Leasing a car usually gives you a lower monthly payment, while buying usually costs less over time. A lease charges you for the car’s depreciation during the term plus a finance charge, so the payment is smaller, but you return the car with nothing to show for it. Buying costs more each month until the loan is paid off, and after that you own an asset and drive payment-free.
The right answer depends on how long you keep cars, how many miles you drive and how much you value always having something new. Experian’s data for the second quarter of 2026 shows the average new-car loan payment at $765 a month, about $148 more than the average lease payment. That gap is real, but it isn’t the whole picture, as the cost comparison below shows.
How a lease payment is calculated
A lease payment has two main parts. The first is depreciation: the difference between the car’s price (the capitalized cost) and its expected value at the end of the lease (the residual value), spread across the months of the lease. The second is the rent charge, which works like interest and is set by the money factor.
The residual value is set by the leasing company at signing and is usually shown as a percentage of MSRP. A car with a high residual, meaning it is expected to hold its value well, will have a lower lease payment because you are paying for less depreciation.
The money factor is the lease version of an interest rate, written as a small decimal such as 0.0025. Multiply it by 2,400 to get the approximate APR. A money factor of 0.0025 equals about 6%, and 0.0035 equals about 8.4%. Dealers sometimes mark up the money factor above the rate the leasing company approved, so ask for the number in writing and convert it yourself.
Leases also carry fees that a purchase may not. An acquisition fee, often in the range of $595 to $1,095, is charged at the start, and a disposition fee of a few hundred dollars is common when you return the car. In most states, sales tax is charged on each monthly payment instead of on the full price upfront.
Mileage limits and wear-and-tear charges
Most leases allow 10,000 to 15,000 miles a year, with 12,000 a common default. Go over the limit and you pay a per-mile charge at turn-in, usually 10 to 25 cents per mile. Driving 5,000 extra miles at 20 cents a mile adds $1,000 to your cost.
You can often buy extra miles upfront at a lower rate than the penalty, but unused miles are not usually refunded. Be honest about your driving. A long commute, frequent road trips or a planned move can push you past the limit quickly.
When you return the car, it’s inspected for damage beyond normal wear. Dents, deep scratches, curb-rashed wheels, stained upholstery and worn-out tires can all lead to charges. Some lessors offer a pre-inspection before turn-in so you can fix issues yourself, which is often cheaper than paying their repair rates.
Leasing vs buying: total cost over 3 and 6 years
To compare fairly, look at what you spend minus what you own at the end. The illustration below uses a $40,000 MSRP car bought or leased for a negotiated $38,000, with $2,000 down either way. The lease assumes a 58% residual, a 0.0025 money factor (about 6%), a $995 acquisition fee and a $395 disposition fee. The loan assumes 60 months at 6.15%, which is close to Experian’s Q2 2026 average new-car rate for prime borrowers. Taxes, insurance and maintenance are left out, and the car is assumed to be worth $23,200 after three years and about $17,000 after six.
| Item | Lease (36 months) | Buy (60-month loan) |
|---|---|---|
| Money down | $2,000 | $2,000 |
| Monthly payment (before tax) | About $534 | About $698 |
| Total paid in first 3 years | About $21,600 (with disposition fee) | About $27,150 |
| What you own after 3 years | Nothing | About $7,460 in equity ($23,200 value minus a $15,740 loan balance) |
| Net cost after 3 years | About $21,600 | About $19,700 |
| Net cost after 6 years | About $43,200 (two similar 3-year leases) | About $26,900 ($43,900 paid minus $17,000 car value) |
Even at three years, buying comes out slightly ahead in this example, because the owner can sell the car and keep the equity. Over six years the difference grows to about $16,000, since the buyer drives the sixth year with no payment at all while the lessee keeps paying. Repairs after the warranty ends would narrow that gap somewhat for the owner, but rarely enough to close it.
Real deals vary. Automakers sometimes subsidize leases with inflated residuals or low money factors, which can make a lease cheaper than buying on a specific model. That’s why it pays to run both numbers for the exact car you want.
When leasing makes more sense
Leasing tends to fit drivers who:
- Want a new car every two to four years and would trade in early anyway
- Drive a predictable, moderate number of miles
- Prefer to stay under factory warranty and avoid big repair bills
- Want a lower monthly payment to free up cash flow
- Use the car for business and can deduct part of the lease cost (ask a tax professional)
- Are unsure about fast-changing technology, such as EV battery range, and don’t want to bet on resale value
Example: Priya drives about 9,000 miles a year, mostly around town, and always replaces her car after three years because she likes current safety tech. For her, a lease with a 10,000-mile allowance means a lower payment, no worries about resale value and a simple turn-in at the end. Since she would trade in at three years anyway, the long-term savings from buying matter less to her.
When buying makes more sense
Buying usually wins for people who keep cars for six years or longer, drive a lot of miles, or want the freedom to customize, sell whenever they like or let the car get some wear without penalty. Once the loan is paid off, every additional year you drive is the cheapest stretch of car ownership.
Buying also gives you flexibility. If your circumstances change, you can sell a car you own at any time. Getting out of a lease early often means paying the remaining payments or a hefty early termination charge, though lease transfers and buyouts are sometimes possible.
Example: Tom commutes 60 miles a day and drives about 22,000 miles a year. A standard 12,000-mile lease would leave him about 30,000 miles over after three years, which at 20 cents a mile adds $6,000. Buying a reliable car and keeping it for eight years costs him far less, even after budgeting for tires, brakes and a couple of larger repairs.
How to decide, step by step
- Estimate your yearly mileage honestly using past service records or your odometer.
- Decide how long you usually keep a car. If it’s six years or more, buying is likely cheaper.
- Negotiate the vehicle price first, the same way for both options, before talking about lease or loan terms.
- Ask for the lease’s capitalized cost, residual value, money factor, mileage limit and all fees in writing.
- Get a loan preapproval from a bank or credit union so you have a real rate to compare against dealer financing.
- Calculate total cost for the period you plan to drive the car, subtracting the car’s expected value if you buy.
- Check insurance quotes too, since many leases require higher liability limits and gap coverage.
End-of-lease options
When a lease ends, you can usually return the car and walk away after paying any mileage, wear or disposition charges. You can also lease or buy another car from the same brand, and some lessors waive the disposition fee if you do.
A third option is buying the car for the residual value listed in your contract, plus any purchase fee. That can be a good deal when used-car prices are high and the car is worth more than the residual. If the market value is higher than your buyout price, you may also be able to sell or trade the car to a dealer and keep the difference, although some leasing companies restrict third-party buyouts. Ask your lessor about its current rules several months before the lease ends.
Common questions
Is it cheaper to lease or buy a car?
Buying is usually cheaper over the long run, especially if you keep the car six years or more, because you eventually stop making payments and own the car. Leasing usually has a lower monthly payment and can be cheaper over a short period when the automaker offers subsidized lease terms.
What is a good money factor on a lease?
Multiply the money factor by 2,400 to convert it to an approximate APR, then compare it to current auto loan rates for your credit tier. If a 0.0030 money factor (about 7.2%) is well above what you would pay on a loan, ask whether the dealer marked it up.
Can I negotiate a lease?
Yes. The capitalized cost (the car’s price) is usually negotiable, and so are some fees and the mileage allowance. The residual value is set by the leasing company and generally is not negotiable.
What happens if I drive more miles than my lease allows?
You pay an excess mileage charge when you return the car, typically 10 to 25 cents per mile. If you expect to go over, buying extra miles upfront or buying out the lease may cost less.
Do I need gap insurance on a lease?
Many leases require it or include a gap waiver. Gap coverage pays the difference between what your insurer pays for a totaled or stolen car and what you still owe on the lease, so check your contract before buying it separately.
Before you sign
- Know your yearly mileage and how long you plan to keep the car.
- Negotiate the price before discussing monthly payments.
- Get the money factor, residual value, fees and mileage limit in writing.
- Compare a lease quote against a loan preapproval for the same car.
- Read the early termination and wear-and-tear sections of the contract.
The Consumer Financial Protection Bureau has free tools for comparing auto financing offers.
Editorial note: This article is general information, not financial advice. Rates and payment data were checked as of October 2026, and the cost comparison is illustrative; confirm actual terms with the dealer, lessor or lender before you sign.