Lease or Buy? A Three-Year Total Cost Comparison With Equity
October 29, 2026
Leasing is renting a car for a fixed term, typically two to four years, with a mileage allowance. Buying means you own it and can keep it as long as you like. Monthly lease payments are usually lower than loan payments, which makes leasing attractive, but at the end of the lease you have nothing to show for the payments, while a buyer has an asset. A fair comparison looks at the total cost over the same period and what each option leaves you with.
Take a $35,000 car for three years. The lease costs $2,500 down plus $399 a month for 36 months: $2,500 + $14,364 = $16,864 in total. To buy, you put $5,000 down and finance $30,000 at 6.5% over 60 months, with payments of $586.98.
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After 36 payments, you have paid $5,000 + $21,131 = $26,131. The remaining loan balance is $13,177. If the car is worth $20,000 at that point (a 43% decline in three years, typical for many vehicles), your equity is $6,823. The net cost of owning for three years is down payment plus payments minus equity: $5,000 + $21,131 − $6,823 = $19,308. This is about $2,444 more than the lease, but you own a car worth $20,000 and can keep driving it payment-free after the loan ends, or sell it.
The result depends heavily on the car's depreciation. A car that holds its value better makes buying look more favorable.
| Lease (36 months) | Buy (financed over 60 months) | |
|---|---|---|
| Upfront cash | $2,500 | $5,000 |
| Monthly payment | $399 | $587 |
| Total paid over 3 years | $16,864 | $26,131 |
| Value of the car at 3 years | None | $20,000 |
| Loan balance at 3 years | None | $13,177 |
| Equity at 3 years | $0 | $6,823 |
| Net cost over 3 years | $16,864 | $19,308 |
What the Numbers Leave Out
Leases have mileage limits, typically 10,000 to 15,000 miles a year, with penalties of 15 to 30 cents per mile over. Driving 5,000 extra miles a year for three years at 25 cents costs $3,750 and reverses the advantage. Leases also charge for excess wear and early termination, and require insurance with higher coverage limits. On the other hand, a leased car is under warranty for the whole term, giving predictable costs, whereas an owned car may need repairs after year three or four. Buyers pay for registration, property tax in some states, and maintenance of the older car.
Many people who lease repeat the cycle, always having a payment. A person who buys and keeps a car for eight to ten years generally spends the least per year of ownership, since the later years have no payments.
Who Should Lease or Buy?
Leasing may suit people who want a new car every few years, drive modest mileage, have stable plans, and use the car for business with tax benefits that apply to them. Buying suits people who drive many miles, keep cars for a long time, want to customize or sell the car, or want to avoid recurring payments. The cheapest approach per year is usually to buy a reliable used car and keep it for a long time. Run the numbers with real quotes, including taxes and fees, and ask the lessor for the money factor (the interest rate equivalent: multiply by 2,400 for an approximate APR) and the residual value.
Quick Checks Before Signing
Negotiate the price of the car in a lease as well as in a purchase, since the capitalized cost drives the payment. Check the total of all payments and fees. Understand the purchase option at the end. Consider GAP insurance, which pays the difference between the car's value and what you owe if it is totaled; leases often include it.
Frequently Asked Questions
Is it cheaper to lease or buy?
Leasing often has lower monthly payments, but buying usually has lower cost per year if you keep the car a long time.
What is a money factor?
A lease's interest rate expressed as a small decimal. Multiply by 2,400 to approximate the APR.
What happens if I exceed the mileage limit on a lease?
You pay a per-mile fee, often 15 to 30 cents.
Do I build equity in a lease?
No. At the end, you return the car or buy it at the residual price.
What is GAP insurance?
Coverage for the gap between what you owe and what the car is worth if it is totaled.