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.

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.

Stacy Johnson

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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.

    • What so many of us forget is that we are always going to have a car payment in one way or the other. Whether it’s the $25,000 we put down in cash or whether we are paying it to the bank,the car payment is spread out over the time we drive cars during our lifetimes. I have a friend that pays cash because he says he doesn’t like having a car payment. Doesn’t he realize that he still has to make payments back to his account to recoup the $25,000 he shelled out? I could make 7 years of $300 car payments before my cost exceeds $25,000 and that doesn’t account for the interest the $25,000 could be making in an investment account. Personally, I prefer the certainty and consistency of the payment each month.

      • Jason

        A couple things:
        1. If you lose your job and can’t make payments a bank or leasing company they will take the car. That is a certainty. Owning someone money carries risk and limits your options.
        2. Cars last longer than 7 years
        3. New cars cost way more to insure than older cars

        Today I drive a 2005 Toyota Prius. I paid $22K for it back in 2006 which was $6K less than new with 21K miles. (came off a 2 year lease) Today it has 145K miles and nothing has broken. I’ve done routine maintenance and replaced the tires 3 times. It still gets 45 mpg tank after tank.

        • You’ve done well with that car, Jason.. Best case scenario is to buy a car one or two years old, hope it’s reliable and take good care of it. But you still had a car payment. You paid $22,000. That’s about 9 years of $239.00 lease payments on a brand new Prius deal they had a few years ago. At some point, you will need another car..and I’m sure you still need to replace brakes and tires. So, even the best case scenario doesn’t necessarily beat a lease.

          And if you lose your job after buying a new car, you’ll wish you hadn’t forked over your $22,000 cash. You can make a lot of payments with that before the bank comes after ya.

          • Jason

            The 2005 Prius still has the original brake pads and shoes. (With lots of life left). I own the car, free and clear and will drive it for many more years / miles without a payment. Yes, driving can be calculated as a monthly cost even if one purchases with cash. I have not seen a scenario where a lease is less than buying a car and keeping it.

            Those rock bottom lease “deals” are generally the base model, with about 7K miles per year, and a whole lot of upfront cost. A lease isn’t actually $239 a month when you are paying thousands upfront.

            No I wouldn’t wish I had a car payment if I lost my job. I don’t have any debt payments to make today. Also by paying less for a car I have a lot of money left over to fund an emergency fund with 12 months of expenses in the bank

          • Jason, your assumption about leasing is completely untrue. Many of the best or subvented lease deals are for upgraded models. My Honda Accord is the SE model with leather interior and heated seats. My actual monthly payment is $163.00 a month, but that included a $2,800 trade-in. Without the trade-in, my payment would be around $239.00. I will lease something similar next time. I rarely pay over $250 for a lease and I never settle for the low-end models.

            According to Edmunds, the average total cost of ownership for a 1-year old 2015 Toyota Prius is $33,000 after 5 years. That includes $4,000 of repairs and maintenance, insurance and depreciation. If you haven’t paid a dime in maintenance your either very lucky or running on borrowed time. :)

            Finally, losing a job after dishing out $23,000 cash on a new car would be the worst of all scenarios. Had you leased the car, you’d still have the $23,000 in the bank to help cover the car payment or whatever other expenses while you seek new employment. And to make matters worse, if you tried to sell the car to recoup your loss, you’d lose thousands in depreciation. You’d be better off making $239 payments for a while using your bank account. Paying that much cash for a new or slightly used car is the riskiest way to acquire a vehicle.

          • Jason

            How many miles are allowed with your lease? What is the cost per mile?

            I keep a spreadsheet with every dime I spend on my cars. To date I have spent a grand total of $31,131.73 on the 2005 Prius in 9 1/2 years. That comes out to $3277 per year for the Prius or about 1/2 what Edmunds is predicting in your example. My cost per year will continue to drop as a drive it longer and the purchase cost is spread over a longer period.

            I do spend money on maintenance. However, the “major” service every 30K miles costs me $77 for factory Toyota parts not the $300 the dealer charges for parts and labor. I can change the oil, oil filter, air filter, cabin filter, rotate the tires and check the fluid levels myself.

            However, I’m going to guess that we just had fundamentally different ways at looking at finances. I personally think that spending $23,000 on a car is a hugely extravagant purchase whether one pays cash or finances. That is 1/2 of the typical family’s annual income – for a car! One should only spend such a huge amount of money for transportation if they have the rest of their finances squared away: minimum 6 months expenses saved, debts paid off, making large contributions to retirement, etc. One can find a good car for 1/3 of that price or less. People get into trouble because they don’t take care of the basics first.

          • I have no argument with you really. I am sure you can save more than a few thousand dollars if you choose to drive reliable cars longer than 10 years and take good care of them. The cost of reasonable car leases, however, is far less than what most of us are told. Over the last 20 years, My lease payments have range from $199 – $279.00 a month for cars in the $23K to $26K range including taxes. On average, a $250 payment is only $3,000 a year and that is with a new warranty and no maintenance costs at all except for oil changes. The point is that you have to have a good car and keep it a really long time to really recognize much cost savings. You also have to realize the lost interest opportunity when putting down a large sum of cash in the beginning.

            Aside from this, it comes down to a life style choice. There are lots of ways to save money. For instance, I could save money by not going out to dinner once a week or eating hamburger instead of steaks , or drinking cheaper scotch or beer. Cheaper, local vacations instead of traveling, etc., etc… It depends on what you value. I’d rather have new, hassle-free cars every year which gives me certainty and confidence in a new, safe car, and a low, predictable, risk-free monthly payment.

      • scarhill

        You are correct. But understanding what you state is far beyond most people’s ability to comprehend.

  • 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.

    • Not really. The difference is that homes appreciate in value significantly. Cars decrease in value significantly.

      Whether you lease or buy, there is always a car payment to be considered over the monthly cost average. Whether you extend that over a 36 month lease or plop down $25,000 in cash and spend the next 9 years putting money back in your bank, you’re still making a payment.

  • scarhill

    Where these numbers fail is to consider a trade or sale of the leased vehicle. Yes you can sell or trade the leased vehicle.

    Using numbers in this example, at the end of the lease you can buy the leased vehicle for, example, $15,000. You can sell it for $18,000.

    This offsets much of the difference noted.

    When calculating the true cost difference all costs need to be considered. These are the vehicle cost, registration, tax, insurance, repairs, maintenance, down time associated with repairs, rental vists if the car is in for repairs. There are also intangible considerations like safety and the joy from driving a new vehicle.

    Focusing only on cost results Inam incomplete analysis.

    Overall leasing costs more but not had much as shown in this article.

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