What you're actually paying for in each case
A lease is a long-term rental. You pay for the portion of the car's value that disappears during your term, the depreciation, plus a finance charge (the "money factor") and fees. At the end you hand the car back owning nothing. Because you're only paying for two or three years of depreciation rather than the whole car, monthly payments are lower than financing the same vehicle.
Buying means paying for the entire car, whether in cash or through a loan. The payments are higher, but every payment builds equity, and once the loan is done you own an asset with years of low-cost driving left in it. Over a long enough horizon, the purchase wins decisively because you stop paying entirely while the leaser keeps signing new contracts forever.
So the core trade is lower payments and constant turnover (lease) versus higher payments and eventual ownership (buy). Neither is a trick; they're optimized for different priorities. The lease-vs-buy calculator puts both on the same timeline so you can compare total cost over the years you'd actually keep the car.
Mileage caps and the conditions that punish a lease
Leases are priced on an assumed mileage allowance, commonly 10,000 to 15,000 miles a year. Drive more and you pay an excess-mileage charge at lease-end, typically 15 to 30 cents per mile. Go 8,000 miles over a three-year lease at 25 cents and that's a $2,000 bill when you return the car.
Wear-and-tear charges add to the risk. Curb-rashed wheels, door dings, worn tires, and interior damage beyond "normal" all generate end-of-lease fees, because you're returning an asset the dealer needs to resell. Leasing rewards careful, low-mileage drivers and penalizes hard, high-mileage use.
There's also the lock-in. Getting out of a lease early is expensive and awkward; you're committed for the full term in a way a loan (which you can refinance, sell into, or pay off) isn't. If your life or driving needs might change within three years, that rigidity is a real cost.
When each one actually wins
Leasing tends to win for drivers who want a new car every few years, drive predictable low-to-moderate miles, value the lowest monthly payment and full warranty coverage for the whole term, and can use a business deduction. It also suits anyone who simply prefers always driving something current and treats the car as a service rather than an asset.
Buying wins for the long-haul owner. If you keep cars well past the loan payoff, drive a lot of miles, want to build equity, or dislike perpetual payments, purchasing is the cheaper path by a wide margin. The years after the loan ends, with no payment and a car that still runs, are where buying earns back its higher early cost.
The honest middle ground: if you'd lease one car after another indefinitely, you'll almost certainly spend more over a decade than someone who bought a reliable car and kept it. If you'd otherwise buy a new car every three years anyway, leasing may cost about the same with less hassle. Match the choice to your real behavior, not your aspirations.
Resale value: the lever that quietly decides it
Resale value sits underneath both options and tilts the math more than the advertised payment does. On a lease, your payment is essentially the gap between the cap cost and the residual value the leasing company predicts at the end. A car that holds value well has a high residual, which means a small depreciation gap and a low lease payment. That's why some strong-resale models lease cheaply while fast-depreciating ones are costly to lease even at a discount.
On a purchase, resale value is money you get back. Buy a car that retains 60% at five years and you recover far more at sale than one that retains 40%, which can swing the lifetime cost by thousands on similarly priced cars. Either way you decide, the resale-strong car is the cheaper one.
So before settling lease versus buy, check how the specific model depreciates, because it changes which option is cheaper. A high-residual car can make leasing surprisingly competitive; a low-residual car makes buying-and-holding the clear winner. Run both against your mileage and ownership horizon in the lease-vs-buy calculator and let the resale assumption do its work.