lessee spends roughly $7,690 — twelve more $640.84 checks. High mileage tilts it further: at 20,000 miles a year, a 12,000 miles allowance means 8,000 miles of excess — $2,000 a year at $0.25 per mile — while an owner simply accepts faster depreciation on a car they already keep. And if you drive cars until they die, the comparison stops being close: years seven through ten of ownership cost only fuel, insurance and upkeep, which is the cheapest driving there is.
How to run your numbers honestly
Generic examples decide nothing; your quote does. Five rules:
- Use the negotiated price on both sides of the comparison, never the MSRP — and settle the price before discussing lease versus finance.
- Ask the dealer directly for the money factor and residual; they are rarely printed on the quote. Multiply the money factor by 2,400 and compare it with the loan APR you actually qualify for.
- Count every lease-side fee — acquisition, disposition, and excess mileage at your realistic annual miles — not just the payment.
- Forecast your horizon from behavior, not intention: how long did you actually keep your last two cars?
- Compare total cost over the same horizon with resale equity netted out — never payment against payment.
The lease vs buy calculator does this arithmetic for you: it models the full lease chain against buy-and-hold, invests the monthly cash-flow difference so both paths deploy identical money, and reports total net cost, ending position and your break-even month. Every formula behind it — including this exact worked example — is documented on the methodology page.