The salesperson at the dealership will show you two numbers: the monthly payment if you lease, and the monthly payment if you finance. The lease number is almost always lower. That’s intentional.
What they won’t show you is what those numbers look like over five years, or what you’ll have to show for it when the contract ends.
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The Monthly Payment Illusion
The average monthly payment on a leased vehicle is $619, according to Experian’s Q1 2026 State of the Automotive Finance Market report. That’s for a new vehicle lease averaging 36.7 months.
A new vehicle loan, by comparison, runs higher, typically in the $700–$800 range depending on the vehicle and term.
So yes, leasing is cheaper per month. But the question is what you’re buying with that money.
When you lease, you’re paying for the depreciation of the vehicle during the lease term, plus a financing charge (the money factor, essentially your interest rate in disguise), plus taxes and fees. At the end of the term, you hand the car back. You own nothing. You’ve paid for years of use and built zero equity.
When you buy, some of that monthly payment goes to interest (more in early payments, less later) and some goes to principal that builds ownership. After five years, you own an asset. It may be worth $12,000 or $20,000 or more depending on the vehicle. That’s not nothing.
Running the 5-Year Math
Let me use a realistic example. You’re looking at a $38,000 sedan. Your options:
Lease option:
- 36-month lease, $619/month, $2,500 down
- After 36 months, you either walk away or sign another lease
- If you sign another 36-month lease on a comparable car: another $619/month
Over 5 years (60 months): $619 × 60 = $37,140 + $2,500 down = $39,640 total out of pocket Equity at month 60: $0
Buy option:
- $38,000 financed at roughly 7.5% for 60 months: monthly payment ~$761
- Total paid over 60 months: $761 × 60 = $45,660 + down payment
- Equity at month 60: You own a 5-year-old car worth roughly $17,000–$22,000
Net cost of ownership after 5 years:
- Lease: $39,640 paid, nothing owned
- Buy: $45,660 paid, ~$19,000 car owned = effective net cost of ~$26,660
The loan looks more expensive month-to-month. The total math often flips by year 4 or 5.
When Leasing Actually Makes Sense
I don’t think leasing is a bad decision. It can be the right one, it depends on how you use a car.
If you drive more than 12,000–15,000 miles per year, be careful. Most leases cap mileage at 10,000–12,000/year and charge $0.15–$0.25 per mile over. A person who drives 18,000 miles annually and leases with a 12,000-mile cap will owe $900–$1,500 in excess mileage charges at lease end. That changes the math fast.
If you’re in a profession where you always want the newest vehicle, or where a car is a client-facing expense, leasing can make real sense. You always have a car under warranty. You’re not stuck with a trade-in. Your maintenance costs are predictable.
The key variable: residual value. That’s the predetermined value the leasing company assigns to the car at lease end. If the residual is high, your lease payments are lower because you’re only financing the depreciation. If it’s set artificially low, the dealer is padding profit.
Common Mistakes in the Lease vs Buy Decision
Using the monthly payment as the comparison point. Total cost over the expected ownership period is what matters.
Forgetting money factor. Multiply the money factor by 2,400 to get the APR equivalent. If your money factor is 0.00300, that’s an effective 7.2% APR. Dealers aren’t always forthcoming about this.
Ignoring insurance differences. Leased vehicles typically require higher coverage levels. Gap insurance is often required. These costs add up.
Assuming you’ll return the car on time. Early lease termination typically costs $2,000–$5,000 in penalties. Life changes.
FAQ
Is it better to lease or buy a car right now in 2026? It depends on your situation. With auto loan rates in the 7–8% range and lease payments averaging $619/month, neither option is obviously superior. The better question: how long will you keep the car, how many miles do you drive annually, and what’s the total cost over your expected ownership period?
How do I figure out if a lease deal is good or bad? Check the money factor (multiply by 2,400 to get the APR equivalent) and check the residual value (expressed as a percentage of MSRP, higher residuals mean lower payments). Also check the mileage cap against what you actually drive.
What happens if I want to get out of a lease early? Expect to pay a termination fee, any remaining payments, and potentially the difference between the car’s current value and the residual. Early termination is costly, one of the biggest risks of leasing.
The Bottom Line
Leasing isn’t throwing money away. Buying isn’t always smarter. The answer depends on your real numbers, mileage, time horizon, how you use the vehicle, and what you’d do with the capital difference.
What doesn’t work is picking based on monthly payment alone and not thinking about what you’ll have to show for it five years from now.
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