Leasing or buying a car: comparing the two properly
7 min read · Updated 2026-10-12 · MoneyCalc
Leasing and buying on finance are two ways of paying for the same car over the same period, and comparing the monthly figures alone is the most common financial mistake in car shopping. They produce different outcomes at the end: one leaves you owning a car, the other leaves you owing a final amount and having handed the keys back.
What you are actually buying
Finance is a loan. You borrow the money, repay it with interest, and after the last payment you own a car that has depreciated substantially but is entirely yours. The cost is interest plus the car's decline in value.
A lease is a rental agreement for a fixed period and mileage limit. You pay the depreciation of the car over that period, plus interest on the money the manufacturer or lender puts in, plus fees. At the end you return the car and owe whatever remains.
The mileage allowance is the trap
Leases come with an annual mileage allowance and a charge per mile over it. Underestimating your driving is the most reliable way for a lease to cost more than it appeared. Ten thousand miles a year is not unusual, and the excess charge is typically several hundred per thousand miles.
Add up what you actually drive, not what you drive on average. A long commute, occasional work travel and a motorway holiday all count, and they are the difference between a modest bill and a surprise.
End-of-lease costs that are easy to forget
Beyond the excess mileage charge there is a disposition fee, a possible excess wear charge for scuffs and chips, and an administrative fee. Some leases also buy out the car cheaply at the end, and for people who end up keeping the vehicle anyway that option is often the most valuable part of the agreement.
Read the wear standard before signing. Many manufacturers use a standard comparable to a buyer's guide for normal wear, but anything beyond it is chargeable, and the assessment happens before you can respond.
When each option makes sense
Leasing makes sense when you want a new car, drive a predictable mileage, change vehicles every three or four years, and can hand the car back. It costs more over the long term and builds no equity, but it caps your exposure.
Buying makes sense when you intend to keep the car for five years or more, drive more than the lease allows, want to modify it, or would rather own the asset outright. The crossover is usually somewhere around the point where a lease ends and the next purchase would begin.
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Common questions
Is leasing cheaper than buying a car?
Over three to four years leasing usually costs more in total. Over five years or more, buying tends to win, especially if you keep the car after the finance is paid off.
What happens if I exceed the mileage on a lease?
You are charged per mile over the allowance, often several hundred dollars per thousand miles. Underestimating your annual mileage is the most common lease mistake.
Is buying out a lease at the end worth it?
Often yes, especially on the last few years of the agreement when the buyout is low relative to market value. Check the buyout figure against the projected resale value before deciding.
MoneyCalc provides general information only and is not financial, investment, tax or legal advice. Figures are illustrative and depend on your own circumstances. See our full disclaimer.