Leasing vs Buying a New Car: How to Actually Decide
The math, in one sentence
Leasing is renting the depreciation. You pay the gap between what the car costs today and what it's worth at lease end (the "residual"), plus interest (the "money factor"). Buying means you pay for the whole car, then own whatever value remains.
Leasing wins when depreciation is small relative to MSRP (luxury cars with strong residuals — Lexus, Porsche, Audi). Buying wins when depreciation is steep (most American sedans, electric vehicles in a discount cycle).
When leasing wins
- You want a new car every 3 years. Lease, return, lease again. You never deal with selling.
- You drive less than 12,000 miles a year. Lease mileage caps are a tax on heavy drivers — and a bonus for light ones.
- The car you want has a strong residual. Lexus RX, Porsche Macan, Toyota 4Runner. The lease payment will be surprisingly low because the residual is high.
- You can write off the payment (business use). Section 179 and bonus depreciation interact with leases in ways your accountant cares about.
When buying wins
- You drive 18,000+ miles a year. Mileage overage fees ($0.20-0.30/mile) are punitive.
- You keep cars for 7+ years. Years 4-10 of ownership are pure value — you've already paid the depreciation curve.
- The model has a weak residual. Most domestic sedans, anything Italian, EVs during a discount cycle. The lease becomes expensive because the depreciation is steep.
- You want to modify the car or treat it hard. Off-roading, towing, dog hair, kid stains. Lease returns are inspected.
Negotiate a lease like a purchase
The biggest mistake leasers make: focusing on the monthly payment. Don't. Negotiate:
- Capitalized cost (the selling price). Get this in writing, OTD.
- Money factor (the interest rate). Ask explicitly. Multiply by 2,400 to convert to APR.
- Residual (set by the manufacturer, not the dealer — but ask anyway).
- Mileage allowance. Pre-paying extra miles upfront is cheaper than buying them at lease end.
Frequently asked questions
Should I put money down on a lease?
No. If the car is totaled in month 1, you lose that down payment. Roll it into the monthly payment instead. The only exception: putting down enough to keep the monthly under a tax threshold (some states tax leases by payment).
What is a good money factor?
0.00100 (= 2.4% APR) was the historical floor for top-tier credit. Anything under 0.00150 (3.6%) is competitive in 2026. Above 0.00250 (6%) you should walk and use bank financing on a purchase instead.