Which costs less — leasing or buying?

Car lease vs. buy

Compare the annualized cost of leasing a car versus buying it with a loan, accounting for resale value.

Formula

annual cost of buying = (down payment + total loan payments − resale value) ÷ loan term · annual cost of leasing = monthly lease payment × 12

Assumptions

• Buying is compared against the resale value you estimate — actual resale value depends on market conditions, mileage, and the car's condition.
• Leasing doesn't build any equity — at the end of the lease you return the car (or need a separate buyout), while buying leaves you owning the car outright.
• Excludes mileage limits and excess-wear charges some leases impose, which could add extra cost beyond the monthly payment.
• Compares the two options on an annualized basis since lease and loan terms are often different lengths.

Frequently asked questions

Why compare annual cost instead of total cost?
Lease terms (often 2-3 years) and loan terms (often 5-9 years) rarely match, so comparing total cost directly would be misleading — dividing each by its own term gives a fair per-year comparison.

Does leasing ever make more sense than buying?
It can — for drivers who want a new car every few years, don't want to deal with resale, or whose usage stays within mileage limits, leasing avoids the uncertainty of predicting resale value and the hassle of selling.

What if I'm unsure about the resale value estimate?
Try a range of resale values with "Compare scenarios" — the resale value has a big effect on whether buying looks cheaper, so it's worth checking how sensitive the answer is to that guess.