Buy if you drive a lot, keep cars for six years or more, and want the payments to end. Lease if you want the lowest monthly payment, like a new car every two to four years, and stay under the mileage cap. Leasing wins on monthly cost. Buying usually wins on total cost.
The rest of this guide covers the numbers behind that rule, the traps on both sides, and a short test you can run before you walk into a dealership.
TL;DR
- Leasing has the lower monthly payment. In Q3 2025 the average new lease payment was $596 against $748 for a new car loan.
- Buying is generally cheaper over the long run, because the payments end. A lease keeps you paying for as long as you keep leasing.
- Leasing suits drivers who stay under about 10,000 to 12,000 miles a year and want a warranty-covered car. Buying suits high-mileage drivers and long-term keepers.
- The federal $7,500 EV lease pass-through is gone for vehicles acquired after September 30, 2025. Do not count on it in 2026.
- Lease terms such as the money factor and capitalized cost are negotiable, and so are many fees.
What you are really paying for in each deal
When you buy, you pay for the whole car, plus interest if you borrow. Once the loan is paid, you own the vehicle and everything it is still worth. The Consumer Financial Protection Bureau puts it simply: a lease is an agreement to use a vehicle, new or used, for a set number of months and miles.
When you lease, you pay for the depreciation during the term, plus a finance charge and fees. You never pay for the part of the car’s value that is left at the end. That is why the payment is lower. It is also why you walk away with nothing at the end.
Three lease terms drive the payment:
- Capitalized cost: the price the lease is built on. Treat it like a purchase price.
- Residual value: the projected value of the car when the lease ends. A higher residual means less depreciation to pay for. Our piece on how residual value changes a lease payment shows how a few points move the monthly figure.
- Money factor: the lease’s version of an interest rate.
The CFPB notes that these terms, and even the acquisition fee, are negotiable. Ask for the buy-rate money factor, the one the lender actually offers before any dealer markup, and negotiate the capitalized cost the way you would a sale price.
The monthly payment gap, with real numbers
CFPB and Experian data put the average new lease payment at $596 in Q3 2025, against $748 for a new car loan. That is $152 a month, or roughly 20% less, to drive a comparable new car.
Monthly payment is only one measure, though. Here is a rough illustration built from those two averages. It is our arithmetic, not a quote, and it ignores down payments, taxes, fees and interest differences.
| Lease, 36 months | Loan, 60 months | |
|---|---|---|
| Average monthly payment | $596 | $748 |
| Paid after 3 years | $21,456 | $26,928 |
| Paid after 6 years, leasing twice vs owning | $42,912, no car | $44,880, car still yours |
| Payments in years 6 to 8 | Keep leasing | None |
After six years the two roads cost almost the same, but one leaves you owning a car with no payment. Experts at Edmunds and Experian point to the same thing: shoppers often forget how valuable the payment-free years after a loan ends really are. Edmunds also has a lease versus buy calculator if you want to test your own numbers.
Consumer Reports comes to a similar conclusion. Buying remains the better long-term financial move for most drivers, and it is the smart choice for anyone who drives more than 12,000 miles a year.
When leasing makes sense
Leasing fits a specific kind of driver. You are probably one of them if most of these are true:
- You want a new car every two to four years and do not want to sell or trade the old one.
- You want the car under factory warranty the whole time, so you avoid big out-of-warranty repair bills.
- You drive a predictable, modest number of miles.
- You would rather have a lower payment than build equity.
- You are unsure about a new technology, such as an EV, and do not want to carry the resale risk.
That last point is real. On a lease, the leasing company takes the residual value risk. If the car depreciates faster than predicted, that is the lender’s problem, not yours. Cox Automotive’s Q3 2026 forecast also notes that, under pressure from higher living, insurance and borrowing costs, consumers are adapting by trading down, delaying replacement or choosing used. Leasing is one way shoppers keep a newer car inside a tight monthly budget.
When buying makes sense
Buying is the stronger choice if you recognize yourself here:
- You keep cars for six, eight or ten years.
- You drive more than 12,000 miles a year, or your mileage swings from year to year.
- You want to modify the car, haul gear, or simply not worry about wear-and-tear charges.
- You want the freedom to sell whenever you like.
- You like the idea of no car payment for years at a time.
Ownership has its own risk, and it is called negative equity. If the car loses value faster than the loan balance drops, you can owe more than it is worth. Experian suggests aiming for a 20% down payment on a new car to avoid this. If a car is totaled while you are upside down, you owe the lender the difference. If you are already in that spot and want to trade out of it, read how to get two numbers before trading a negative equity car.
The hidden costs of leasing
The low payment comes with conditions. Read the contract for each of these.
Mileage limits
Most leases cap you at 10,000 to 12,000 miles a year. Consumer Reports says the penalty for going over can range from 10 cents to as much as 50 cents a mile, and you get no credit for unused miles. A driver who goes 3,000 miles over per year on a 36-month lease is 9,000 miles over. At 25 cents a mile that is $2,250 at turn-in. That figure is our example, not a quote.
Early termination
Leaving a lease early is expensive. You cannot just hand back the keys, and according to the CFPB you can stay liable for a large share of the remaining payments. A financed car you own is easier to exit, because you can sell it and use whatever equity it has to pay the loan.
Fees at the end
There are charges at turn-in, such as a disposition fee, plus any excess wear. If you like the car, one option is to buy it. Our guide on how to avoid $300 to $400 lease disposition fees explains buying through the lender.
Insurance
Leases typically require full coverage with higher limits than a paid-off car, and the lessor is named on the policy. Get an insurance quote for the exact car before you sign anything, either way. Insurance costs are among the pressures Cox lists weighing on buyers right now.
What about leasing an EV in 2026?
This is where advice from a year or two ago has gone stale. Experian once highlighted a notable benefit of leasing an EV: leasing companies could claim the $7,500 federal credit even when the model did not qualify for a retail purchase, and many passed some or all of it on. That loophole helped drive EV leasing.
It no longer applies. The credits ended for vehicles acquired after September 30, 2025, which we covered in our explainer on the used EV credit cutoff. Any lease offer you see today has to stand on its own price, residual and money factor. Check anything advertised as “includes tax credit” very carefully.
EVs can still be a smart lease for other reasons. Battery technology and charging speeds keep changing, so leasing limits your exposure to resale values. Running costs are also a big part of the picture. Our analysis shows home charging can make EVs about $10,000 cheaper over five years, and you can see per-mile charging costs before you commit. If you plan a home charger, remember that the 30C charger credit was only available through June 30, 2026. Homeowners thinking further ahead, about backup power and vehicle-to-home power systems, should check that a leased model supports the features they want, since you cannot modify a car you do not own.
If you are still deciding on powertrain, our hybrid vs electric guide is a good first step.
Business use and taxes
If you use the car for work, the tax rules differ. The IRS business standard mileage rate for 2026 was 72.5 cents per mile for the first half of the year and 76 cents for the second half. If you lease, you must pick either the standard mileage rate for the whole lease or actual expenses, and you cannot deduct both. Under actual expenses, a lease can trigger an “inclusion amount” that reduces the deduction when the car’s fair market value at the start of the lease is above $62,000 for leases starting in 2026.
That is a general summary, not tax advice. If you are self-employed or run a company fleet, a CPA can tell you which method fits your situation. For ideas on business-friendly electrics, see our list of best electric company cars.
Lease vs finance: the quick comparison
| Factor | Lease | Finance (buy) |
|---|---|---|
| Monthly payment | Usually lower | Usually higher |
| Ownership at end | None, unless you buy out | Yours |
| Mileage | Capped, often 10,000 to 12,000 a year | Unlimited |
| Customizing | Restricted | Free |
| Wear and tear | Charged at turn-in | Affects resale only |
| Early exit | Often very costly | Sell or trade, equity permitting |
| Repair risk | Mostly under warranty | Yours once warranty ends |
| Long-term cost | Payments never end | Payments end, then free years |
Our take
We test cars, we do not sell them, so we have no stake in which way you go. After watching how readers get burned, we think the lease-or-buy decision comes down to one honest question: how long will you really keep this car?
If the answer is under four years and your mileage is steady, a lease on a car with a strong residual is hard to beat for monthly cost. Do your homework on the money factor and capitalized cost, because that is where a good deal is made. If the answer is six years or more, or you are not sure, buy. The payment-free years are the cheapest transportation you will ever have.
The mistake we see most is leasing to afford a car that is too expensive. A lease can make a trim you cannot afford feel affordable for 36 months. Then you hit turn-in with no equity and the same budget problem. If the lease is the only way the car fits, pick a cheaper car.
One more thing: whichever way you go, get the numbers in writing before the finance office, and get pre-approved financing from your bank or credit union to compare. The FTC advises getting a copy of your credit report before you visit the dealership, and you can pull it free from AnnualCreditReport.com.
Shortlist the car before you pick the contract
The contract matters less if the car is wrong. Start with the car, then price the lease and the loan on the same model. Browse specs by make and model to compare trims and performance, or see our best cars by category for tested picks.
A five-step way to decide
- Estimate your honest mileage. Use last year’s odometer readings, not your hopes. Over 12,000 miles a year points to buying.
- Decide how long you will keep the car. Under four years leans lease. Six or more leans buy.
- Get both quotes on the same car. Ask for the capitalized cost, residual, money factor and all fees on the lease, and the APR and term on the loan.
- Check your cushion. Can you put roughly 20% down on a purchase? If not, negative equity is a risk, and a lease may be safer.
- Compare total cost, not payment. Add up everything you will pay over the years you will have the car, including what you can sell it for.
Sources
- CFPB: What should I know about leasing versus buying a car?
- CFPB: lease and loan payment averages
- Consumer Reports: Buying or Leasing a Car in 2026
- Experian: Is It Better to Lease or Buy a Car?
- Edmunds: Lease vs Buy Car Calculator
- IRS: Standard mileage rates
- Cox Automotive: Q3 2026 Sales Forecast Update
- FTC: Financing or Leasing a Car