Is it cheaper to lease or buy a car?

Buying is almost always cheaper long-term. Over 10 years, buying a car and keeping it costs roughly $30,000 less than continuously leasing. However, leasing has lower monthly payments and makes sense if you want a new car every 3 years and can deduct it as a business expense.

What are the downsides of leasing a car?

You never own anything, face mileage penalties ($0.15-$0.30/mile over limit), can't customize the car, pay fees for excess wear, and always have a car payment. At the end, you return the car with nothing to show for years of payments.

When does leasing make sense?

Leasing makes sense if you drive under 12,000 miles/year, want a new car every 2-3 years, can deduct lease payments as a business expense, or don't want to deal with maintenance on older cars.

Lease vs. Buy a Car: Full Cost Comparison (2026)

Leasing offers lower monthly payments, but buying almost always wins on total cost. Here’s the full financial comparison to help you decide.

Lease vs. Buy: 10-Year Cost Comparison

Scenario: $40,000 Vehicle

Buying (financed, 60-month loan, 7% APR, keep for 10 years):

Cost Component	Amount
Down payment	$8,000
Monthly payments (60 months × $634)	$38,034
Interest paid	$6,034
Maintenance/repairs (years 6-10)	$8,000
Insurance (10 years)	$18,000
Total 10-year cost	$72,034
Resale value after 10 years	-$8,000
Net 10-year cost	$64,034

Leasing (3-year leases, repeat for 10 years):

Cost Component	Amount
Lease payments (120 months × $425)	$51,000
Down payments/due at signing (3× $3,000)	$9,000
Disposition fees (3× $350)	$1,050
Excess wear/mileage fees (estimated)	$1,500
Insurance (10 years, higher for leased)	$21,000
Total 10-year cost	$83,550
Resale value	$0
Net 10-year cost	$83,550

Buying saves approximately $19,500 over 10 years.

Monthly Payment Comparison

Metric	Buy (60-month loan)	Lease (36-month)
Monthly payment	$634	$425
Months of payments	60	All 120 (continuous leasing)
Payment-free months (10-year span)	60	0
Total payments	$38,034	$51,000

Buying has higher monthly payments for 5 years, then $0 for the next 5. Leasing never stops.

Key Lease Terms to Understand

Term	What It Means	Typical Value
Capitalized cost (cap cost)	The negotiated price of the car	Negotiate this like a sale price
Residual value	Predicted value at lease end	45-65% of MSRP for 3-year lease
Money factor	The interest rate (× 2,400 for APR)	0.002-0.004 (4.8-9.6% APR)
Mileage allowance	Miles/year before penalties	10,000-15,000
Excess mileage fee	Per-mile charge over allowance	$0.15-$0.30/mile
Disposition fee	Fee to return the car at lease end	$300-$500
Acquisition fee	Upfront lease processing fee	$600-$1,000
Wear and tear	Charges for damage beyond normal	Varies

When Buying Makes More Sense

Factor	Why Buying Wins
You keep cars 5+ years	No payments after loan is paid off
You drive 15,000+ miles/year	Leases penalize high mileage
You want to customize	Can modify a car you own
You want long-term savings	Buying + keeping = lowest total cost
You want equity	Car has resale value; lease has none
You have good credit	Competitive financing rates available

When Leasing Makes More Sense

Factor	Why Leasing Wins
Business expense deduction	Lease payments may be fully deductible
You want newest safety tech	New car every 2-3 years
Low mileage (under 12K/year)	Stay within allowance
Cash flow matters more than total cost	Lower monthly payment
You don’t want repair costs	Always under warranty
You want predictable costs	No surprise maintenance bills

The Bottom Line

Buying and keeping a car for 7-10 years is the most cost-effective option, saving $15,000-$25,000 over continuous leasing. Leasing only makes financial sense for business deductions, very low mileage driving, or if having the latest car is important enough to justify the premium. If you lease, negotiate the capitalized cost just like you would a purchase price.