Lease vs buy
Lease vs Buy a Car
Leasing is renting depreciation. Buying is owning a depreciating asset. Across a 6-year window, one is cheaper. Across a 12-year window, the answer flips.
Lease
Pay only for depreciation + fees during the lease term, then return.
Buy (financed or cash)
Own the car. Pay it off, then drive it for free for years.
At a glance
| Lease | Buy (financed or cash) | |
|---|---|---|
| Typical monthly payment | Lower (often 30–40% less) | Higher |
| Down payment / drive-off | $1,000–$3,000 typical | 10–20% of price typical |
| Term length | 24–48 months | 60–84 months for the loan |
| Mileage limit | 10K–15K/year typical, $0.20–$0.30/mile over | Unlimited |
| Wear-and-tear charges | Yes, at lease return | No — you own the depreciation |
| Equity at end | Zero — you return the car | Whatever the car is worth |
| Long-term cost | Higher if you keep cycling leases | Much lower if you keep the car post-payoff |
| Best when… | You like a new car every 3 years and drive < 12K miles/yr | You drive a lot, plan to keep 6+ years, or value flexibility |
Pick Lease
Lease if you genuinely want a new car every 3 years (don't pretend you don't — most leasers do another lease, not a buyout), drive under the mileage cap, and value the lower monthly payment for budget flexibility. Leases also work for businesses where the entire payment may be deductible.
Pick Buy (financed or cash)
Buy if you drive 15K+ miles per year, plan to keep the car at least until the loan is paid off (and ideally 3–5 years past that), or want the freedom to modify, sell, or hand it down. The cheapest miles in transportation are the ones driven 4–10 years after the loan is paid off.
How a lease payment is built
A lease is essentially: `(MSRP − residual value − any cap reduction)/term + (MSRP + residual)/2 × money factor`. Translated: you pay for the depreciation that occurs during your lease term, plus a finance charge on the average value of the car. The residual value is set by the leasing company up-front — typically 50–60% of MSRP for a 36-month lease.
The money factor is the lease equivalent of an interest rate. Multiply by 2,400 to get the APR. A money factor of 0.0025 = 6% APR. Manufacturers often subsidize the money factor on specific models to push leases — a deal flagged 'special lease APR' is usually a marketing rate well below market.
The hidden cost of cycling leases forever
Most lease customers don't buy the car at lease-end — they sign a new lease on a new car. Over 12 years, that's four lease cycles back-to-back, with four sets of acquisition fees, four down payments, and zero equity to show. Compare that to financing one car for 6 years and driving it for another 6+ years post-payoff: four lease cycles often cost 50–80% more total over 12 years than the buy-and-hold path.
When buying loses to leasing
Buying is not always the right call. If you're drawn to luxury cars (BMW, Mercedes, Audi), the depreciation curve is steep enough that leasing genuinely is cheaper for the first 36–48 months — the leasing company carries the depreciation hit on a residual that often exceeds true market value at lease-end.
Buying also loses if you're going to trade in every 3 years anyway. The transaction costs of selling and re-buying that frequently (taxes, fees, dealer margins) often eat the equity you built — a lease at least bakes in the disposal cost.
The 'one more year' move
If you bought, the single most powerful lever is keeping the car one more year than you originally planned. Year 7 of ownership on a paid-off car costs maybe $1,500–$3,000 in maintenance vs $7,000–$10,000 for a new lease + insurance increase. Most cars made in the last decade are reliably good for 200,000+ miles with basic maintenance. The financial gap between leasers and 12-year keepers is built one extra year at a time.