Lease vs buy a car in 2026

Lease vs buy: how they differ

The CFPB puts it this way: a lease is an agreement to use a vehicle for a certain number of months and miles. It is like renting. Your payments don't build ownership unless the lease includes an option to buy, and you return the car when it ends.

How a lease works: the terms on the paperwork

A lease payment covers the car's expected loss of value over the lease, plus a rent charge, taxes and fees. These are the words you will see.

• Capitalized cost. The price the lease is built on. Take off a down payment, trade-in or rebate (a capitalized cost reduction) and you get the adjusted capitalized cost. The CFPB lists the vehicle cost as negotiable.
• Residual value. What the car is expected to be worth when the lease ends, based on the mileage allowed. The difference between the cost and the residual is what you pay off through the lease. The CFPB says to question the residual estimate, since it sets both your payment and the price to buy the car at the end.
• Rent charge and money factor. The rent charge works like interest. Most lessors use a money factor to calculate it. Federal law doesn't require a lease rate, but the agreement shows the rent charge in dollars, so ask for it.
• Mileage limit. The residual assumes a level of driving, and the extra-mile fee covers the value lost to more. The Federal Reserve says raising the limit lowers the residual and raises the payment, often at less cost than paying overage later.
• Wear and tear. You pay for excess wear, damage and missing equipment, and you keep up the maintenance the maker requires. The FTC says to keep insurance that meets the lessor's standards. The Federal Reserve says some lessors allow a pre-return inspection, which tells you the charges ahead of time.
• Early termination. Ending early is generally the payoff minus the credit for the car, and the Federal Reserve says it can reach several thousand dollars, more the earlier you quit.
• Gap coverage. If the car is stolen or totaled, that usually counts as early termination. Gap coverage may pay the shortfall between the payoff and the insurance money.
• Fees. The Federal Reserve lists an acquisition fee for administrative costs and, sometimes, a security deposit that comes back at the end after everything is paid.

On the buying side, the CFPB says that asking questions before you shop makes you more likely to get the best interest rate and terms, and that negotiating can save hundreds or even thousands of dollars over the life of a loan.

A worked example: 3 years leasing vs 3 or 6 years owning

These numbers are made up and rounded to make the arithmetic easy. They are not market prices, rates or lease deals. Swap in the numbers from your own offers. Insurance, taxes, registration and repairs are left out because they depend on you.

The made-up car: negotiated price $30,000. On a 36-month lease, the residual is $18,000, the rent charge totals $2,400, and $2,000 is due at signing. If bought, $2,000 down, $28,000 borrowed at 7% for 60 months. Assume the car is worth $18,000 after 3 years and $11,000 after 6.

The lease, step by step

1. Value lost over the lease: $30,000 − $18,000 = $12,000.
2. That per month: $12,000 ÷ 36 = $333.
3. Rent charge per month: $2,400 ÷ 36 = $67.
4. Payment: $333 + $67 = $400 a month.
5. Cost of 3 years: $400 × 36 = $14,400, plus $2,000 at signing = $16,400. You own nothing.

The loan, step by step

1. The standard loan formula gives about $554 a month for $28,000 at 7% over 60 months.
2. Paid in 3 years: $554 × 36 = $19,944, plus the $2,000 down = $21,944.
3. Still owed after 36 payments: about $12,400. The car is worth $18,000, so your equity is about $5,600.
4. Cost of 3 years, if you then sold: $21,944 − $5,600 = about $16,350.
5. Cost of 6 years: the loan is paid off after 5. You paid $554 × 60 = $33,240 plus $2,000 down = $35,240. The car is worth $11,000, so the cost is $35,240 − $11,000 = $24,240.

With these made-up numbers, the first three years cost about the same either way, even though the lease payment is $154 a month lower. The gap opens when you keep the car. The monthly cost drops once the loan is paid off, which fits what the Federal Reserve says about keeping a car past about 5 years. The same guide warns that the longer you keep a car, the more likely you are to pay for repairs after the warranty runs out, and the example leaves those out. Change the residual, the rate or the resale value and the picture moves. The Federal Reserve also says lease-vs-buy models are a starting point and not the final factor, since they can leave out things like mileage limits and early-termination costs.

Who each one tends to suit

This isn't a rule. It comes from how the two are built.

• Leasing tends to fit someone who likes a new car every few years, drives less than the mileage limit, wants a car under warranty the whole time (a shorter term makes that more likely, per the Federal Reserve), and doesn't want to sell or trade one.
• Buying tends to fit someone who drives a lot, keeps a car for years, wants to sell or trade when they choose, or wants to change or customize it.
• Either can work if the cost per month over the years you would really keep the car comes out close. Then it is down to what you would rather have.

Questions to ask the dealer

• What is the negotiated price (capitalized cost), and what fees are in it?
• What is the residual value, and where does it come from?
• What is the rent charge in dollars, and what is the money factor?
• How many miles a year, what does each extra mile cost, and what would a higher limit add to the payment?
• What is the early termination charge in month 12, 24 and 36?
• Is gap coverage included? If not, what does it cost?
• Is there a purchase option, and at what price?
• What counts as excess wear? Can I have a pre-return inspection?
• What is due at signing, and how much of it comes back?
• What is the out-the-door price?

The FTC suggests getting the out-the-door price in writing, focusing on total cost and not only the monthly payment, taking your time with the terms, and leaving with a signed copy of the agreement.