Should You Buy or Lease Your Next Vehicle?

After 5 years as a proud minivan owner, my wife and I recently purchased an SUV. For simple trips around Raleigh the van was adequate, but with our frequent treks to see my parents in Florida combined with the taxing drive through the mountains of West Virginia to get to Emily’s family in Ohio, we needed something more reliable. Ultimately, after lots of research and finding a good deal on the vehicle we wanted, plus some email negotiations back and forth (all those articles you find online about how to negotiate the best price really work!), we settled on a 2018 All-Wheel Drive Toyota Highlander XLE.

During the months leading up to our purchase, Emily brought up the idea of leasing, which certainly offers some benefits: the payments tend to be lower, you get something new every few years, and rarely do you have to worry about maintenance.

While we ultimately ended up buying, I thought it would be a worthwhile exercise to run through the numbers to see when it might be advantageous to buy and when to lease. You may remember that Beacon went through a similar exercise a few years back in our most widely read and frequently visited Friday Brief, “Should Young Couples Buy or Rent Their First Home?”

Figure 1

Figure 1 shows the actual numbers from our purchase on the left and numbers provided to me by the dealership for a 3-year, 12,000 miles per year lease on the same Highlander. As I said earlier and as you can see by the difference in the MSRP and Negotiated Price, all that “here’s how to negotiate the best price on a new car” stuff you see online is quite helpful.


We added an extended warranty, stretching the 3-year bumper-to-bumper to 10-years, and financed everything through our local credit union at 3.29% over 5 years.

To run the numbers, certain assumptions were made about repairs, maintenance, property taxes, insurance, and mileage driven. Thankfully, property taxes can be estimated through the North Carolina’s Vehicle Property Tax Estimator, and Edmunds has data on the 5 year cost to own a 2018 Highlander just like the one Emily and I bought. For miles driven, I assumed 15,000 per year based on data compiled by the federal government (the lease only allows 12,000 miles per year, then $.18 for every mile over) and for auto insurance I’m using our actual annual bill.

Looking at Figure 2, you can see the break-even point is about five-and-a-half years, though the numbers run essentially side-by-side starting in year four. Yet as soon as the Highlander is paid off, leasing is no match for buying. Thus, if you anticipate owning a car less than five-and-a-half years, you are probably better off leasing. Longer than that, it’s probably in your best interest to buy. As long as you’re buying a reliable vehicle that will hold it’s value, of course.

Figure 2

As you can see, the difference over 10 years is roughly $40,000, not insignificant. (Keep in mind, these calculations only look at cash flow and don’t account for the asset you own after the loan is paid off, which tilts the scales even more towards owning.)

What if we look out 15 years? You can see in Figure 3 that the long-term difference in cost between buying and leasing is more than $80,000!

Figure 3

It’s important to point out that somewhere between 63%-80% of the cost of owning a vehicle occurs while you’re re-paying the loan. Owning a quality car is pretty affordable once it’s paid off, allowing you greater long-term financial flexibility and the building up of significant positive financial momentum.

There may be lifestyle or business reasons to long-term leasing, but the cost of constantly turning over a lease is substantial. Used differently, that $80,000 could cover a couple years of college, or weddings, or family vacations, or gifts to your church or alma mater, or a little bit of everything!

Intuitively, Emily and I understood that buying was a better long-term decision but taking the time to dig into the numbers made me realize just how costly long-term leasing can be. While we didn’t have these numbers handy beforehand, it’s confirmed the choice we made to buy as the goal is to have the Highlander 10-15 years.

If you’re interested in reading more about the impact of what we drive on our financial futures, be sure to check out these two blog posts:

Have a great weekend!



Author Ryan Smith, CFP®, RICP®

More posts by Ryan Smith, CFP®, RICP®

Join the discussion 6 Comments

  • marget ballard says:

    good info!

  • ed garrett says:

    Your analysis looks reasonable and supports the intuition that leasing is usually more expensive unless the vehicle is for business. And a Highlander is an excellent choice.
    SWeeT SPOT buying:
    A way to save more money is to buy a car at the end of its 3-year lease to avoid the heaviest depreciation. Or, as I have done, buy a car at around 40K to 60K miles while there are still several years of low maintenance and low depreciation. In some cases you can assume the remainder of a 100K warranty for a reasonable bump in price.
    Having said that, I confess I bought a new minivan 2 years ago but not to save money. The safety features now available (e.g., blind spot detection) are really important for seniors! I expect to buy a new self driving car when they stop making headlines, probably a 2040 model 🙂

    • Ryan Smith, CFP®, RICP® says:

      Thanks, Ed! We are very happy with the Highlander. We considered getting one that was 2-3 years old but saw how well Highlander’s kept their value so opted for new. And I agree on the safety features as they were a significant selling point for us.

  • Bruce Berger says:

    “Taxing drive through the mountains of West Virginia”? Being happily married to a proud West Virginian and having lived there for 7 years myself, I mildly object to “taxing” and would suggest, though not uniquely (Wild, Wonderful), unless of course you’re referring to the economics of the Mountain State, in which case, “taxing” is quite accurate. :). Thanks for the good article.

    • Ryan Smith, CFP®, RICP® says:

      Bruce, I would never besmirch the wild and wonderful state of West Virginia. I was referring to the toll they take on my 5 year old’s stomach as we wend our way through the mountains of your lovely wife’s home state.

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