Leasing a car costs 30–40% less per month than buying the same vehicle, but buying is cheaper over a 10-year horizon because you accumulate equity and eventually eliminate the monthly payment. The right choice depends on how many miles you drive, how long you keep cars, and whether your financial priority is monthly cash flow or long-term wealth.
Lease vs. Buy: Monthly Payment Comparison
Example: 2026 Toyota Camry XSE, MSRP $35,000
| Lease (36 months) | Finance (60 months) | |
|---|---|---|
| Down payment | $3,000 | $7,000 |
| Monthly payment | ~$450 | ~$630 |
| Miles included | 12,000/year | Unlimited |
| Equity at end | $0 | ~$14,000 (vehicle value) |
| Total out-of-pocket (term) | $19,200 | $44,800 |
| Own the car at end? | No | Yes |
10-Year Total Cost Comparison
Assuming you repeat the lease or keep the purchased vehicle for 10 years:
| Scenario | Total Spent (10 years) |
|---|---|
| Lease 3 cycles (3+3+3+1) | ~$54,000–$70,000 |
| Buy and hold 10 years | ~$42,000–$50,000 (including maintenance) |
| Buy used (3-year-old vehicle) | ~$30,000–$38,000 |
Leasing is more expensive long-term because you never stop making payments — you have no asset at the end.
Key Leasing Terms to Understand
Capitalized cost: The negotiated vehicle price. You can — and should — negotiate this like a purchase price.
Residual value: The vehicle’s projected value at lease end. Higher residual = lower monthly payment. Luxury and popular models tend to have higher residuals.
Money factor: The lease equivalent of APR. Multiply by 2,400 to convert to an approximate APR. A money factor of 0.0030 = ~7.2% APR.
Mileage overage: Extra miles above the contracted allowance cost 15–30 cents per mile. On a 36-month lease with 3,000 extra miles, that’s $450–$900 at lease end.
Disposition fee: Charged at lease end if you don’t buy the vehicle or start another lease with the same brand — typically $300–$400.
7 Questions to Help You Decide
- Do you drive over 15,000 miles/year? → Buy (mileage overages make leasing expensive)
- Do you keep cars more than 5 years? → Buy
- Is lower monthly payment your top priority? → Lease
- Do you use the vehicle for business? → Lease (deductions may apply)
- Do you modify or customize cars? → Buy (leases prohibit modifications)
- Do you want to always have a new car under warranty? → Lease
- Do you value financial simplicity and asset building? → Buy
When Leasing Makes Financial Sense
Leasing is genuinely advantageous when:
- You write off vehicle expenses for business (self-employed, 1099 contractors)
- Your employer offers a vehicle allowance that covers or exceeds lease cost
- You’re in a profession where a new vehicle is important and you turn over cars every 2–3 years regardless
For most consumers building personal wealth, buying — especially a well-maintained used vehicle — produces better long-term financial outcomes.
See How Do Car Loans Work? for financing basics and How to Buy a New Car for the full purchase process.
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