Is it cheaper to lease or buy a car?

Over a single lease term, leasing is usually cheaper per month. Over the long run, buying and keeping the car is typically thousands cheaper, because a lease is a permanent payment while a paid-off car keeps its value and ends the payment.

When does leasing make sense?

When you want a new car every few years, drive low and predictable miles, or can write off the lease for business. If you trade cars frequently anyway, leasing can be competitive.

Why does buying win over 10 years?

Because the lease never ends, you keep paying every few years, while a buyer pays off the loan and then drives a paid-for car that still has resale value. Owning an asset plus ending the payment is what creates the long-run gap.

Cars

Lease vs buy a car: the 3-year and 10-year cost

Tyler is at the dealership looking at a $38,000 car, and the salesperson slides two numbers across the desk. Leasing is about $250 a month less than buying, and over the length of the lease, leasing usually is cheaper. Stretch the timeline to ten years and it reverses, with buying ahead by tens of thousands of dollars.

What a lease payment covers

When you lease, you pay for the part of the car you use up over the term, plus fees, which is why the monthly payment is lower. At the end you own nothing. When you buy, the payment is higher because you’re paying for the whole car, and at the end you own something with resale value. So the useful comparison is the cost per year of driving once you count what you own at the end.

A worked example

Here are Tyler’s two options: the $38,000 car leased at $450 a month plus fees, or bought with $4,000 down on a 7% loan over 60 months:

Over the 3-year lease term: lease net cost $32,115 (own $0) vs buy net cost $32,875, roughly a wash, lease about $253/mo lighter on cash flow
Over 10 years: leasing (4 leases) $109,180, still owning nothing
Over 10 years: buying and keeping ~$73,797 net after resale, buying wins by more than $30,000

Over one lease, leasing is cheaper and easier on Tyler’s monthly budget. But leasing means a car payment for as long as he drives. Buy the car and keep it past the loan, and the monthly cost drops sharply while he drives something he owns outright.

Compare with your own numbers →Free Lease vs Buy calculator, no sign-up. See the short-term and the 10-year cost side by side.

Where this estimate can be off

Leasing suits some people. If you want a new car every few years, drive predictable low mileage, or can write the lease off through a business, the math changes. Watch the mileage limit the calculator asks for, because driving 13,000 miles on a 12,000 limit costs extra. Buying only wins over the long run if you keep the car past the loan. If you trade in every three years anyway, you’re effectively leasing with more paperwork. If Tyler keeps cars a long time, he should buy.

Figures from TheSharpDollar’s Lease vs Buy calculator using its sample scenario. Your result depends on your lease terms, price and how long you keep the car.