Key takeaways
Leasing usually costs less per month, while buying usually costs less over time. Experian's September 2026 update puts the average lease payment at $617 against $765 for a new-car loan, yet Consumer Reports says buying is almost always the winner if you keep a car six years or more.
- 01A lease payment covers the car's expected loss in value plus a rent charge and tax, and multiplying the money factor by 2,400 turns it into a familiar interest rate.
- 02Most leases cap mileage at 10,000 to 15,000 miles a year and bill you for extra miles and excess wear when you hand the car back.
- 03Ending a lease early can cost about as much as finishing it, so only sign for a term you expect to keep.
- 04Lease payments don't qualify for the 2025 to 2028 federal car loan interest deduction, and federal clean vehicle credits ended for cars acquired after September 30, 2025.
This guide belongs to our Used car buying guide: loan rates section, which covers the wider topic.
Leasing is cheaper month to month, and buying is cheaper over the long run for most people who keep their cars. With a lease you pay for the part of the car's value you use up, plus a rent charge, taxes and fees, as the FTC's guide to financing or leasing explains. With a loan you pay for the whole car, but you own it.
The 2026 numbers show the trade-off. Experian's 2026 auto financing data, updated September 10, 2026, puts the average lease payment at $617 and the average new-car loan payment at $765. It also reports that 23.75% of new vehicles were leased in the second quarter of 2026.
This guide puts the two side by side, shows the lease payment math and works a 3, 6 and 9 year example. If you finance a purchase, our steps to compare used car loan rates show how your credit tier, a pre-approval and a shorter term change what you pay.
Leasing vs Buying: The Quick Verdict
Lease if you want the lowest payment, drive modest miles and expect to replace the car every two to four years anyway. Buy if you drive a lot, don't want contract limits or plan to keep the car well past the loan.
The long-run math favors buying. Consumer Reports' 2026 buying vs leasing analysis says two back-to-back three-year leases will cost thousands more than buying a car and keeping it for those six years, and that the buyer's savings grow by year nine.
Leasing still has advantages. CR notes that a lower payment can put a premium trim within reach, and that a lessee is always driving a late-model car usually covered by the new-car warranty. The Federal Reserve's Keys to Vehicle Leasing adds that the leasing company carries the risk of the car's future market value.
Lease vs Buy Side by Side
The core difference is ownership. The CFPB's leasing versus buying explainer says leasing is like renting, while loan payments build equity in a car that ends up yours.
| Factor | Leasing | Buying |
|---|---|---|
| Who owns the car | The leasing company | You, once the loan is paid off |
| Typical term | 2 to 4 years | Loans of 3 to 7 years |
| Monthly payment | Usually lower, because you pay for depreciation | Usually higher, because you pay off the full price |
| Up-front costs | First payment, security deposit, any capitalized cost reduction, fees | Down payment or cash price, taxes, registration and fees |
| Mileage | Capped, often 10,000 to 15,000 miles a year | Unlimited, though high miles cut resale value |
| Wear and damage | Charged at return if beyond the lease's standards | No charge, but it lowers trade-in value |
| Ending early | Early termination charges, often large | Pay off the loan, then sell or trade at any time |
| End of term | Return it and pay end-of-lease costs, buy it, or lease again | No more payments and equity toward the next car |
Compiled from the CFPB, the Federal Reserve's Keys to Vehicle Leasing, the FTC and Consumer Reports. Term ranges from the CFPB.
What Leasing and Buying Cost in 2026
Experian's latest figures put the average lease payment $148 a month below the average new-car loan payment. Loans, meanwhile, keep getting bigger and longer.
| Measure | Figure | Period | Source |
|---|---|---|---|
| Average lease payment | $617 | September 2026 update | Experian |
| Average new-car loan payment | $765 | Q2 2026 | Experian |
| Share of new vehicles leased | 23.75% | Q2 2026 | Experian |
| Average new-car loan payment | $787 | Q3 2026 | Edmunds |
| Average new-car loan APR | 7.0% | Q3 2026 | Edmunds |
| Average new-car loan term | 70.5 months | Q3 2026 | Edmunds |
| Average amount financed, new | $44,664 | Q3 2026 | Edmunds |
| Bank rate on a 60-month new car loan | 7.54% | August 2026, preliminary | Federal Reserve |
| Average new-vehicle transaction price | $50,562 | September 2026 | Kelley Blue Book |
Experian page updated September 10, 2026, from its leasing section and Q2 2026 tables (one passage quotes $749, its 2025 figure); Edmunds release of October 1, 2026; Federal Reserve G.19 release of October 7, 2026; Kelley Blue Book report of October 13, 2026. Experian and Edmunds use different samples, so their averages differ.
Buyers are stretching to keep payments down. The Edmunds Q3 2026 financing report found that 21.2% of new-car buyers committed to $1,000 or more a month, and that the average new-car loan will cost $9,938 in interest.
The Federal Reserve's G.19 consumer credit release shows finance companies' new car loans averaging 6.3% in June 2026, with an average term of 67 months.
The Kelley Blue Book September 2026 price report puts the average EV transaction price at $55,879.
How Is a Lease Payment Calculated?
A lease payment is the depreciation you use up, spread over the term, plus a rent charge and any tax on the payment. Three numbers drive it: the capitalized cost, the residual value and the money factor.
The three numbers that set the payment
- Capitalized cost: the agreed price plus any fees rolled into the lease. A down payment, trade-in or rebate is a capitalized cost reduction, which lowers it.
- Residual value: the leasing company's estimate of the car's value at lease end, as a percentage of MSRP. The Edmunds lease calculator says most cars have a residual of 45% to 60% on a 36-month lease.
- Money factor: the lease's finance rate, written as a small decimal such as 0.0025.
A higher residual means less depreciation to pay. Edmunds notes the residual is also your buyout price at the end of the term, and its calculator's method comes down to three steps:
- Depreciation per month = (adjusted capitalized cost minus residual value) ÷ number of months.
- Rent charge per month = (adjusted capitalized cost plus residual value) × money factor.
- Payment = depreciation plus rent charge, plus tax on that amount where your state taxes the payment.
In the CFPB's simple example, a $20,000 vehicle cost with an $8,000 residual over 36 months leaves $12,000 of depreciation, about $333 a month before rent charge, taxes and fees.
Converting a money factor to an APR
Multiply the money factor by 2,400. Kelley Blue Book's lease calculator gives two examples: a .002083 money factor equals a 5% APR, and .0025 equals 6%.
Treat the result as a guide, not an exact match. Under Regulation M's lease disclosure rules, any rate a lessor quotes must come with the notice that "this percentage may not measure the overall cost of financing this lease."
Free tool
Car Lease Calculator. Enter the MSRP, negotiated price, fees, money down, residual percentage, tax rate, money factor or APR, and a 24 to 48 month term. It splits the payment into depreciation, rent charge and tax, converts the money factor to an APR and totals the payments.
How a Car Loan Builds Equity
Each loan payment covers that month's interest first and pays down the balance with the rest, so you build equity until the payments stop. Long loans build it slowly.
Long terms are now common. Edmunds says 25.5% of financed new-vehicle purchases in Q3 2026 had terms of 84 months or longer, up from 21.8% a year earlier. Consumer Reports warns that longer loans make it easy to get "upside down," owing more than the car is worth.
Depreciation is the cost both options share. The AAA Your Driving Costs 2026 fact sheet puts it at $4,422 a year over five years and 75,000 miles, the biggest item in AAA's $12,863 average annual cost to own and run a new car.
A lessee pays for that loss inside the payment, and a buyer pays for it at resale. Our car depreciation calculator estimates a car's value year by year from the price, the car's age and how long you plan to keep it.
Free tool
Car Payment Calculator. Enter the price, down payment, trade-in, fees, tax rate, APR and a 36 to 84 month term. It shows the payment, total interest, a year-by-year balance and how each term changes the cost.
Mileage Limits and Overage Fees
Most leases allow 10,000 to 15,000 miles a year and charge for every mile over that when you return the car. A car you buy has no cap.
| Source | Typical yearly allowance | Charge per extra mile |
|---|---|---|
| FTC | 15,000 miles or less in most standard leases | A fee at return |
| Consumer Reports | Often 10,000 to 12,000 miles | 10 cents to 50 cents |
| Edmunds | Typically 10,000 to 12,000 miles | 15 to 25 cents |
| Federal Reserve | Often 12,000 to 15,000 miles | Charged at return |
From the FTC's Financing or Leasing a Car, Consumer Reports, Edmunds' 10 Steps to Leasing a New Car and the Federal Reserve's Keys to Vehicle Leasing.
Going 3,000 miles over costs $750 at 25 cents a mile and $1,500 at 50 cents. The Edmunds guide to leasing a new car says buying extra miles up front is likely cheaper than paying the overage, though CR notes you get no credit for unused miles.
Wear-and-Tear Charges at Lease Return
You pay for any wear beyond the standards in your lease, and the CFPB says the leasing company usually decides what counts as excessive. Under Regulation M those standards must be disclosed and must be reasonable.
Here is what the 2021 American Honda Finance vehicle return checklist, used for Honda and Acura leases, treats as chargeable:
| Item | Chargeable at return |
|---|---|
| Dents | Larger than 1.5 inches in diameter |
| Scratches | Longer than 3 inches, or deep enough to catch a fingernail |
| Tires | Less than 4/32 inch of tread at the lowest point |
| Windshield | Any crack, star or bullseye, with replacement for damage larger than a dime |
| Interior | Burns, holes, stains or tears |
| Repairs | Touch-up paint counts as unrepaired damage |
| Missing items | All keys, the owner's manual and original headrests must come back |
From American Honda Finance Corporation's Vehicle Return Checklist (2021). Standards differ between leasing companies, so check your own contract.
Even a spotless return has costs. The FTC says you must follow the maker's service schedule and keep insurance that meets the lessor's standards, and Edmunds says most lessors charge a disposition fee of $300 to upward of $400 unless you buy the car or, in some cases, get another of the same brand.
That insurance often costs more. Travelers' guide to leasing pros and cons says leasing typically raises premiums because the leasing company, which has a financial stake in the car, requires full coverage, meaning collision and comprehensive.
What Happens If You End a Lease Early?
You usually pay an early termination charge, and it can be large. Consumer Reports says the charges can be as costly as sticking with the contract.
Regulation M makes lessors warn you. Every motor vehicle lease must carry the notice "You may have to pay a substantial charge if you end this lease early," and the charge must be reasonable.
The Federal Reserve says the earlier you end a lease, the greater the charges are likely to be. The CFPB adds that you can't simply return the car and stop paying.
A transfer may offer another way out. Travelers says to confirm before signing that your contract lets you hand the lease to a new driver for the rest of its term, and that the finance company may charge a transfer fee of several hundred dollars.
Read the early termination section before you sign
A job move, a growing family or a drop in income can make you want out of a lease. Ask how the early termination charge is calculated, and get an example in writing, before you sign.
Gap coverage on a lease
A lease also ends early if the car is stolen or totaled. The Insurance Information Institute's gap insurance guide says gap covers the difference between what a vehicle is worth and what is owed on it, and that carrying it is generally required for a lease. The Federal Reserve and Edmunds both say to check whether your lease includes it.
How Sales Tax Works on a Lease
It depends on the state. Some tax each monthly payment, some collect tax on the whole lease at the start, and Texas taxes the leasing company's purchase instead of your payments.
| State | How a lease is taxed |
|---|---|
| California | Generally a use tax on each lease payment, collected by the leasing company as you pay |
| New York | Tax on the total amount due over the entire lease, collected at the start, at the rate where you live |
| Texas | Tax on the leasing company's purchase price, with no tax on the lease payments, and tax due from you if you buy the car later |
From California's CDTFA Regulation 1660 (Business Taxes Law Guide, 2026 revision), New York State Publication 838 (December 2012) and the Texas Comptroller's Motor Vehicle Tax Guide. Rules and rates change, so check with your state's tax agency.
In California, CDTFA Regulation 1660 on leases says the tax is generally a use tax measured by the rentals payable, and the lessor must collect it from you when each payment is made.
New York's dealer guide, Publication 838, says that for long-term leases of vehicles weighing 10,000 pounds or less, the dealer must collect tax on the total amount due for the entire lease and send it to the state at the start.
The Texas Comptroller's lease tax page says tax is imposed on the leasing company's purchase and none is due on your lease payments.
Federal Tax Breaks and EV Credits in 2026
Buying with a loan can earn a federal deduction that leasing can't, and the federal EV credits are gone.
The IRS fact sheet on the new deductions lets you deduct up to $10,000 a year of car loan interest in 2025 through 2028, for itemizers and non-itemizers alike. The rules:
- Used vehicles don't qualify. The vehicle's original use must start with you, it must be for personal use, and it must have undergone final assembly in the United States.
- The loan must be originated after December 31, 2024 and secured by a lien on the vehicle.
- The deduction phases out above $100,000 of modified adjusted gross income, or $200,000 for joint filers.
- The IRS says plainly: "Lease payments do not qualify."
Business use follows different rules. IRS Topic 510 on business use of a car lets you count lease payments in proportion to business miles under the actual expense method, and a lessee who picks the standard mileage rate must use it for the entire lease. Most employees can't deduct unreimbursed car expenses at all.
The EV picture changed too. The IRS clean vehicle credit page says the New Clean Vehicle Credit isn't available for vehicles acquired after September 30, 2025.
The IRS commercial clean vehicle credit page gives the same cutoff for that credit, so neither credit applies to an EV acquired in 2026, leased or bought.
Is Leasing Ever Cheaper Than Buying?
Yes, over a short horizon. In this example leasing wins narrowly at three years, buying edges ahead by year six and is far ahead by year nine.
This is a worked example, not market data
The figures below come from the stated assumptions only. Your own price, residual, rate, tax and mileage will change the result.
The assumptions:
- The car: $40,000 MSRP, $38,000 negotiated price, $0 down on both options.
- The lease: 36 months, a 58% residual ($23,200) and a 0.00292 money factor, about 7.0% APR. A 7% tax applies to each payment, a $300 disposition fee is due at return, and each new lease repeats the same terms.
- The purchase: the same 7% tax added to the price, so $40,660 is financed at 7.0% APR for 60 months.
- Left out: fuel, insurance, maintenance, registration, acquisition fees and the buyer's out-of-warranty repairs.
The lease math: depreciation is ($38,000 minus $23,200) ÷ 36 = $411.11, and the rent charge is ($38,000 plus $23,200) × 0.00292 = $178.70. That's $589.81, and 7% tax ($41.29) makes $631.10 a month. Thirty-six payments total $22,719.60, or $23,019.60 with the disposition fee.
The loan math: $40,660 at 7.0% for 60 months is $805.12 a month, or $48,307.20 in all, including $7,647.20 of interest. After 36 payments ($28,984.32), the buyer still owes $17,982.23. You can rerun the lease side in our car lease calculator by entering the same price, residual, tax rate and money factor.
| Years | Lease total | Buy total paid | What the buyer has | Cheaper in this example |
|---|---|---|---|---|
| 3 | $23,019.60 | $28,984.32 | A car worth $23,200 if it matches the residual, and $17,982.23 still owed | Lease, by $746.95 if the buyer sells |
| 6 | $46,039.20 | $48,307.20 | A paid-off 6-year-old car | Buy, if the car is worth more than $2,268 plus extra repairs |
| 9 | $69,058.80 | $48,307.20 | A paid-off 9-year-old car | Buy, by $20,751.60 plus the car's value, minus repairs |
Worked example from the assumptions above, not market data. The rate matches Edmunds' Q3 2026 new-car average, the residual sits inside Edmunds' 45% to 60% range and the disposition fee is the low end of Edmunds' range.
At three years, a buyer who sells for $23,200 and pays off $17,982.23 keeps $5,217.77, so buying cost $23,766.55. After that, the buyer stops making payments while the lessee starts a new lease.
The buyer's main extra cost after the warranty ends is repairs. To budget for years four through nine, see what car maintenance really costs, including AAA's per-mile figure for maintenance, repairs and tires. A cheaper money factor or higher residual tilts the math toward leasing, while overage, wear charges or an early exit tilt it toward buying.
Who Should Lease and Who Should Buy
Your mileage, how long you keep cars and how settled your plans are matter more than the monthly payment.
| Your situation | Usually the better fit | Why |
|---|---|---|
| You drive more than 12,000 miles a year | Buy | CR calls buying the smart choice, and overage runs 10 to 50 cents a mile |
| You keep cars six years or longer | Buy | CR says buying almost always wins |
| You want a new car every two or three years | Lease | You return the car instead of selling it |
| You want the lowest monthly payment | Lease | You pay for depreciation, not the full price |
| You may move or change jobs before the term ends | Buy | Early termination charges can be large |
| You want to deduct car loan interest on a new U.S.-assembled car | Buy | Lease payments don't qualify |
| You want factory warranty coverage the whole time | Lease for 36 months | It keeps you within a 3-year bumper-to-bumper warranty |
From Consumer Reports, Edmunds, the CFPB and the IRS. The warranty point is Edmunds' reason for recommending 36-month leases.
Is Buying Used the Cheapest Way to Drive?
For most budgets, yes. Consumer Reports puts it simply: "For savings up front and over the long haul, buy used. And pay cash."
Used loans carry higher rates, though. Edmunds' Q3 2026 figures show used-car buyers financing $30,703 on average at 10.6% APR, paying $582 a month over 70.4 months. Experian's Q2 2026 used-car APRs ran from 6.29% for super prime borrowers to 21.62% for deep subprime.
A cheaper car only saves money if it's sound. Work through our 47-point used car inspection checklist before you pay, and have an independent mechanic check anything you're unsure about.
Watch the title, too. Our guide to buying a car with a rebuilt title explains why a lower price can come with harder financing, pricier insurance and a weaker resale value.
What Your Lease Contract Must Tell You
The federal Consumer Leasing Act entitles you to a written breakdown of costs and terms before you sign. Regulation M, which sets out the details, covers personal leases longer than four months with a total obligation up to $73,400 in 2026.
For a car lease, the required disclosures include:
- The itemized amount due at signing, the payment schedule and the total of payments
- How the payment is built, from gross capitalized cost through residual value and rent charge
- Early termination charges, wear standards and the excess mileage charge
- Whether you can buy the car, and the price at lease end
Be careful with Lease Here, Pay Here deals
The CFPB warns that these dealers lease older used cars, often to people with poor or no credit, with weekly or biweekly payments and high rental charges. You may be responsible for repairs, and there's usually no purchase option. Ask whether the car has an ignition-interrupt device or GPS tracking.
In the end, how long you keep a car and how far you drive it decide the winner: leasing on short horizons, buying for most drivers who keep a car six years or more.
Frequently Asked Questions
Can I lease a car with no money down?
Often, yes, but a zero down lease rarely means nothing at signing. The Federal Reserve's leasing guide lists the first month's payment, a refundable security deposit, a capitalized cost reduction and fees among the possible up-front costs. Edmunds recommends paying only the first month's payment and remaining fees where possible. Less money down means a higher monthly payment.
What would the lease payment be on a $30,000 car?
It depends on the residual, money factor and tax. As an example only, a car priced at $30,000 with a 58% residual of $17,400, a 36-month term and a 0.0025 money factor works out to $350 a month in depreciation plus $118.50 in rent charge. That's $468.50 before tax and fees, and a lower residual raises it.
Do you pay the mileage overage if you buy your leased car?
No, according to Edmunds, which says excess mileage charges don't apply if you buy the car at the end of the lease. You pay the purchase price set in the contract instead, which Edmunds says is the residual value. Compare that price with what similar cars sell for before deciding, because a high-mileage car may be worth less than its residual.
Can you negotiate a car lease?
Yes. The CFPB lists the vehicle's cost, the residual value, the down payment, the trade-in value, the rent charge or money factor, the mileage limit and the purchase option as terms you can negotiate. Start with the agreed price of the car, because the Federal Reserve notes that a lower agreed value can reduce your monthly payment.
Is leasing a car a waste of money?
Not always, but it usually costs more over time. Consumer Reports says two back-to-back three-year leases generally cost thousands more than buying a car and keeping it for six years. Leasing can still make sense for drivers who want a new car every few years, drive modest miles and like having a car usually covered by the new-car warranty.
Can you buy your leased car before the lease ends?
Sometimes. The Federal Reserve says some leases let you buy the vehicle at lease end or earlier, and that the purchase option is a term you can negotiate. Regulation M requires the lease to state whether you have a purchase option, the price at lease end, and the price or the method for setting it during the term.
Sources and References
- Federal Trade Commission. Financing or Leasing a Car
- Consumer Financial Protection Bureau. What Should I Know About Leasing Versus Buying a Car?
- Federal Reserve Board. Keys to Vehicle Leasing: Quick Consumer Guide
- eCFR. 12 CFR Part 1013: Consumer Leasing (Regulation M)
- Federal Reserve Board. G.19 Consumer Credit
- Experian. Auto Loan Rates and Financing for 2026
- Edmunds. New-Car Financing Records Pile Up in Q3 as Buyers Borrow More and Stretch Loans Longer
- Edmunds. 10 Steps to Leasing a New Car
- Edmunds. Car Lease Calculator
- Kelley Blue Book. Car Lease Calculator
- Kelley Blue Book. Kelley Blue Book Report: Average New-Vehicle Transaction Prices Flirt With All-Time High, Despite Trend Toward More Affordable Product
- Consumer Reports. Buying or Leasing a Car in 2026: Which Makes the Best Financial Sense for You?
- AAA. Your Driving Costs 2026 Fact Sheet
- Insurance Information Institute. What Is Gap Insurance?
- Travelers. Leasing vs. Buying a Car: Pros and Cons
- American Honda Finance Corporation. Vehicle Return Checklist
- California Department of Tax and Fee Administration. Regulation 1660: Leases of Tangible Personal Property, In General
- New York State Department of Taxation and Finance. Publication 838: A Guide to Sales Tax for Automobile Dealers
- Texas Comptroller of Public Accounts. Motor Vehicle Tax Guide: Leases
- Internal Revenue Service. Working Families Tax Cuts: Tax Deductions for Working Americans and Seniors
- Internal Revenue Service. Topic No. 510, Business Use of Car
- Internal Revenue Service. Credits for New Clean Vehicles Purchased in 2023 or After
- Internal Revenue Service. Commercial Clean Vehicle Credit
Written by
CarTipsMentor Team
Researched from the sources listed above and checked against them before publishing. Nobody paid to be mentioned on this page. It is general information, not advice about your own vehicle.
Published . Last updated .
