Lease-versus-buy arguments usually die at "a lease is renting" versus "a payment is cheaper." Both are true and neither decides anything. Here's the same car run both ways to the same finish line, with the payment formulas, the money factor decoded, mileage penalties priced, and the equity the buyer holds at the end. One worked example, every number shown.
Three parts, and you can compute all of them on a napkin:
Our example car: $35,000 MSRP negotiated to $33,500, $2,000 down, 36-month lease, 57% residual ($19,950), 0.0025 money factor, 6% sales tax. Cap cost is $31,500. Depreciation: (31,500 − 19,950) / 36 = $320.83. Rent: (31,500 + 19,950) x 0.0025 = $128.63. Payment: ($320.83 + $128.63) x 1.06 = $476.43.
The loan on the same car: tax on the price goes into the amount financed, so $33,510 at 7% for 60 months is $663.54. Lower payment for the lease, bigger obligation for the loan. So far the salesman's version of the story.
The money factor is the lease's interest rate with the decimal point moved so it looks tiny. Multiply by 2400 and you have the APR equivalent:
| Money factor | APR equivalent | Monthly rent on $51,450 (cap + residual) |
|---|---|---|
| 0.00150 | 3.60% | $77 |
| 0.00200 | 4.80% | $103 |
| 0.00250 | 6.00% | $129 |
| 0.00300 | 7.20% | $154 |
| 0.00350 | 8.40% | $180 |
Rent shown rounded; exact figures for our example are $77.18, $102.90, $128.63, $154.35, $180.08. Two negotiation notes. First, a dealer quoting a "lease rate of 2.5" means 0.00250, which is 6% APR, not 2.5%. Second, manufacturers subsidize money factors on slow sellers the same way they cut rebates, and a 0.0015 supported rate can make a lease genuinely cheap financing. The lease contract discloses the money factor; insist on seeing it before signing. For a deeper dive on the payment itself, the lease payment calculator breaks out all three components.
Compare both paths at month 36, the end of the lease. The lessee has paid $2,000 down, $700 in fees, and 36 payments of $476.43: $19,851 total, and owns nothing.
The buyer has paid the same $2,700 up front and 36 payments of $663.54, but still owes $14,820 on the loan while the SUV is worth roughly the residual, $19,950. That $5,130 of equity is real money: sell the car, pay off the loan, keep the difference. Net cost of buying over the same 36 months: $2,700 + $23,887.37 of payments − $5,129.81 of equity = $21,458.
| Path | Monthly | 36-month total | You hold at month 36 |
|---|---|---|---|
| Lease | $476.43 | $19,851 | Nothing (turn in the keys) |
| Buy (60-mo loan @ 7%) | $663.54 | $21,458 net | Car worth ~$19,950 with $14,820 owed |
So leasing won this race by $1,607. Before you screenshot that: it's the mileage-sensitive version of the truth. Run your own numbers, including your real annual miles and the residual on your actual lease worksheet, in the lease vs buy calculator.
Enter price, residual, money factor, APR, and your annual miles. Get both totals over the same months, the equity you'd hold, and the winner.
Lease vs Buy Calculator →The lease above assumes 12,000 miles a year, 36,000 over the term. Overages bill at turn-in, typically $0.20-$0.35 a mile:
| Your driving | Overage at turn-in | Lease total | Winner |
|---|---|---|---|
| 10,000 mi/yr | $0 | $19,851 | Lease by $1,607 |
| 12,000 mi/yr | $0 | $19,851 | Lease by $1,607 |
| 15,000 mi/yr | $2,250 | $22,101 | Buy by $643 |
| 18,000 mi/yr | $4,500 | $24,351 | Buy by $2,893 |
Overage math: 15k a year is 45,000 over the term, 9,000 over the allowance, x $0.25 = $2,250. The crossing point sits somewhere between 12k and 15k for this deal, and it moves with the residual and money factor. If your miles are unpredictable, that uncertainty itself is a point for buying: the overage is a one-way penalty with no upside.
Lease wins when: a manufacturer is subsidizing the money factor or residual, you drive under the allowance, you genuinely want a new car every three years, or the car's depreciation is brutal (electric vehicles with weak resale are the classic case, if the residual is set optimistically).
Buy wins when: you drive over 12-15k a year, you keep cars past the loan, you hate payment Obligations more than repair risk, or you can beat 7% with a credit-union rate. If the monthly is the blocker, the honest fix is a cheaper car, and the car affordability calculator works backward from a payment to a sticker price you can actually carry.
What nobody prices into the sticker comparison: maintenance. A leased car is under bumper-to-bumper warranty for nearly the whole term; a buyer's year 4-8 includes brakes, batteries, tires, and the occasional four-figure surprise. If comparing a lease against a used purchase, add a repair budget to the buy column, and consider what an extended warranty would cost to cover the gap.
The 36-month window flatters the lease because the buyer has only reached the expensive middle of a longer loan. Extend the horizon: at month 60 the buyer makes the final payment and owns a $12,000-ish SUV outright; the serial lessee is starting year six of payments at $476 a month, roughly $28,600 deeper into dealerships by then, still holding nothing. The lease's win condition is precisely the term window, and the buy's is everything after it. That's why "always lease" and "never lease" are both wrong, and why the miles-per-year question is the whole deal.
Because you're only financing the car's depreciation plus a rent charge, not the whole car. On a $35,000 car leased at $33,500 with $2,000 down for 36 months at 57% residual, you finance $11,550 of depreciation ($320.83 a month) plus rent of $128.63, for $476.43 with tax. A buyer financing $33,510 over 60 months at 7% pays $663.54, because they're buying all $35,000 of car, not the first 43% of it.
The lease's interest rate written small. Multiply by 2400 to get the equivalent APR: a 0.00250 money factor is 6% APR, 0.00350 is 8.4%, 0.00150 is 3.6%. It's charged monthly on the sum of cap cost and residual, so the rent charge on $51,450 of combined value at 0.0025 is $128.63 a month. Dealers must disclose the money factor in the lease contract; if a quote won't show it, that's the whole negotiation.
Yes, in three situations: heavy manufacturer subsidies (inflated residuals and cut money factors on slow-selling models), low annual mileage with a high residual, and when the alternative loan rate is bad. In the base case here ($35,000 car, 6% tax, 7% APR), the lease wins its 36-month window by about $1,607 at 12,000 miles a year, but loses by $2,893 at 18,000. Subsidized leases on some models genuinely beat buying; everything else is close.