Lease vs Buy
Lower monthly payment vs ownership and equity - which one is actually cheaper over 10 years?
TLDR
Lease: 2-3 year contract, lower monthly payment (you're only paying depreciation + interest, not the full car). At the end you return the car with nothing to show for it. Buy (loan): higher monthly payment for 4-7 years, then $0/month while you drive a paid-off car for another 5-10 years. Over a 10-year horizon, buying typically saves $20K-$40K vs back-to-back leasing the same car - because lease payments never stop.
Side-by-side comparison
| Criterion | Lease | Buy | Winner |
|---|---|---|---|
| Monthly payment | Lower (only depreciation portion) | Higher (full car cost + interest) | Lease |
| End of term | Return car, walk away (or buy out) | Own the car outright | Buy |
| Total payments (3 yrs) | ~$15-20K + ~$3K drive-off | ~$25-30K paid into a $40K car | Lease |
| After 3 years | $0 equity, no car | ~$15-20K equity in 3-yr-old car | Buy |
| Mileage limit | 10K-15K/year, $0.15-0.30/mi over | Unlimited - drive as much as you want | Buy |
| Customization (window tint, mods) | Generally not allowed | Anything you want | Buy |
| Wear and tear charges | Yes - 'excess wear' fees at return | None - it's your car | Buy |
| Maintenance burden | Often covered by lease warranty | On you after factory warranty expires | Lease |
| Always under factory warranty | Yes (most lease terms = warranty length) | Only first 3-4 years | Lease |
| Insurance cost | Slightly higher (gap insurance often required) | Standard | Buy |
| Best for | New car every 3 years, drive < 12K mi/yr | Keep car 7+ years, high mileage, customize | varies |
| Tax deduction (business use) | Lease payment % deductible | Depreciation deductible + Section 179 | varies |
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Estimates only. Returns are not guaranteed. Tax rules and rates current as of 2026-05-16.
When each one wins
When Lease wins
- You want a new car every 2-3 years and value the latest tech / safety features
- You drive under 12,000 miles per year (under typical lease cap)
- You're a business owner who can write off lease payments (75-100% if business use)
- You hate dealing with car maintenance / repairs / selling
- You can't afford to buy your preferred make/model (luxury car at lower monthly)
When Buy wins
- You keep cars 6+ years (you'll pay off the loan and drive free)
- You drive 15,000+ miles per year (lease mileage penalties add up)
- You want to modify the car (lift, mods, custom wheels, etc.)
- You want forced equity build-up (each month's loan payment builds asset value)
- You hate having a car payment in retirement - buying outright builds toward that
The math (typical scenario)
$40,000 car. Lease for 3 years at $450/month with $3,000 drive-off. Alternatively, buy with $5,000 down + 60-month loan at 7%. Compare 10-year total cost:
LEASING (3 back-to-back leases over 9 years, then 4th year) Each lease: $450/mo x 36 = $16,200 + $3,000 drive-off = $19,200 3 lease cycles (9 years): $19,200 x 3 = $57,600 Year 10: still leasing = $5,400 more Total cost: ~$63,000 Asset at year 10: $0 (you owned nothing) BUYING (60-month loan, keep car 10 years) Loan: $35,000 financed at 7% over 60 months = $693/mo Total paid into loan: $41,580 Plus $5,000 down + $1,500/yr maintenance years 6-10 = $7,500 Total out of pocket: $54,080 Asset at year 10: ~$8,000 (used 10-yr-old car value) Net cost: $54,080 - $8,000 = $46,080 DIFFERENCE: Buying saves $17,000 over 10 years on the same car. But the real advantage shows up in years 6-10: zero monthly payment. At $693/mo saved for 5 years, that's $41,580 of freed-up cash flow you can invest, save, or use elsewhere. If you invest that $693/mo at 7% from year 6-10: ~$50,000 accumulated.
The lifetime cost shock most leasers don't see
The 'forever payment' problem
Leasing is comfortable BECAUSE the payment is lower - but you have to keep making it indefinitely. You're paying the depreciation curve forever instead of buying the asset once. Over a 20-year driving career, a serial leaser pays $200K-$300K in lease payments and ends up with no car. A buyer pays $80K-$120K spread across 3-4 cars and ends up with a paid-off car worth $8K-$15K.
The hidden cost of mileage
Lease contracts cap mileage at 10K-15K/year. If you drive 18K/year on a 36-month lease, you'll owe $0.15-0.30 PER MILE over the cap at return - so 9,000 extra miles = $1,350 to $2,700 in surprise charges. If you suspect you'll exceed, prepay the miles upfront (cheaper rate) or buy out the lease at term-end (which essentially converts the lease into a slow-purchase plan with bad terms).
The math favours buying for low-depreciation cars
Some cars (Toyota Tacoma, Honda Civic, Lexus models) hold value better than others. Buying a car that depreciates 30% over 5 years (vs the average 50%) shifts the math dramatically toward buying. Conversely, fast-depreciating cars (Audi A8, BMW 7-series, Cadillacs) actually have a stronger lease case because you're effectively just paying the steep curve and walking away.
Business use changes everything
If you use a car 80%+ for business, lease payments are 80% deductible as a business expense each year. Buying lets you use Section 179 (up to $30K immediate expense) + bonus depreciation in year 1, plus regular depreciation thereafter. Both have tax benefits but at different timing - lease front-loads cash flow benefit, buy front-loads tax deduction. Consult your CPA for your specific situation.
Frequently asked questions
Is leasing ever cheaper than buying?
Over the short term (3 years) and ONLY if you compare lease payments to loan payments without accounting for the equity built. Over 6+ years buying wins almost always.
What's the residual value on a lease?
The predicted resale value at lease end, set by the leasing company. A higher residual = lower monthly payment. Models with high residuals (Toyota, Honda, Lexus) typically lease at better rates than fast-depreciating models.
Can I buy out my lease at the end?
Yes - usually at the residual value set in your contract. Sometimes this is below market value (great deal) - especially in years where used car prices spiked (2021-2022). Almost always worth it if your residual is below KBB private-party value.
What's gap insurance and do I need it for leasing?
Gap insurance covers the difference between what you owe on the lease and what the car is worth if totaled. Required by most lease contracts; often bundled in your auto insurance for free.
How much should the down payment be on a lease?
Ideally $0 (or close to it). If you put $3K down on a lease and the car is totaled in month 6, you lose the $3K. Roll the drive-off costs into the monthly payment if you can - protects you against early-loss scenarios.
Is leasing better for taxes if I'm self-employed?
Often yes, especially for higher-cost vehicles. You can deduct the business-use % of monthly lease payment (subject to luxury auto limits). Buying gives you depreciation deductions (Section 179 + bonus) which are more complex but can be larger upfront. Ask your CPA.
What happens if I want to end a lease early?
Lease early-termination fees are brutal - typically you owe all remaining payments plus a disposition fee. Some lease-takeover services (Swapalease, LeaseTrader) let you transfer the lease to someone else - cleaner but not always available.
Why are luxury cars often leased instead of bought?
Luxury cars depreciate 40-60% in the first 3 years. Leasing means you only pay that depreciation portion and walk away. A buyer takes the full hit. But you also never own anything - so it's the more expensive option over the very long term.
How much will I pay for going over the mileage limit?
Usually $0.15-$0.30 per mile over the contract cap. So 5,000 miles over = $750-$1,500. Prepay miles upfront at $0.08-$0.15/mile if you know you'll exceed - typically half the post-return rate.
Should I lease an EV?
Maybe - EV tech is improving rapidly and a 3-year lease lets you avoid being stuck with an older-tech vehicle. But EV residuals are uncertain (battery degradation, future model improvements) - watch the money factor on EV leases as it can be high.