Auto Loan vs Lease: Which Costs Less for You?
Leasing has a lower monthly payment, but buying leaves you with a car. See both options side by side on a $35,000 car, with every assumption shown.
By Muhammad AhmadPublished Last reviewed 9 min read
Not financial or tax advice. This guide explains how the numbers work, with examples. It cannot know your whole situation, so check big decisions with a licensed professional or the official source. See the disclaimer.
The quick answer
- A lease usually has the lower monthly payment, because you pay for the part of the car's value you use, not the whole car.
- A loan ends with you owning the car. A lease ends with you handing it back, or paying to buy it.
- Leases have rules. Mileage limits, charges for excess wear and a high cost for ending early can turn a cheap lease into an expensive one.
- Over a long period, buying and keeping the car is usually cheaper per year, as the example below shows.
- Compare total cost, not only the payment. The Federal Trade Commission warns that the monthly payment alone can mislead.
You have found a car you like. The dealer asks whether you want to finance it or lease it. The lease payment is lower, and that is tempting. But a lower payment does not always mean a lower cost. This guide compares the two on one car, with the numbers and the rules, so you can decide with your eyes open.
How each option works
A car loan (buying)
You borrow money to buy the car and repay it with interest over a set number of months. The lender has a lien on the title until the loan is repaid, and then you own the car outright. You can drive as much as you like, sell the car whenever you want and keep it as long as you like.
A lease (renting)
You pay to use the car for a set time, often 24 to 48 months, and a set number of miles. Your payment covers the car's loss in value during the lease, plus a rent charge, taxes and fees. At the end you return the car unless the lease lets you buy it.
The Federal Trade Commission's consumer guide to financing or leasing a car says the monthly payments on a lease are usually lower than the finance payments if you bought the same car.
An example on a $35,000 car
These are example numbers, not a quote. The loan rate is close to the Federal Reserve's reported average for 60-month new car loans at commercial banks in the second quarter of 2026, which was 7.14%. The lease terms are made up for the example. Real leases vary by car, credit and dealer.
| Buy with a loan | Lease | |
|---|---|---|
| Car price | $35,000 | $35,000 |
| Up front | $5,000 down | $2,500 due at signing |
| Sales tax | 6% on the price ($2,100) added to the loan | Not modeled |
| Term | 60 months at 7.14% | 36 months |
| Monthly payment | $638 | $450 |
| Mileage | No limit | 12,000 miles a year |
The loan finances $32,100 (the price plus tax, minus the down payment). Over 60 months, you pay $38,264 in payments and $5,000 down, which is $43,264, including about $6,164 of interest.
What does each cost over three years?
Lease: $2,500 at signing plus 36 × $450 = $18,700. After 36 months you hand back the keys, and you own nothing.
Buy: in three years you pay $5,000 down and 36 payments of about $638, which is about $27,959. You still owe about $14,224 on the loan. To compare fairly, assume you sell the car then. If it is worth 60% of its price, $21,000 (a guess for this example, so check a pricing guide for your car), you pay off the loan and keep about $6,776. The net cost of three years of driving is $27,959 − $6,776 = about $21,183.
So over three years in this example, leasing is cheaper by about $2,500. That is the lease's strong point, and it is why many people choose it. They also get a new car at the end of the term.
What does it cost if you keep the car?
Buying wins when you keep the car long. After five years the loan is paid off. If the car is then worth 45% of its price, about $15,750, the net cost of five years is $43,264 − $15,750 = about $27,514, which is about $5,500 a year. The lease costs $18,700 over three years, which is about $6,233 a year, and you would have to sign another lease to keep driving.
| Plan | Net cost | Per year |
|---|---|---|
| Lease for 3 years | $18,700 | $6,233 |
| Buy, sell after 3 years | $21,183 | $7,061 |
| Buy, keep for 5 years | $27,514 | $5,503 |
| Two leases back to back (6 years) | $37,400 | $6,233 |
The pattern is common. Leasing is cheap per month and for a short period. Buying and keeping is cheaper per year the longer you keep the car. The example uses assumed resale values, so it is a picture of the idea and not a prediction for your car.
The rules that can cost you with a lease
- Mileage limits. The FTC says most standard leases limit driving to about 15,000 miles a year or less, and you will probably be charged a fee if you go over. A higher limit raises the payment. In our example, going 3,000 miles over the total at 25 cents a mile would cost $750.
- Excess wear and damage. You are responsible for damage beyond normal use and for any missing equipment. You also have to follow the service schedule and keep insurance that meets the leasing company's rules.
- Ending early. If you end a lease early, you may have to pay a substantial early termination charge. If your life changes, such as a move or a new baby, a lease can be hard to leave.
- No ownership. At the end of a lease you have to return the car unless the lease lets you buy it. Every few years you start again with a new payment.
The rules that can cost you with a loan
- A longer loan costs more. The FTC says a longer loan term lowers the monthly payment but usually increases the total cost. The longer the term, the longer you may owe more than the car is worth.
- Depreciation is yours. A new car loses value fastest in its first years. You carry that loss, not the lender.
- Repairs after the warranty. If you keep the car for many years, repair bills are yours.
Who should consider each one
A lease may suit you if you want a new car every two to four years, you drive a predictable number of miles, you keep your cars in good shape and you want a lower payment and to stay under warranty.
A loan may suit you if you drive a lot, you want to keep the car for many years, you want the freedom to change or sell it, you are rough on cars, or you want to own something at the end.
Questions to ask before you sign
- What is the total of all payments plus everything due at signing?
- What is the mileage limit, and what do extra miles cost?
- What counts as excess wear, and who decides?
- What does it cost to end the lease early, or to buy the car at the end?
- For a loan: what is the APR, the term and the total interest?
- Are there any fees or add-ons in the price, and can I remove them?
To see the payment and total interest on a car loan with your own price, down payment, trade-in, rate and sales tax, use the auto loan calculator. Then compare it with a written lease quote.
Frequently asked questions
Is it cheaper to lease or buy a car?
Leasing is usually cheaper per month, and it can be cheaper over a short period. Buying is usually cheaper per year if you keep the car for many years. The right answer depends on how long you keep the car and how much you drive.
Can I buy my car at the end of a lease?
Often, yes, but only if the lease says so. The price is set in the contract. Check that price against what the car is worth when the lease ends.
What happens if I drive more than the mileage limit?
You usually pay a fee for each extra mile, which is stated in the lease. A few thousand miles can add hundreds of dollars.
Is it a good idea to lease if I have bad credit?
Leases often require good credit, and a lower credit score raises both lease and loan costs. Get quotes for both before you choose.
What is "negative equity"?
It means you owe more on the car than it is worth. It can happen with a long loan, a small down payment or a car that loses value quickly. If you sell or the car is totaled, you may have to pay the difference.
The bottom line
A lease is a way to pay less each month for the use of a car, with rules about miles, wear and time. A loan costs more each month and leaves you with the car. Decide how long you will keep a car and how much you drive, then compare the total cost of each over that time.
Sources
- Financing or Leasing a Car, Federal Trade Commission
- Consumer Credit (G.19): interest rates on new car loans, Q2 2026, Federal Reserve Board
- Auto loans, Consumer Financial Protection Bureau
Loan figures are calculated with the standard fixed-rate loan formula. Lease terms, resale values and mileage fees are example assumptions. Last reviewed October 12, 2026.
Auto Loan Calculator
Monthly car payment, total interest and total cost with sales tax.
This guide is for education, not financial, tax or medical advice. See our editorial policy. Spotted a mistake? Tell me.