Cost Comparison: Leasing vs Buying

Cost Comparison: Leasing vs Buying

Leasing your ride comes with some serious perks. You get to sport a new car every few years, you don't ever have to worry about maintenance, and at the end of the day you get to walk away without the hassle of stressing over depreciation and resale. Awesome, right? Definitely... but only if you can afford it.

In this Cost Comparison, we're going to look at the financial impact of leasing vs. buying. As always, we endeavor to support our analysis with legit data, while being transparent and comprehensive. Follow along using the "Wyse" tab of our Car Purchase Calculator.

The Basics

We're looking at a 2018 Rav4 SE with an asking price of $30k. If you're a master negotiator who would never pay sticker, feel free to assume you've added a package or two but haggled it down to $30k. If we buy, we're hanging on to it for 6 years, which is about average. If we lease instead, then we're doing two 10,000 mile back-to-back three-year leases, with the second vehicle also valued at $30k.

Whether we lease or buy, we'll be putting 10% down. If leasing, let's assume we only put 5% down for lease number two, since the high demand for such a dope car is going to give us some negotiating leverage the second time around.


As buyers, we qualify for a 4.6% interest rate on a 60-month auto loan. We're buying this vehicle in Columbus, Ohio (Zip 43210), so our sales tax is 7.50%. Insurance will run us $100 per month, and we're driving about 10k miles per year, so we'll be spending around $125 per month on gas. The state of Ohio charges a measly $34.50 in annual fees. Because we're buying a new vehicle, we'll assume annual maintenance fees for the first few years will be minimal, but just in case something happens after the 36-month warranty, we'll budget $150 per year for maintenance over six years. Cars depreciate using a double-declining balance method that can be averaged to 11%, which means our RAV-4 will be worth about half of sticker after six years.

To a lessee, some of these numbers are going to look a little different. When you lease, your "interest rate" is a combination of a money factor and residual value. If you plan to return your car at the end of your lease, these numbers serve absolutely no useful purpose, but they do make harder to know whether you're getting a good deal. For this calculation, we'll simplify and plug in a purchase price equal to sticker plus tax on the leased portion ($31,250) less the residual value ($15,000) to get to the number we are effectively financing. We'll use the same cost of gas, insurance and fees, budget $50 per year for any random maintenance that aren't covered by the lease, and use the same rate.


As buyers, our monthly loan payments come to about $547, whereas operational costs are $240. Over the six-year period, our total out of pocket costs are $50,105.36 after adding in the down payment.

Monthly lease payments come to just about $427, with operational costs of $232. For both three-year periods, that's a total cost of $51,942 (remember we only got charged 5% up-front when we entered into our second lease).

The total costs of $50,105 and $51,942 for buying and leasing respectively are fairly close, until you add back in the value of the car at the end of six years. That brings the total output for the buyer down to just $35,105, a whopping $16,837 savings over the lessee.

If we account for opportunity cost (the value of our payments if we'd invested them instead), it raises the cost of leasing just a bit since you spent more over time, but not enough to make it worthwhile walking through the calculations. If you try it yourself, you should get a spread of less than $1,000.


If you thought the buyer had the last word, think again. While clearly coming out ahead in terms of cost-savings, the buyer is almost certainly going to lose to the lessee in one type of cost: utility. For almost everyone, the utility - the relative enjoyment of the purchase - is going to be higher for the lessee. Seriously, how nice is it to get a new car every three years? Upgraded technology, a more contemporary look... all the reasons people buy new cars instead of reliable used vehicles. Also, remember that our annual maintenance fees were just estimates... it's possible that something catastrophic could happen in year 5 that would cost the buyer and arm and a leg. With a Toyota it's unlikely, but you can't rule it out.

That being said, there is a certain type of utility the buyer gets to enjoy that the lessee will never experience. It's the same type of utility that comes from owning a home rather than renting one for the same price. Sure, you've got to deal with upkeep, repairs, and all the burdens that come with being an owner, but it's still your car. At the end of the day, that's worth a few extra bucks all on its own.

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The Cost Comparison series is by-the-numbers look at different discretionary financial decisions. The format follows the Wyse approach: collect basic data, make educated assumptions, and be honest about the true cost of ownership. Like all of our content, every article is completely original and exclusive.

Aaron A
Aaron A.