Lease vs. Buy Comparison Guide
Compare leasing and buying: monthly costs, total ownership, pros and cons, and decision factors
Key Numbers
Lease Avg
$596/mo
Buy Avg
$749/mo
Leased New Cars
24%
Buy Wins At
5+ Years
Leasing and buying serve different financial goals. Leasing means lower monthly payments and a new car every few years; buying builds equity and costs less long-term. About 24% of new vehicles were leased in Q2 2025, with the average lease payment running $152/month less than the average loan payment (Experian, Q3 2025).
| Factor | Leasing | Buying (Financing) |
|---|---|---|
| Avg. Monthly Payment | $596 | $748 |
| Typical Down Payment | $0 – $2,000 | 10% – 20% of price |
| Typical Term | 36 months | 60 – 72 months |
| Ownership at End | No | Yes |
| Mileage Limits | 10K – 15K/year | Unlimited |
| Warranty Coverage | Usually full term | 3 years typical |
| Customization | Not allowed | Full freedom |
| Early Exit | Expensive penalties | Can sell anytime |
The core difference: When you buy, you pay for the entire vehicle and own it when the loan ends. When you lease, you pay only for the vehicle's depreciation during your use (typically 3 years), plus interest and fees — you never own it.
Cost Comparison
Leasing appears cheaper month-to-month, but buying typically costs less over 5+ years because you build equity and eventually have no payment. These examples use a $40,000 vehicle with typical terms.
3-Year Cost Breakdown
| Cost Component | Lease (36 mo) | Buy (36 of 60 mo) |
|---|---|---|
| Down Payment | $2,000 | $8,000 (20%) |
| Monthly Payments | $400 × 36 = $14,400 | $630 × 36 = $22,680 |
| Acquisition / Fees | $1,000 | $500 |
| Disposition Fee | $400 | — |
| Total Cash Out | $17,800 | $31,180 |
| Vehicle Equity at 3 Years | $0 | ~$11,000* |
*Assumes vehicle worth ~$24,000 at 3 years with ~$13,000 remaining on loan. Equity = market value − loan balance.
6-Year Total Cost
| Scenario | Total Paid | Asset Value | Net Cost |
|---|---|---|---|
| Lease → Lease (two 3-yr leases) | $35,600 | $0 | $35,600 |
| Buy → Keep 6 years | $46,000 | ~$16,000 | $30,000 |
| Buy → Keep 8+ years | $46,000 | ~$10,000 | $36,000* |
*Net cost is similar, but you get 3+ years of payment-free driving. Investing $600/mo during those years could accumulate ~$24,000+.
Hidden Lease Costs
| Fee | Typical Range | When Charged |
|---|---|---|
| Acquisition fee | $500 – $1,000 | At signing (non-negotiable) |
| Disposition fee | $300 – $500 | At return |
| Excess mileage | $0.15 – $0.30/mi | At return, per mile over limit |
| Wear & tear | $500 – $2,000+ | At return (luxury: $3,000+) |
| Higher insurance | $20 – $50/mo extra | Ongoing (higher limits required) |
| Early termination | $3,000 – $8,000+ | If you exit early |
How Lease Payments Work
A lease payment has three components: the depreciation fee (the vehicle's lost value over your term), a rent charge (interest), and taxes. Understanding these terms helps you negotiate a better deal.
| Component | Formula / Definition |
|---|---|
| Depreciation Fee | (Cap Cost − Residual Value) ÷ Term in months |
| Rent Charge | (Cap Cost + Residual Value) × Money Factor |
| Monthly Payment | Depreciation Fee + Rent Charge + Tax |
Key Lease Terms
| Term | What It Means | Typical Range |
|---|---|---|
| Capitalized Cost | Negotiated price + fees − down payment | Negotiable |
| Residual Value | Projected vehicle value at lease end | 45% – 60% of MSRP |
| Money Factor | Interest rate expressed as a decimal | 0.001 – 0.003 |
| MF → APR | Multiply money factor × 2,400 | 2.4% – 7.2% APR |
Mileage Overage Impact
| Annual Driving | Lease Allowance | Miles Over (36 mo) | Overage Cost* |
|---|---|---|---|
| 10,000 mi/yr | 10,000 mi/yr | 0 | $0 |
| 12,000 mi/yr | 10,000 mi/yr | 6,000 | $1,500 |
| 15,000 mi/yr | 10,000 mi/yr | 15,000 | $3,750 |
| 20,000 mi/yr | 10,000 mi/yr | 30,000 | $7,500 |
*At $0.25/mile, the midpoint of the $0.15–$0.30 typical range. Higher-mileage lease packages (12K or 15K/year) are available at a higher monthly payment.
Negotiate like a purchase: The capitalized cost (price) is negotiable just like a purchase price — lowering it directly reduces your monthly payment. Always ask for the money factor and convert to APR (× 2,400) to compare rates.
Decision Guide
The right choice depends on how long you keep vehicles, how much you drive, and whether you prioritize lower payments or long-term savings.
| Factor | Favors Leasing | Favors Buying |
|---|---|---|
| Time Horizon | 2 – 3 years | 5+ years |
| Annual Mileage | < 12,000 mi | > 12,000 mi |
| Monthly Budget | Need lowest payment | Can pay more now |
| New Car Priority | Latest tech every 3 yrs | Comfortable keeping longer |
| Equity Goal | Not a priority | Want to own an asset |
| Exit Flexibility | Locked in (penalties) | Sell or trade anytime |
| Business Use | Often deductible | Depreciation deduction |
Credit Score Requirements
| Credit Tier | Leasing | Buying |
|---|---|---|
| Excellent (750+) | Best rates, 0% offers | Best rates (~5%) |
| Good (700 – 749) | Competitive rates | Good rates (~6 – 7%) |
| Fair (650 – 699) | May require higher deposit | Higher rates (~9 – 12%) |
| Poor (< 650) | Difficult to qualify | Possible, but expensive |
Buying Advantages
Build equity you can sell or trade, no mileage limits, payment-free years after loan payoff, freedom to customize, and lower total cost over 5+ years of ownership.
Leasing Advantages
Lower monthly payments and down payment, new car with latest safety tech every 2–3 years, full warranty coverage during the lease term, and no resale hassle at the end.
Always compare total cost: Look at total outlay over your expected ownership period, not just the monthly payment. Factor in insurance (leases require higher coverage), maintenance, and the vehicle's residual value if buying. Get pre-approved for financing before visiting a dealer.
Sources
- 1.Experian — State of the Automotive Finance Market, Q3 2025
- 2.Kelley Blue Book — Average New-Vehicle Transaction Prices (November 2025)
- 3.FTC — Vehicle Leasing Guide
- 4.Consumer Reports — Leasing vs. Buying a New Car
- 5.Edmunds — Should You Lease or Buy Your Car?
- 6.NerdWallet — Lease vs. Buy: 7 Questions to Help You Decide
This content is for educational and informational purposes only and does not constitute financial, tax, or legal advice. Consult a qualified professional for guidance tailored to your situation.