Buy wins in 3+ years
Lease vs. buy: the complete economic model
Leasing economics favour the dealer in most cases: you pay the highest depreciation years (years 1-3) and return the car. Buying lets you eventually own a paid-off asset. Over 10 years, buying saves $20,000-$40,000 versus continuous leasing for an equivalent vehicle. Leasing makes sense only when business write-offs apply or you genuinely upgrade every 2-3 years.
Level
Key takeaways
04 · ideas- Over 5 years, buying is typically $5,000–$15,000 cheaper than leasing
- Leasing transfers the depreciation risk to the lessee — at a premium
- The money factor on a lease is the hidden interest rate — multiply by 2,400 to get APR
- Zero-down leases aren't zero-cost — they just fold everything into the monthly payment
Leasing is renting a car for 2–3 years. You pay for depreciation during the lease period plus a financing charge. At the end, you return it or buy it at the residual value.
Why leasing seems attractive:- Lower monthly payment than buying
- Always driving a new car with warranty
- No concerns about resale value
- Lower down payment
- After the loan is paid off, you own an asset worth thousands
- No mileage penalties
- No wear-and-tear charges at return
- After 5 years of owning: own a car worth $12,000–$18,000 vs. owning nothing after leasing
Rule of thumb: If you keep a car for 5+ years, buying is often cheaper. Leasing can make sense if you want new technology every 3 years and value that enough to pay the premium.