Lease vs buy guide · from the dealership side of the desk

Lease vs buy: the real math.

Leasing is not ‘throwing money away’ and buying is not ‘always cheaper’. They are two ways of paying for the depreciation of a car, with different interest, different risk and different exits. The honest comparison is total cost over the years you will actually keep the car. This guide builds a lease payment from scratch, then puts it next to a loan on the same car.

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The five words that decide a lease

Capitalized cost (cap cost): The price of the car for lease purposes. Negotiable exactly like a purchase price; the single biggest lever. Fees rolled into the lease are added here.
Cap cost reduction: Money down on a lease. It lowers the payment but it is gone if the car is totaled in month two (insurance pays the leasing company, not you). Keep it near zero and let the payment be the payment.
Residual value: What the leasing company says the car will be worth at the end, set as a percentage of MSRP (not of your negotiated price). Higher residual means less depreciation to pay and a lower payment. Not negotiable, but it varies by model, term and mileage allowance.
Money factor: The lease’s interest rate, written as a small decimal. Multiply by 2,400 to get the APR: 0.00225 is 5.4%. Dealers can mark it up over the lender’s ‘buy rate’, usually by up to 0.0004 (about 1%). Ask for the buy rate.
Fees and limits: Acquisition fee ($595–$1,095), disposition fee at the end ($350–$495), mileage allowance (10,000–15,000 a year) and an overage charge of 15–25 cents a mile, plus wear-and-tear standards.

Building the lease payment

Worked example · illustrative numbers, not a quote

36-month lease on a $35,000 MSRP car

MSRP	$35,000
Negotiated cap cost (after a $2,500 discount)	$32,500
Residual: 58% of MSRP	$20,300
Depreciation to pay: (32,500 − 20,300) ÷ 36	$338.89 / month
Rent charge: (32,500 + 20,300) × 0.00225 money factor	$118.80 / month
Base payment before tax	$457.69 / month
Acquisition fee (paid up front) and disposition fee (at the end)	$695 + $395
Three-year cost of the lease (payments + fees, before tax)	$17,567

Illustrative. The residual and money factor come from the lender’s rate sheet for that model and term; ask the dealer to show you both and verify the math. Tax rules on leases differ by state.

Two things to notice. Depreciation is 74% of the payment and it is driven by the cap cost you negotiate and the residual you cannot. The rent charge is the quiet part: a money factor marked up by 0.0004 adds $21 a month, or $760 over the lease, for nothing. Our lease strategy page shows how to check both against the lender’s published numbers.

The same car, financed

Worked example · illustrative numbers, not a quote

60-month loan on the same car at the same $32,500

Amount financed (no money down)	$32,500
Payment at 6.5% APR over 60 months	$636 / month
Paid over the first 36 months	$22,896
Loan balance remaining after 36 months	about $14,000
Car’s value after 36 months (same $20,300 the lease assumed)	$20,300
Equity you own at month 36	about $6,300
Three-year net cost of buying (paid minus equity)	$16,596

At year three the two are within $1,000 of each other, and the buyer owns an asset. By year six the buyer has no payment and a car worth maybe $12,000; the leaser has signed a second lease and paid another $17,000.

That is the general shape: over three years leasing and buying are close, with the lease giving a lower monthly payment and the loan giving equity. Over six or more years buying almost always wins, often by $10,000 or more, because the expensive early depreciation is paid once instead of twice.

When leasing genuinely wins

A subsidized lease. Manufacturers prop up residuals and cut money factors to move specific models. A 62% residual and a 0.00050 money factor can make the lease cheaper than buying even over the long run, because you are being paid to take the depreciation risk off the maker’s hands.
EVs and fast-changing tech. Leases shift battery and resale risk to the lender, and in some cases a federal clean-vehicle credit flows through as a cap cost reduction on a lease when it would not apply to a purchase. Check current rules; they change.
Under 12,000 miles a year and a new car every three years is the goal anyway. If you would trade in every three years regardless, leasing removes the trade-in negotiation and the negative-equity risk, and most leases include GAP.
Business use. Lease payments can be simpler to deduct; ask your accountant, not the dealer.

When buying wins

You keep cars more than four or five years.
You drive over 15,000 miles a year (overage at 20 cents a mile on 10,000 extra miles is $2,000 per year).
You have a trade with equity, a credit union pre-approval at a good rate (see the pre-approval guide), or a manufacturer offering 0–2.9% financing instead of a lease deal.
Kids, dogs, job sites or a long commute make wear-and-tear charges likely.
You want the option to sell at any time; ending a lease early is expensive.

Lease traps that change the math

Paying a large cap cost reduction: $3,000 down lowers the payment by about $85 but is lost if the car is totaled. Put it in savings instead and pay the higher payment.
Rolling negative equity into a lease: It works mechanically and it is almost always a mistake; see our negative equity guide.
The ‘sign and drive’ with a marked-up money factor: Zero due at signing is fine. A money factor two points above buy rate is $1,500 of hidden profit over the lease.
Buying the car at lease end at the residual: Sometimes a great deal (when used values are above the residual), sometimes not. Compare the residual to real retail prices at month 33, not the dealer’s pitch.
Multiple security deposits: Some lenders let you prepay deposits to lower the money factor. Legitimate, but only if the deposits are refundable and the rate reduction is on the rate sheet.

Do this

The short version, in the order it happens.

Screenshot this. Members get the full version with scripts inside the Knowledge Hub.

Decide how long you actually keep cars; over 5 years, lean buy
Estimate real annual miles; over 15k, lean buy
Negotiate the cap cost like a purchase price
Ask for the residual percentage and the buy-rate money factor in writing; multiply MF by 2,400
Keep the cap cost reduction near zero
Compare three-year total cost of lease vs loan (payments + fees − equity)
Check for manufacturer lease subsidies or financing offers on the specific model
Have the lease worksheet reviewed before signing

More guides

Pre-approval

Why a credit union usually beats dealer financing, how the buy rate markup works, where to apply, and how to use it at the desk.

Spot delivery & yo-yo financing

What the call means, what the conditional delivery agreement says, your trade and deposit, what to say, and how to prevent it.

All car buying guides

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Questions people ask

Is it cheaper to lease or buy a car?

Over three years they are usually close, with the lease having a lower payment and the loan leaving you with equity. Over five or more years buying is almost always cheaper, often by five figures, because you pay the steep early depreciation once. Subsidized leases on specific models can flip that.

How is a lease payment calculated?

Depreciation (cap cost minus residual, divided by the months) plus the rent charge (cap cost plus residual, times the money factor), plus tax. On a $32,500 cap cost, $20,300 residual, 36 months and a 0.00225 money factor, that is about $458 before tax.

What is a good money factor?

Multiply it by 2,400 to compare with loan APRs. 0.00125 is 3%, 0.00250 is 6%. A good one matches the lender’s published buy rate for your credit tier; ask the dealer for the buy rate and check it against the manufacturer’s current program.

What is residual value and can I negotiate it?

The lender’s prediction of the car’s value at lease end, as a percentage of MSRP. It is set by the lender and not negotiable, but it changes with term and mileage allowance, so a 36-month, 12,000-mile lease may have a very different residual than 39 months at 15,000.

Should I put money down on a lease?

As little as possible. A cap cost reduction lowers the payment but is not refunded if the car is totaled or stolen; GAP covers the loan balance, not your down payment. Pay the first payment and fees, keep the rest in savings.

Can I get out of a lease early?

You can usually buy out the lease and sell the car, transfer it through a lease-swap service if the lender allows it, or pay an early-termination charge, which is often most of the remaining payments. Plan the term to match how long you really want the car.

Does FMYCAR help with leases?

Yes. The lease strategy session and the $249 Deal Review check the cap cost, residual, money factor, fees and the lease-vs-buy comparison on your actual quote. Start with a free account; the Knowledge Hub has the lease-vs-buy calculator.

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