Leasing vs. Buying a Car: A 5-Year Cost Comparison
If you’re in the market for a new set of wheels, the choice between leasing and owning could make or break your budget, both monthly and in the long term. Which is right for you?
There is no single right answer for every driver, but every driver must choose between the two, which often means the difference of thousands of dollars.
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The following breakdown outlines typical costs associated with leasing a car versus buying one — and how they add up differently over time.
Leasing vs. Buying: An Apples-to-Oranges Showdown
As Consumer Reports notes, it’s difficult to make a clear head-to-head cost comparison between leasing and buying because of the many trade-offs involved, including the following key considerations.
Leases have both lower monthly payments and lower upfront costs, so you can afford a higher-end, better-equipped model.
Leases are always under warranty and you drive them during the vehicle’s most problem-free years.
Owners absorb the full depreciation hit, but the loss of resale value is built into lease contracts — lessees don’t have to worry about trade-in value, but they pay to use a car while it depreciates most rapidly.
When you buy, you own the vehicle’s entire equity once you pay off the loan and you can sell it for a windfall at any time.
When you lease, you own zero equity and return what was essentially a long-term rental — those who lease over and over never make their final payment.
Leases have mileage caps and per-mile surcharges beyond the contract’s maximum.
Leases are less flexible and may impose steep early-termination penalties.
Any damage beyond ordinary wear and tear, as well as any aftermarket modifications, will be charged to you at the end of the lease.
It’s generally more expensive to insure a leased vehicle than one you own.
Key Variables To Consider
According to Experian data published in March, the average vehicle loan term has risen to nearly six years for both new and used cars in today’s expensive marketplace. However, the average lease is for 36 months.
Therefore, the typical lessee would have to pay upfront costs twice over five years, compared to once for a buyer — but that’s not the only factor that complicates direct comparisons. Purchase financing is a percentage-based interest rate, while lease financing is expressed as a decimal number called the “money factor.”
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The Cost of Owning or Leasing a (Nearly) Average Vehicle
With those primary tradeoffs and other key variables in mind, the best starting place is the monthly payment to lease and own the same car.
The Cost of Leasing
According to CarsDirect, you can determine a monthly lease payment by adding interest plus depreciation. It uses the example of a 2026 Subaru Ascent with a $42,245 MSRP, slightly below the $49,191 average new-car price reported by Kelley Blue Book (KBB). The example used common formulas to calculate the vehicle’s value, its depreciation value and finance charges to arrive at the following:
Monthly depreciation: $469.39
Monthly finance charge: $34.47
Monthly payment: $503.86
Remember the 1% Rule? Forget It
If you’re interested in leasing, you’ve probably heard of the 1% golden rule: A monthly payment that’s 1% of a leased vehicle’s MSRP is generally a good deal. However, $503.86 is 1.2% of $42,245, which means this isn’t a good deal, right?
In simpler times, maybe.
CarsDirect says that the 1% rule is an antiquated benchmark that largely died with the COVID-19 pandemic. In the post-2020 world, 1.2% is a steal. Roughly 1.25% to 1.5% is now considered good and many lessees pay between 2% and 4.5%.
The Cost of Buying
Using the same $42,245 2026 Subaru Ascent, KBB calculates five-year depreciation at $18,438, leaving a five-year residual value of $23,807 after 60 months. That, plus $32,606 in out-of-pocket expenses, results in a five-year ownership cost of $51,044.
Excluding finance charges, out-of-pocket expenses include:
Fuel: $5,989
Maintenance: $2,686
Insurance: $13,655
Repairs: $1,882
State fees: $3,140
The Verdict
The monthly lease payments, which include finance charges, total $30,232 over five years. That, plus the $27,352 in combined out-of-pocket costs (presuming they’re identical), puts the five-year ownership cost of leasing at $57,584 — $6,540 more than the buyer pays to own the same vehicle.
While these numbers are not exact, they illustrate the point that, in the long term, leasing is almost always more expensive than buying.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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