Leasing and buying answer the same need — a car in your driveway — in fundamentally different ways. When you buy, you pay for the whole vehicle and own an asset at the end. When you lease, you pay only for the slice of the car’s life you use, and hand it back when the term ends. Put simply, a lease is renting depreciation: you cover the value the car loses while it is yours, plus a finance charge, and nothing more.
That difference explains why lease payments are usually lower than loan payments on the same car — and why buying and holding tends to cost less over the long run. To compare them fairly, you have to understand the numbers a lease is built on.
The three numbers behind a lease
- Residual value. The lender’s estimate of what the car will be worth at lease end. You pay for the gap between the price today and this residual — the depreciation during your term.
- Money factor. The lease’s version of an interest rate, written as a tiny decimal. Multiply it by 2,400 to get a rough equivalent APR — a money factor of 0.00125 is about 3%.
- Mileage cap. Leases limit annual miles, often around 10,000 to 15,000. Go over and you owe a per-mile charge at turn-in.
A lease payment mostly covers depreciation plus the money factor. A higher residual means less depreciation to pay for — which is why some cars lease far more cheaply than others.
Why buying usually wins the long game
A lease never stops. When one ends, you either start another lease or go buy a car — so you keep making payments indefinitely and never own anything. Buying has an end point: once the loan is paid off, you can drive the same car for years with no payment at all. Those payment-free years are where ownership pulls ahead. The longer you keep a purchased car, the lower its average cost per year falls, because the biggest costs are spread across more time.
When a lease can make sense
Leasing is not a mistake for everyone. It can suit drivers who want a new car every few years, value a full warranty and predictable costs, drive modest and predictable miles, or can deduct a lease as a business expense. The trade-off is real, though: lower payments now in exchange for never building equity and living with mileage limits and wear charges.
Comparing the two honestly
- Convert the money factor to an APR (× 2,400) so you can compare the lease’s financing cost against a loan rate.
- Estimate your real annual mileage before signing — overage fees can erase a lease’s payment advantage.
- Compare total cost over the years you would actually keep a car, not just the monthly payment.