The Real Financial Difference: Asset Ownership vs. Usage Renting
When you buy a car with a traditional loan, your payments cover the vehicle's full purchase price plus interest, building equity until the loan is paid off. When you lease, your payments cover only the expected depreciation over 36 months plus rent charges (money factor interest).
Run your side-by-side buyout and payoff numbers using AutoLoanIQ's lease payoff calculator.
Financial Breakdown: $35,000 Vehicle (Lease vs. Loan over 6 Years)
| Financial Metric | Leasing (Two 3-Year Leases) | Buying (One 60-Month Loan) |
|---|---|---|
| Monthly Payment | $380 / month | $585 / month |
| Total Out-of-Pocket Payments (6 Years) | $27,360 | $35,100 |
| Upfront Down Payments / Fees | $3,000 | $3,000 |
| Vehicle Asset Value at Year 6 | $0 (Returned) | +$14,500 Retained Equity |
| Net 6-Year Ownership Cost | $30,360 Net Cost | $23,600 Net Cost ($6,760 Saved!) |
Converting Money Factor to APR Interest Rate
Lease agreements express interest as a decimal known as the Money Factor. To convert a money factor into a standard APR interest rate, multiply by 2,400:
APR = Money Factor × 2,400
For instance, a lease money factor of 0.00250 equals a 6.0% APR (0.00250 × 2,400 = 6.0%).
Pros and Cons Summary
Leasing Advantages:
- 30% to 40% lower monthly payments compared to standard financing.
- New vehicle under manufacturer warranty for the entire lease duration.
- No long-term resale or market depreciation risk.
Buying Advantages:
- Builds real cash equity once the loan is paid off.
- No annual mileage restrictions or excess wear penalties. Read our guide to lease return fees explained.
- Ability to keep the vehicle debt-free for 8 to 10+ years.
Evaluating Lease Buyouts and Subprime Options
If you are near the end of a lease and considering purchasing it, read our guide on should I buy my leased car and review how lease payoff is calculated.
If you have bad credit, leasing is often unavailable because leasing companies require 680+ credit scores. Evaluate subprime purchase loans using our subprime auto loan calculator, follow our subprime checklist, or explore BHPH vs subprime financing.
If you purchase a car and want to lower your rate later, calculate savings with our refinance calculator or read about refinancing after bankruptcy.
If trading in creates a loan shortfall, calculate your balance with our negative equity calculator, read 6 ways out of negative equity, check lender LTV limits, or review GAP insurance necessity.
Frequently Asked Questions
Short-term (3 years), leasing has lower monthly payments. Long-term (6+ years), buying is cheaper because you eliminate monthly car payments after paying off the loan.
Money factor is the interest rate formula used on leases. Multiply the money factor by 2,400 to find equivalent APR.
Usually no. Equity only occurs if actual market value at lease end exceeds your contract residual price.
Lease if you want a new car every 3 years and drive under 12k miles/yr. Buy if you want long-term debt-free ownership.