Lease vs Buy vs Finance a Car: The Five-Year Cost Compared

Over five years on a $35,000 car, financing at today’s roughly 7.5% rate and keeping the car past payoff is usually the cheapest way to actually own something. It costs about $21,710 in true five-year cost once you subtract the roughly $20,370 the car is still worth at the end, versus about $27,000 for a lease that leaves you owning nothing. Run your own price and rate in the Auto Loan Calculator. The cheapest monthly payment is usually the most expensive path, and the sections below show why.

That last line is the whole argument. You hand over about $42,080 across five years, and $7,080 of it is interest, which feels like the cost of borrowing. But you end year five holding a real asset worth about $20,370, and your payments are done. The interest is not free, but it buys you something the lease never does: ownership.

Look at the “total paid” row and you can see the trap forming. The lease has the lowest monthly payment and the lowest total paid, so it looks cheapest on the two numbers a salesperson points at. But the only row that measures the actual cost of getting from A to B for five years is the last one, and there the lease is the most expensive by a wide margin, because you spent $27,000 and own nothing at the end.

The lease is a subscription, not a purchase

A lease keeps the monthly number low by only charging you for the depreciation during the years you drive it, plus a rent charge. You never touch the rest of the car’s value, so you never build any equity. When the lease ends you hand the keys back and start another payment, forever. Leasing is a subscription to an always-newish car, not a way to own one.

Two more strings come attached. Leases cap your mileage, usually at 10,000 to 12,000 miles a year, and charge roughly 25 to 30 cents for every mile over the cap when you turn the car in (Edmunds). Drive 15,000 miles a year on a 12,000 cap and you owe about $840 at lease-end on that one year alone. There are also wear-and-tear charges for dents, curb rash, and worn tires. None of that exists when you own the car outright.

The market bears this out. The average new-car lease payment was $619 a month in the first quarter of 2026, up 3.2% from a year earlier (Experian data, reported by LendingTree). Our example uses $450 because a $35,000 crossover leases below that average, since the average reflects pricier vehicles. Even at the friendlier $450, two three-year leases back to back run about $27,000 over five years and end with you owning nothing.

Why finance-and-keep usually wins

The number that quietly rescues the finance path is depreciation, and 2026 is a good year for it. A new vehicle now loses about 41.8% of its value over five years, meaning it retains roughly 58.2% (iSeeCars 2026 study of more than 950,000 five-year-old cars). That is better retention than the old rule of thumb that cars lose half their value fast. Trucks hold even more, losing only about 34.2%, while EVs are the exception at roughly 57.2% lost.

So on a $35,000 car you finance and keep, the math lands like this. You pay about $42,080 total, then own an asset worth about $20,370. Net it out and the five years cost you about $21,710. Better still, the payments stop at month 60. Keep that same car two or three more years and every one of those years is close to free, which is what actually drags the long-run cost of ownership down. The finance-and-keep buyer wins by refusing to trade the car in the moment it is paid off.

The rate matters, and it is not cheap right now. The Federal Reserve’s G.19 report puts the average 60-month new-car loan at commercial banks at about 7.5% for well-qualified buyers in early 2026, down about half a point from a year earlier (Federal Reserve G.19; FRED series RIFLPBCIANM60NM). At that rate the average new-loan payment hit a record $770 a month on an average $43,925 financed (Experian, via LendingTree). Our tidier $35,000 example keeps the payment near $701. You can swap in your own loan amount, rate, and term in the Auto Loan Calculator to see where your payment lands.

Paying cash: no interest, but a hidden cost

Paying cash is the debt-averse favorite, and it carries $0 in interest. You skip the $7,080 the finance buyer pays, and there is a genuine peace-of-mind value in owning the car free and clear from day one.

But cash is not free either. Tying up $35,000 in a depreciating car means that money is not earning anything. Parked in a safe account at about 4.5%, that same $35,000 would grow to roughly $43,813 over five years, so paying cash quietly forgives about $8,813 of return. Invested at a longer-run market rate near 7%, the forgone amount is closer to $14,617. Add that opportunity cost to the $14,630 of value the car sheds and the cash path nets out around $23,443 over five years, a bit more than finance-and-keep. It is still a perfectly reasonable choice, especially if debt keeps you up at night. Just know the trade you are making: zero interest in exchange for the return that $35,000 could have earned somewhere else.

When leasing actually makes sense

None of this makes leasing a scam. It makes it a lifestyle choice with a price tag. Leasing is the right call if you genuinely want a new car every three years, you drive under the mileage cap, and you value the always-under-warranty, always-current experience more than building equity. Business use can also tilt the math, since lease payments are often deductible in ways a purchase is not. What leasing is not is a wealth decision. If the goal is to spend the least to get reliable transportation over the next decade, the lease loses to a car you finance and then keep long after the loan is gone.

There is one thing that flips the whole ranking: a true 0% manufacturer promotion. If a captive lender offers 0% or 1.9% APR on the exact car you want, financing beats paying cash outright, because you keep your $35,000 invested while borrowing for free. Always check the promo rate against the roughly 7.5% market average before you assume a loan is expensive.

The caveats. These are estimates built from published averages, not a quote on your car. The 7.5% rate is the Federal Reserve’s quarterly average for well-qualified buyers; real APRs swing hard by credit tier, and borrowers with weaker credit pay far more, often well into the double digits. The lease figure is illustrative, since lease economics hinge on the money factor and residual, which vary by model. Depreciation is model-specific too: the 41.8% average hides a big spread, so the finance-and-keep edge is strongest on slow-depreciating trucks and hybrids and weakest on fast-depreciating luxury sedans and EVs. The opportunity-cost rates for the cash case are assumptions, not guarantees, and stock returns are not promised. Finally, all three paths carry sales tax, registration, insurance, and maintenance, which we left out because they apply to everyone. Some states tax only the lease payment stream rather than the full price, so run your own numbers.

Put your real price, down payment, rate, and term into the Auto Loan Calculator to see your monthly payment and total interest. Then keep going: the deeper question of whether to put cash toward the car or somewhere higher-returning is exactly the trade-off in paying off debt versus investing, the everyday side of fitting a car payment into your month is in budgeting and everyday money, and the full set of these buy-versus-borrow calls lives in the money decisions and comparisons hub.