What Is the True Cost of Leasing a Car

The car dealership makes leasing sound so appealing.

You can drive a new car every three years, the majority of your car maintenance is covered under the lease, your monthly payments will be lower than if you were buying, and at the end of your lease term, turn the keys back in and start the process all over again.

As many as 25% of people driving choose to lease cars.

Leasing does sound like a can’t lose proposition, until you crunch the numbers, which leads us to ask — What is the true cost of leasing a car?

An Example of Lease Vs Buy

What You Will Pay to Lease a 2011 Toyota Sienna LE for Three Years

  • Approximately $350 a month for a total of $12,250 (minus the first payment).
  • Before you drive the vehicle off the lot, the dealers wants you to pay the first payment, taxes and plates, which are approximately $2,000.
  • Maintenance is covered for the first two years or 25,000 miles, so you will pay approximately $200 on maintenance for the last year.
  • If you go over your mileage, which is usually 12,000 a year, you will be charged 10 cents for every additional mile.
  • If you are in an accident or have body damage to the car, you are responsible for the repairs and may be charged a fee when you turn in the car.
  • If the dealer determines the car needs to be cleaned, you will also be charged for that.

Of course, the last three points occur on a case by case basis, so we will only calculate the first three points, which gives you a total of $14,450 to lease the car for three years.  That equates to $401.38 per month.

What You Will Pay to Buy a 2011 Toyota Sienna LE

lease vs buy a car

What is the true cost of leasing a car?

A dealer I spoke with gave me the price of a basic Toyota Sienna LE as $31,275.  If you put down $2,000, and get a car loan paying 6% interest, you would pay $565.97 a month for 5 years.  You would pay a total of $4,683.07 in interest.

In total, you would pay $35,958.07, which is $33,958.07 for the loan plus interest and $2,000 for the down payment.

  • You will pay approximately $1,650 in taxes and plates.
  • Over the life of the car (approximately 10 years), you can expect to pay $10,000 in repairs and maintenance according to my mechanic who specializes in Toyota vehicles and has nearly 20 years of experience.

In total, you will pay out $47,608.07 to own the car for 10 years, which equates to $4,760.80 per year, or $396.73 a month for 10 years.

What Does This All Mean?

On the surface, it looks like there is little financial difference between leasing and buying.

However, there are a few distinctions.

If you have the cash to buy the car outright, you will save $4683 in interest, or $46.83 a month over the 10 year life of the car.  Even if you don’t have enough to pay for a new car in cash, if you put down more than the $2,000 in the example, you will also save on interest.

Many people negotiate the price of their car and do not pay the sticker price.  This varies on your negotiating skills though, so that cannot be figured in the equation, but it will offer you further savings.

In addition, after 10 years, you still have an asset.  Currently, a basic 2001 Toyota Sienna LE in good condition with 120,000 miles has a resale value of $6,080.  If we deduct the resale value from the overall 10 year price, we are now down to $336 a month to own a Toyota Sienna versus $401 to lease one.

Don’t forget that 3 years from now when you need a new lease prices will have gone up and you will be paying more per month.  Carry this out further–six years from now when you get your third lease car, you will be paying even more monthly.

If we go outside the scope of just buying the vehicle, as your vehicle ages, your insurance premiums go down.  However, when you lease a car it never ages more than three years when you are driving it, so your car insurance premiums are less likely to go down over time (and may go up since the price of the new lease cars will go up as well).

Don’t forget, if you are so inclined, you can continue driving your 10 year old vehicle for a longer duration than 10 years.  It might be a good vehicle for a teenager just learning to drive.

To Sum Up

Calculating the true cost of leasing versus owning is difficult because there are so many variables.  However, there is evidence that owning a vehicle, even if you have to take out a five year car loan, is more affordable than leasing a car.

What’s your take on leasing a car?

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Published or updated November 30, 2014.


  1. Great analysis. I have always wondered why people would want to lease over owning – gives me more reason to question that mindset. Maybe it’s the convenience.

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