Lease vs Buy in 2026: The Math Behind the Monthly Payment

Leasing is attractive because the monthly payment is lower. Buying is attractive because you eventually own something. Both can be rational, and both can be expensive. The right choice depends less on the payment and more on how long you keep the car, how many miles you drive, and what you would do with the money you do not spend on a larger down payment.

How a lease payment is calculated

A lease is a long rental with an option to buy at the end. The payment covers the expected depreciation during the term, plus rent on the money the lender has tied up in the car. The key inputs are the negotiated selling price, the residual value, the money factor and the term. The money factor is the lease equivalent of an interest rate, and it is often presented as a small decimal that hides its true cost.

Ask for the money factor, multiply it by 2,400 to get a rough APR, and compare it with a loan rate. Ask for the residual value and the selling price. A low monthly payment may come from a high residual, a long term or a large down payment. A large down payment on a lease is risky because you lose it if the car is written off.

Mileage limits and the cost of extra miles

Leases usually include an annual mileage allowance, often 10,000 to 15,000 miles. Extra miles are charged at the end, sometimes at 20 to 30 cents per mile. If you drive 18,000 miles a year on a 12,000-mile lease, the overage can be thousands of dollars. Estimate your mileage honestly, including road trips, and price a higher allowance upfront if needed.

Mileage is not the only end-of-lease charge. Excess wear, tyres below the required tread depth, missing keys, modifications and cleaning can add up. Read the wear-and-tear guide before signing and photograph the car at delivery. Some lessors are more lenient than others, but the contract controls.

Residual value and resale risk

Buying exposes you to resale risk. If the market softens or the model falls out of favour, your car may be worth less than expected. Leasing transfers that risk to the lessor, which is why the payment includes a premium. In a strong resale market, buying can be the better deal. In a weak one, leasing can look smarter.

No one knows future prices. A middle path is to buy a model with a strong resale reputation and keep it long enough for depreciation to slow. The first three years are the most expensive. If you trade every three years, you are repeatedly paying for the steepest part of depreciation, whether you lease or buy.

Opportunity cost of the down payment

Buying often requires a larger down payment. That money could otherwise stay in an emergency fund or earn a return. A fair comparison puts a value on the cash you tie up. If you finance a purchase with a small down payment and invest the difference, the gap can narrow. If you would spend the money instead, the comparison changes.

Do not borrow from a retirement account or drain an emergency fund to buy a car. A car is a depreciating asset, and an unexpected repair or job loss is easier to handle with cash available. A smaller purchase or a short lease may be the safer choice.

When leasing makes sense

Leasing can work if you want a new car every two or three years, drive within the allowance, maintain the car carefully and prefer a predictable payment. It can also work for a business owner who can deduct part of the cost, subject to local tax rules. A short lease can bridge a period when you are unsure about your long-term needs.

It rarely makes sense if you modify cars, tow heavy trailers, drive on rough roads, put on high mileage or expect to keep the vehicle for a decade. Those are all signs that ownership fits better. The same is true if the lease requires a large down payment or has a money factor that is much higher than a loan rate.

When buying makes sense

Buying is usually better for long-term ownership. Once the loan is paid, you have an asset and no payment. You can choose your own insurance limits, repair the car where you like and sell it whenever you want. High-mileage drivers avoid excess-mileage charges, and keepers benefit from maintaining a car they know.

The catch is that you must budget for repairs and depreciation. A used car with a pre-purchase inspection can be the cheapest path, but it requires more effort and carries more uncertainty. A new car with a long warranty offers predictable costs, but the first years of depreciation are steep. Our financing guide explains how to compare loan offers.

Run the same-period comparison

Pick a period, say four years. For the lease, add all monthly payments, the down payment, acquisition and disposition fees, and expected mileage or wear charges. For the purchase, add the down payment, monthly payments, interest, and estimated maintenance and repairs, then subtract the car's expected value at the end. Divide both by the number of months to get a comparable cost.

Include insurance differences, because lease requirements may push you toward higher coverage. Include taxes and registration, which vary by jurisdiction. The result will not be exact, but it will show whether the lower lease payment is actually cheaper or simply spreads a similar cost over a different structure.

"A lease is not cheaper because the payment is lower. It is cheaper only if the total cost over the same years is lower."

The bottom line

Lease if you value flexibility, stay within the mileage cap and accept the end-of-term rules. Buy if you keep cars, drive a lot or want to avoid resale and wear charges. In either case, negotiate the selling price, understand the fees and run a same-period total-cost comparison. For more detail, see our Car Financing collection.