How to Calculate Your Total Cost
Total cost goes beyond the monthly payment. Buying involves loan interest; leasing leaves you with no asset at the end. A quick reference:
Buy Total Cost = Monthly Payment × Term + Down Payment − Residual Value
Lease Total Cost = Monthly Payment × Term
Pros and Cons at a Glance
| Buying | Leasing | |
|---|---|---|
| Long-term cost | Lower (own the asset) | Usually higher overall |
| Monthly payment | Typically higher | Typically lower |
| Mileage freedom | Unlimited | Capped (fees for overages) |
| Customization | Modify as you like | Generally not allowed |
| Flexibility to change | Must sell to switch | Return at end of term |
5-Year Cost Example
$35,000 car (Buy: 5.9% APR, 60 months, $3,000 down; Lease: $350/mo, 36 months then renewed):
Five-year buy total: ~$32,500 (after subtracting $16,000 residual). Two lease cycles (72 months total): ~$25,200. But the buyer still owns a car worth $16,000 — effectively making the net buy cost competitive.
Common Misconceptions
Myth: Leasing is always throwing money away. Leasing buys "usage time," not ownership. It makes sense when you prefer a new car every 3 years and drive moderate mileage.
Myth: Buying is always smarter. If you sell after 2–3 years, depreciation can rival or exceed total lease costs. The math depends on your holding period.