Lease or Buy: Make the Right Choice
Choosing between leasing and buying a car is one of the most important financial decisions in vehicle ownership. Leasing offers lower monthly payments and the ability to drive a new car every 3 years, but you build no equity. Buying costs more monthly but you own the vehicle and can drive it payment-free after the loan ends. This calculator compares total costs over 3-5 years to help you make an informed decision based on your financial situation and driving habits.
Lease vs Buy: Quick Comparison
Key differences for a $35,000 vehicle:
| Factor | Leasing | Buying |
|---|---|---|
| Monthly Payment | $400 (example) | $548 (60mo, 6.5% APR, 20% down) |
| Down Payment | $2,000 typical | $7,000 (20%) |
| Ownership | Never own | Own after loan paid |
| Mileage Limits | 10-15k miles/year | Unlimited |
| Wear & Tear | Charged for excess | Your responsibility |
| Customization | Not allowed | Full freedom |
| End of Term | Return or buyout | Keep or sell |
| 3-Year Cost | ~$16,400 | ~$26,728 |
| 5-Year Cost | - | ~$39,897 |
| Equity After 5 Years | $0 | ~$20,000+ |
When Leasing Makes Sense
Leasing is financially advantageous in these scenarios:
When Buying Makes Sense
Buying is the better choice if:
Cost Calculation
Understanding the complete financial picture. For monthly payment calculations, see our car payment calculator.
Hidden Lease Costs to Consider
Leases have fees that can add thousands to your cost:
2026 Leasing Market Conditions
The automotive leasing landscape in 2026 shows moderate activity. Average lease penetration is approximately 25% of new vehicle transactions, though this varies significantly by brand (luxury brands 50%+, economy brands 10-15%). Residual values have stabilized after the volatility of 2022-2024, leading to more predictable lease payments. Money factors (lease interest rates) average 0.00200-0.00300 (4.8-7.2% APR equivalent) for prime credit. Several manufacturers are offering competitive lease programs with subsidized residuals to move inventory. The expired federal EV tax credit impacts EV leasing calculations, as lessors previously captured the credit and passed savings to lessees. However, competitive lease offers remain on many EV models as manufacturers absorb incentives.
Frequently Asked Questions
Q:Is it smarter to lease or buy a car in 2026?
It depends on your situation. Buy if you: drive over 15,000 miles/year, keep cars 7+ years, want to build equity, or need customization freedom. Lease if you: want lower monthly payments, change cars every 3 years, drive under 12,000 miles/year, or use the car for business (tax deduction). Financially, buying costs less over 7+ years, but leasing offers lower short-term costs and always having a new car under warranty.
Q:Why is leasing payments lower than buying?
Leasing only finances the depreciation during the lease term (typically 30-40% of the car's value), not the entire purchase price. For a $35,000 car worth $20,000 after 3 years, you only pay for the $15,000 depreciation plus rent charges. When buying, you finance the full $35,000. This makes lease payments 30-60% lower, though you build no equity.
Q:What happens at the end of a car lease?
You have three options: 1) Return the vehicle and walk away (pay disposition fee $300-500 plus any excess wear/mileage charges), 2) Buy the car for the predetermined residual value (similar to a balloon payment), or 3) Trade for a new lease. Most people (60%+) either return or lease again. Only buy out if the residual is below actual market value.
Q:Can I negotiate a car lease like a purchase?
Yes! Negotiate the 'capitalized cost' (vehicle price) just like buying - this determines your depreciation charge. Also negotiate: money factor (interest rate), included mileage allowance, and acquisition fees. Many dealers mark up the money factor; request the 'buy rate.' Strong credit (720+) qualifies for best money factors. You cannot negotiate the residual value (set by manufacturer) or disposition fee (standard).
Q:What credit score do I need to lease a car?
Most leasing companies require 620+ credit score for approval, with 700+ for best money factors (rates). Below 700, expect higher money factors and potentially larger down payments. Leasing typically has stricter credit requirements than buying because lessors want assurance you'll make all payments and return the car in good condition. With poor credit (<620), buying with a longer loan term may be your only option.
Q:Are there hidden fees in car leasing?
Yes, several: Acquisition fee ($500-1,000 upfront), disposition fee ($300-500 at end), excess mileage ($0.20-0.30/mile over limit), excess wear and tear charges (variable, often $500-2,000), early termination penalties (very expensive), and potentially higher insurance requirements. Always read the full lease contract. These fees can add $2,000-5,000 to your total cost.
Q:Can I get out of a car lease early?
Yes, but it's expensive. Options: 1) Pay early termination fee (all remaining payments plus penalties, often $5,000-10,000), 2) Lease transfer/assumption (find someone to take over, $300-500 fee), 3) Trade-in at dealer (they pay off lease, but you likely have negative equity), or 4) Voluntary repossession (destroys credit, not recommended). Avoid early termination if possible - lease only terms you'll complete.
Q:Do lease payments build equity?
No. Lease payments cover depreciation and rent charges - you're essentially renting the vehicle. At lease end, you have $0 equity. In contrast, buying builds equity as you pay down the principal. After 3 years of $548 monthly payments buying a $35,000 car, you'd have ~$23,000 equity. This is the biggest financial difference between leasing and buying.
Q:Can I buy the car at the end of the lease?
Yes, every lease includes a 'residual value' - the buyout price. However, only buy out if the residual is below market value. Example: If residual is $20,000 but market value is $22,000, buying out saves $2,000. If residual is $20,000 but market value is $18,000, you'd overpay $2,000 - better to return and buy a similar car elsewhere. Check market values (KBB, Edmunds) before deciding.
Q:What's the money factor in a lease?
The money factor is the lease interest rate in decimal form. Multiply by 2,400 to convert to APR equivalent. Example: 0.00271 money factor × 2,400 = 6.5% APR. Dealers may mark up the money factor; always ask for the 'buy rate' (lowest available for your credit). Good credit (720+) gets money factors of 0.00100-0.00200 (2.4-4.8% APR) in 2026.