Lease or Buy? The Real Comparison

A dealer quotes you $605 a month to lease or $800 a month to buy.

Those two numbers cannot be compared and almost everyone compares them.

The $605 buys 36 months of use and nothing else. The $800 buys 36 months of use plus a share of a car — and at the end of those 36 months the buyer holds $6,133 of equity that the leaser does not.

Once you account for it, the two come out $877 apart — and that gap flips to the other side entirely if the car is worth $2,000 more than expected.

A note before you start. This is general education, not financial advice. Every figure is computed by this site's own lease-versus-buy engine. The scenario is illustrative, and section 2 states every assumption so you can disagree with any of them.

1. The comparison, done properly

A lease and a purchase are compared over the lease's term, because that is the fixed one. At the end of it:

The leaser hands the car back and owes nothing. Their cost is every payment they made.

The buyer still owns a car and still owes money on it. Their cost is every payment made minus what the car is worth net of the outstanding loan.

That last quantity — equity — is the entire reason the payment comparison fails.

The lease wins by $877 — about $24 a month — on a payment difference that looked like $195.

The $195 was 96% misleading. Most of it was not a cost difference at all; it was principal, and the buyer got it back.

2. The scenario, in full

Three of those deserve flagging.

The loan runs 60 months and the comparison stops at 36. That is the normal case and it is why equity matters — the buyer is 24 months from owning the car outright at the point the leaser walks away.

The residual sets the lease payment. It is fixed by the leasing company, not negotiated, and it is the single largest driver of what a lease costs. A high residual means a low payment.

And the lease is taxed on the payment stream here. Several states instead tax the full value at signing, which changes the lease side materially. This site's vehicle dataset does not yet record lease tax method per state, so this article uses the common treatment and says so rather than implying a fifty-state answer.

3. The whole thing turns on resale value

Change nothing except what the car is worth at month 36:

A $8,000 swing in resale value moves the answer by $8,000 and flips the verdict twice.

The break-even resale is around $24,900 — about 62% of the original price. Above it, buying wins. Below it, leasing does.

And nobody knows that number at signing. Not the dealer, not the leasing company, not this site. Depreciation depends on the model, the mileage, the condition, the used-car market three years out and — as recent years demonstrated — on supply shocks nobody forecast.

This is structurally the same problem as appreciation in the rent-versus-buy comparison, where one percentage point moves the break-even by three to five years. In both cases the decision rests on an unknowable input, and the honest response is the same: run it at several values and see whether the answer holds.

If it flips between $22,000 and $26,000, the arithmetic has not told you to buy or lease. It has told you the decision is a bet on the used-car market, which is a different and more useful thing to know.

4. What the leasing company is actually selling

Once you see the resale sensitivity, the lease payment makes more sense.

The residual value is a guarantee. The leasing company commits, at signing, to take the car back at $24,000 of assumed value regardless of what it is actually worth in three years.

If the car is worth $20,000, that is their loss. If it is worth $28,000, that is their gain.

So a lease is partly a use contract and partly an insurance policy against depreciation — and the premium for that insurance is inside the payment.

Three consequences.

Leasing is worth more when depreciation is uncertain or steep. A model with a poor resale reputation is exactly the one to lease, because you are transferring a risk that is genuinely likely to materialise.

And it is worth less when the residual is set generously. A high residual means a low payment, and it also means the leasing company has taken on more risk — which is why manufacturers subsidise residuals on models they want to move.

A subsidised residual is the single best reason to lease. When the manufacturer sets a residual above what the market will actually pay, you are being handed the difference. It shows up as an unusually low payment relative to the car's price, and it is not something you can compute from first principles — you find it by comparing lease quotes across models.

5. What the 36-month window hides

The comparison above stops at month 36 because that is when the lease ends. It is also where buying looks worst.

What happens next is the strongest argument for buying and it is invisible in every table above.

The leaser, at month 37, has a car payment. They lease again, or buy something, and the payments continue indefinitely.

The buyer, at month 61, owns the car and stops paying. Every month after that is free of a car payment, against a vehicle that still has years of use in it.

Rough shape of the next five years:

A leaser on a rolling 36-month cycle pays roughly $605 a month forever, with a new car every three years.

A buyer who keeps the car to year ten pays $800 for 60 months and $0 for the next 60, on a car that is older each year.

That is the actual trade, and it is not primarily financial. It is: do you want a newer car and a permanent payment, or an older car and a period without one?

The financial answer, if you keep cars a long time, is clearly buying. The comparison in section 1 is unfavourable to buying precisely because it stops at the moment the buyer has taken all the depreciation and none of the payment-free ownership.

Which produces the rule that matters more than the arithmetic:

If you replace your car every three years, lease. If you keep it eight or ten, buy. The middle case — five or six years — is where the calculator earns its keep, and where the resale assumption in section 3 decides it.

6. Five things that break the lease side

A lease has terms a purchase does not, and each of them can move the comparison.

Mileage limits. Typically 10,000 to 15,000 miles a year, with a per-mile charge over. A driver who exceeds the allowance materially is buying miles at a rate that can exceed the depreciation they cause. Estimate honestly and price the higher allowance up front, which is almost always cheaper than the overage rate.

Wear-and-tear charges. The car goes back and someone assesses it. Normal wear is expected; kerbed wheels, seat damage and unrepaired dents are chargeable, and the standard is the leasing company's rather than yours.

Early termination. Getting out of a lease early is expensive and sometimes close to impossible. A purchase can be sold at any time — at a loss if you are upside down, but it can be sold.

The acquisition fee, and the disposition fee at the end. The $895 acquisition fee is in the figures above. A disposition fee at return, where charged, is not — and it is commonly a few hundred dollars.

And the cap cost is negotiable even though the payment is presented as fixed. The vehicle price inside a lease is negotiable exactly as it is in a purchase, and a buyer who negotiates the price before discussing the lease gets a lower payment on the same residual and money factor.

7. Three cases where the answer is already decided

Before running anything, check whether you are in one of these.

You drive far more than the allowance. A 25,000-mile-a-year driver should not lease. The overage charges dominate everything in this article, and no negotiation fixes a structural mismatch.

You keep cars until they stop. Buying wins decisively, for the reason in section 5 — the payment-free years are where the return is, and they are entirely outside a 36-month comparison.

You need the lowest possible monthly payment and understand the trade. Leasing generally delivers it, because you are financing depreciation rather than the whole car. The trade is a permanent payment, and it is a legitimate choice as long as it is a chosen one.

Everything else — and it is most people — is a genuine comparison, and it comes down to section 3's resale assumption and section 6's terms.

8. The lease-end option people forget

At the end of a lease you have three choices, not two, and the third one is the interesting one.

Hand it back. The default, and what section 1 assumes. You owe nothing beyond any excess mileage and wear.

Lease or buy something else. The rolling cycle in section 5.

Or buy the car you have been leasing, at the residual.

That third option is a free call option and it costs nothing to hold.

The residual was fixed at signing. If the car turns out to be worth more than the residual at term end, you can buy it at the residual and capture the difference — either keeping a car you know the history of, or selling it.

In the section 3 table, a car worth $26,000 against a $24,000 residual is $2,000 of value available to the leaser for doing nothing except exercising the option.

And if the car is worth less than the residual, you simply hand it back and the leasing company takes the loss. That asymmetry is the whole point of an option.

Two caveats worth stating.

A purchase option fee may apply, disclosed in the lease, and it comes off whatever the option is worth.

And the buyout is at the residual plus tax, which in most states is charged again on the purchase — so the option is worth the gap minus the tax and the fee, not the gap alone.

The practical instruction: check the market value of your car in the final three months of the lease. If it exceeds the residual by more than the fees, exercising is free money — and a substantial number of leasers hand back cars worth more than they were committed to pay for them.

9. What to ask for

Four numbers make a lease quote comparable to a purchase quote. Dealers do not always volunteer them.

The capitalised cost. The negotiated price of the car inside the lease. If a salesperson will discuss only the monthly payment, this is the number being kept from you, and it is the one you can move.

The residual value, in dollars. Not a percentage — the dollar figure the leasing company will take the car back at. It is fixed and it drives the payment.

The money factor. Multiply it by 2,400 for the approximate APR. A money factor of 0.00250 is about 6%. This is the lease's interest rate wearing a disguise, and quoting it in an unfamiliar unit is not an accident.

And every fee: acquisition, disposition, and the doc fee. The doc fee applies to leases too, and it is subject to the same caps where a state has one.

With those four you can run the comparison in section 1 yourself, and without them you cannot run it at all.

Frequently asked questions

Is it cheaper to lease or buy? Over the lease term, it depends almost entirely on what the car is worth at the end. In this scenario the lease wins by $877 at a $24,000 resale, and buying wins by $1,123 at $26,000. The break-even is around 62% of the original price.

Why can't I just compare the monthly payments? Because they buy different things. A lease payment buys 36 months of use; a loan payment buys use plus equity. Here the payments differed by $195 a month and the actual net cost by $24 a month.

What is the single biggest unknown? Resale value at the end of the term. An $8,000 swing in it moves the answer by $8,000 and flips the verdict twice. Nobody knows it at signing, which is why the comparison should be run at several values.

When does buying clearly win? When you keep the car well past the loan term. The comparison above stops at month 36, which is when the buyer has taken the depreciation and not yet had a single payment-free month. Keep a car eight or ten years and buying wins decisively.

When does leasing clearly win? When you replace your car every three years, when the manufacturer has subsidised the residual, or when the model depreciates steeply — in that last case you are transferring a risk that is likely to materialise.

What is a money factor? The lease's interest rate, expressed in an unfamiliar unit. Multiply by 2,400 for the approximate APR: 0.00250 is about 6%. Always ask for it, and convert it.

Can I negotiate a lease? Yes — the capitalised cost is the vehicle price and it is as negotiable as in a purchase. The residual and money factor are usually fixed by the leasing company. Negotiate the price before discussing the payment.

Does the state affect the lease comparison? It can, substantially. Some states tax a lease on the payment stream and others tax the full value at signing. This article uses the payment-stream treatment; this site's vehicle dataset does not yet record the method per state, so no fifty-state claim is made here.

What to do next

Ask for the capitalised cost, the residual in dollars and the money factor. Without those three a lease quote cannot be compared to anything.

• Lease vs. buy calculator — your numbers, with the equity accounted for.
• Auto lease calculator — what the residual and money factor actually do to the payment.
• The doc fee, and what a cap actually means — it applies to leases too.
• Buying or leasing a car in the USA in 2026 — the full fifty-state picture.

Every figure on this site is sourced and dated. How we source every number.

All figures are computed by this site's own lease-versus-buy engine, which compares over the lease term and nets the purchase side against equity — the car's assumed value less the outstanding loan balance. The scenario is illustrative: vehicle price, residual, money factor, rates, terms and fees are round numbers chosen to demonstrate the method, and your own quote will differ. Resale values in the sensitivity table are hypothetical and are not forecasts. The lease is modelled as taxed on the payment stream, which is the common treatment; several states instead tax the full value at signing, and this site's vehicle dataset does not yet record the method per state — so no fifty-state claim is made. Disposition fees, mileage overage rates and wear-and-tear standards vary by leasing company and are described qualitatively. This is general education and not financial advice.