Does It Ever Make Sense to Lease a Car?

While most people purchase cars, there are instances where leasing may be a better option. Here’s what you need to consider.

Ready for a new car? If so, you’re likely asking yourself what type of car you want, whether to upgrade to a larger ride and which color you prefer.

But here’s another question: Should you buy or lease?

Most people finance their vehicles or pay in cash, but leasing has some benefits too. How do you decide?

What does leasing really cost?

Leasing typically has lower monthly payments than buying, which is its greatest appeal. But your monthly payment isn’t the only amount to consider.

To get the best deal — and keep the most money in your pocket — calculate the actual cost overall for both buying and leasing.

Here’s an example: Say you find a car with a $30,000 purchase price. You finance the purchase at 3 percent for 36 months with a $1,000 cash down payment. Assuming you don’t have a trade-in, your monthly payment would be $872 and you’d pay $31,392 overall.

Let’s see what happens when you lease the same car for 36 months with $1,000 down. Assuming a monthly payment of $500, you’d pay $19,000 overall.

In 36 months, you decide you don’t want the car anymore. If you financed, you could sell the car for its current value – say, $18,000. So owning the car for three years has now cost you only $13,392.

If you leased it, you can’t sell it, so your total is still at $19,000 — thus making it much less expensive to purchase the car.

This is a simple example that doesn’t take into account several other factors, including sales tax and the upfront fee to lease the car. To do the math for your specific situation, try several online calculators, such as’s auto loan and auto lease calculator. Bankrate has a questionnaire you can fill out.

From our Solutions Center: Find the best rate on a car loan

Repair bills

Whether you buy or lease a new car, a warranty likely covers it for at least the first three years. Older cars become more expensive to repair over time as major parts wear out. The person leasing a car (or the person who buys a new car every three years) won’t have to worry about those types of expenses.

However, you will be required to keep the leased car in pristine condition. Any dings or dents beyond normal wear and tear will cost you extra when you turn the car in. Consider having them repaired before that deadline.

Higher costs and extra fees

Leasing comes with some higher out-of-pocket costs and some potential fees:

  • Gap insurance. It’s wise and often required to have extra insurance — called gap insurance — on a leased car so that the replacement cost is covered in the event you total it. Likewise, gap insurance is also recommended when you buy a new car and the amount you owe is greater than what the car is worth as its value depreciates.
  • Mileage limit. Leases come with a limit on the number of miles you can drive the car — often 15,000 miles a year. Exceed that limit and you’ll pay a large per-mile penalty when you turn the car in.
  • Early termination penalty. Getting out of a lease early will cost you a penalty — generally the remainder of what you owe on the lease. However, you might be able to transfer the lease to someone else. To accomplish that, check out sites like and Swapalease. You’ll pay a fee, and the company leasing you the car will have to approve the transfer, but it’s an option.

When leasing might be right for you

Despite the drawbacks, leasing may be your better option if you:

  • Want to drive a new car every two or three years.
  • Need a car for a limited amount of time.
  • Need a new car for your business but simply can’t afford the higher payments to finance one.

Things to be aware of when negotiating a lease include:

  • Capitalized cost of the car. That’s the price of the car plus the acquisition fee, and it is negotiable. Just as you wouldn’t pay the full sticker price when buying a car, you should haggle for a lower capitalized cost of a leased car.
  • The “money factor.” That’s the interest or lease rate calculated into your monthly payment. It also is negotiable, so shop for the lowest rate.
  • The residual value. That’s what the car should be worth when the lease ends. The residual value subtracted from the capitalized cost will determine the cost of your lease. A lower depreciation rate will mean a higher residual value and lower monthly lease rate.
  • Fees and more fees. There can be many — for example, the price of excess mileage and excess wear and tear — so you need to read the contract carefully before you sign.

Which do you prefer — buying or leasing a car? Share your thoughts in our Forums. It’s a place where you can swap questions and answers on money-related matters, life hacks and ingenious ways to save.

Karen Datko contributed to this post.

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  • john marzy

    Karen – Fees and More Fees. What most article writers fail to point out is the value of your car is affected by mileage and wear and tear regardless of how you decided to pay for it. It is not a fee if the penalty for driving a lot of miles or excessive wear and tear effects both a purchase or a lease. In a lease it is spelled out, so many cents per mile. The folks at Kelly Blue Book use the same deduction as a cents per mile when you estimate the value of a used car. See Kelly Blue Book as an example.

  • Jason

    Leasing is only good if you always want a car payment. You are basically just renting a car.

    That said, I am looking at possibly leasing right now. I’m looking for an electric car and several companies have been offering leases for about $200 to $250 a month. That is the advertised price, I’ll have to look at the details of course. If those prices turn out to be real the cost to lease an EV is about the same as the cost of gas for a regular car.

  • ponce

    About eight years ago I bought a van. Made payments of 424/mo for five years and now own it. Thing is, when I go in to have it serviced its always something. Brakes, tie rods, tires, switches, egr valves and the repairs and replacement items always total at least 200 dollars on up to 600 dollars. Very little marketable value left in the van. Just leased a compact SUV, 195/mo with maintenance included for two years, no money down. It is unlikely that I will pay anything for repairs or replacement of wear items and most mechanical problems are covered by the warranty. Family puts less than 12,000 miles per year on each vehicle and we are eligible for “friends and family” discounted leases.
    Everyone’s situation varies but, for my family, leasing is the way to go as long as the rent is 200-250 per month.

  • edwarddunn

    I would say, that in most instances, if you can write the lease payments off on taxes, as when using the vehicle for work, then it is well worth the lease. Otherwise, it’s like renting an apartment instead of buying a house. It’s up to the individual. Personally, I think it’s flushing money down the toilet to lease, at least most of the time.

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