, and the only thing that is worse than buying a car right now is buying a home. Some folks are looking at the car market similar to the housing market and thinking it’s smarter to lease versus buy just like it may be better to rent a home than purchase right now. However, the math doesn’t support this approach.

Cars and homes are more expensive than ever. Some folks don’t have the luxury of waiting out the market to change their living situation or vehicle, so it can be a tough decision as to what to do. Many home buyers are opting to rent since they have effectively been “priced out” of the housing market. Consumers entering the car market are taking this “renter” approach to vehicle purchases thinking that a lease is better than a buy.

I’ve had hundreds of conversations with car buyers in this difficult market who initially thought that the lease was their best move. Here are the most common reasons for leasing and the flaws in this approach.

When you lease a car you are essentially paying for the depreciation cost over the term of the lease, which is typically about three years. At the conclusion of the lease, you can either give the car back and move onto something else or buy out the lease and keep your car. A lot of folks think that the lease is giving them “flexibility” in their ownership because they are only going to keep the car for two or three years.

In fact, the opposite is true. When you sign that lease contract you are obligated for all the payments and if you decide that you want to leave that lease early, in a normal car market this is usually cost-prohibitive to do so. So, in essence, you are locking yourself in for that term. Whereas if you bought a car and decided after a year or two you wanted to go in a different direction, you can easily sell or trade that car.

At the conclusion of the lease, you have to do the shopping process all over again, however, if you had bought or financed a car at the end of three years if there is nothing on the market that suits your budget you can just keep driving what you have until the time is right to replace it.

Again, in a normal market, the lease payments would be dramatically cheaper than the purchase payments because you are only paying for the depreciation of that car over the term of the lease. Also, when Automakers and dealers are motivated to sell cars there are typically factory rebates, discounts, low-interest rates (also called a money factor) that help make lease programs more palpable for someone’s budget compared to loans. Right now, many of these incentive programs are gone and for vehicles this is translating to lease payments that are sky-high.

I recently got a quote on a Toyota RAV4 LE for a NJ customer that had an MSRP of about $31,000. It was a zero-down lease with tax included for a 36-month term with 10,000 miles a year and the payments were a shocking $553 per month. The dealer quoted a finance payment of $560/mo for 60 months at 2.49% APR. For only $7 more dollars per month, it is far better to own the car than to “rent” it.

Given how much fluctuation there has been in the car market in the past few years, with used car values plummeting early in the pandemic and then rising to record levels currently, buyers are concerned about purchasing something now and being unsure of what it will be worth later.

While this is certainly a valid concern and used car prices are predicted to go back to “normal” levels in the next few years, it’s unlikely we will see another situation where the values plummet as they did early in the pandemic. When examining a lease you want to look at the total cost of the lease over the term and then compare that to a purchase of that car to re-sell it within the same amount of time.

Here is a cost comparison breakdown I provided for a customer in California looking to lease a CX-5 Turbo

CX-5 Turbo 12k mile, $1300 down $629/mo with a residual of $22434 including all the fees and tax.

Total purchase price Turbo - $42305 with all tax and fees

Total lease cost for Turbo - [ ($629 x 36) + $1300 ]

Turbo total price of $42,305 (OTD price) - $22,434 (projected resale price in 3 years) =

Assuming that the bank’s projected resale value of this CX-5 is correct, and financial institutions are very motivated to be as accurate as possible about this, the lease would cost this person $4,073 more over the same term than it would be to buy the car and re-sell it.

The above breakdowns are a consistent pattern I am seeing across most cars with most brands when it comes to leasing. I have encountered a handful of exceptions where the lease versus the purchase cost is sort of a wash.

In summary, shoppers should re-examine their assumptions about leasing and even if they have leased before, the likelihood of even replicating the payments they achieved previously on the same car is very low. It’s critical to take a close look at the costs both ways to see which path is more advantageous.