Lease vs Buy: Which Costs Less for You?

Answer first, details second: If you plan to keep the car 3 years or less, leasing can win on payment; if 5+ years, buying often wins on total cost. Run both.

How do I compare lease vs buy quickly?

Use the Lease Calculator with money factor, residual, and drive‑off, then the Auto Loan Calculator with the same taxes and fees. Compare total out‑of‑pocket for your planned ownership period.

What inputs matter most?

  • Lease: Residual value, money factor, drive‑offs, mileage caps, disposition and wear fees
  • Buy: APR, term, down payment, taxes/fees, resale value at your exit point

Step-by-step

  1. Decide your likely hold period (e.g., 36, 48, 60 months).
  2. Run lease with mileage that matches your driving, include fees.
  3. Run buy with realistic APR and term; estimate resale value at exit.
  4. Compare total out‑of‑pocket at your exit month; add disposition/wear if returning a lease.

Leasing essentials in plain English

Leases are structured around two main numbers: residual value (what the car is expected to be worth at lease end) and money factor (the financing cost, where MF × 2400 ≈ APR%). The monthly payment equals depreciation plus finance charge, with taxes applied depending on your state. A higher residual lowers your payment; a lower money factor reduces finance cost.

  • Mileage caps: Exceeding your allowance triggers per‑mile fees. Pick a realistic cap; pre‑purchased miles are usually cheaper than overages.
  • Drive‑offs: First payment, DMV, doc, and acquisition fees are typical. Lower drive‑offs mean more is financed.
  • End‑of‑lease fees: Disposition and wear/tear charges can add up. Budget them into the comparison.

Buying essentials that shape total cost

When buying, your cost hinges on selling price, APR, term, taxes/fees, and future resale value. A longer term cuts payment but increases total interest. If you plan to sell early, model the remaining balance at the exit month and compare to expected market value.

  • APR and term: Small APR changes compound over long terms. Keep total interest visible in your comparison.
  • Taxes and fees: Enter the exact figures from OTD quotes to avoid payment mismatches.
  • Resale value: Choose a conservative resale estimate; check historical data for similar models and trims.

Method: compare at the month you’ll switch cars

The fairest comparison is at the point you exit the car. For leasing, tally all payments through that month plus drive‑offs and expected end‑of‑lease fees. For buying, add down payment and monthly payments through the same month, then subtract the car’s estimated market value at that time (or add negative equity if you’re upside‑down). The lower net number wins for your timeline.

Example: 36‑month keeper vs 72‑month loan

Alex wants a compact SUV. Leasing shows a 58% residual, 0.0020 MF (~4.8% APR), $1,800 drive‑offs. Buying shows 6.4% APR for 72 months, $2,500 down. At 36 months:

  • Lease: Sum of 36 payments + drive‑offs + estimated disposition/wear = $16,900 (example).
  • Buy: Sum of 36 payments + down payment − estimated resale value = $17,450 (example).

For a planned 3‑year hold, the lease edges out. If Alex instead plans 6–7 years, buying wins handily on total cost because there are no repeat acquisition or disposition fees and the loan eventually ends.

When leasing usually makes sense

  • You prefer a new car every 2–3 years and value warranty coverage and new features.
  • The brand is offering unusually strong subvented leases (high residuals, low MF).
  • You drive predictable mileage and can keep wear/tear within guidelines.

When buying usually makes sense

  • You plan to keep the car 5+ years, spreading ownership over more time after the loan ends.
  • Your insurance or parking makes swapping cars frequently expensive.
  • You want freedom to customize or drive unlimited miles.

Practical tips

  • Request the residual and money factor in writing; plug them into the lease calculator exactly.
  • Match tax treatment to your state: some tax the monthly payment, others tax the whole selling price.
  • Keep term lengths comparable: a 36‑month lease vs a 72‑month loan can be misleading—compare both at the same exit month.

FAQ

Q: Is leasing always cheaper per month? A: Often, but not always. Incentives, residuals, and money factor drive the result. Run the numbers.

Q: Can I buy my lease at the end? A: Usually yes, via lease buyout. Use our Buyout Calculator to include tax and fees.

Q: What if I exceed mileage? A: Estimate overage and add it to the lease total when you compare.

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