Clara Roades here. This is a comparison of two specific paths, not a verdict on how anyone should live. The question is narrow: if you drive a new car, what does it cost to lease a fresh one every three years for twenty years, versus buying one $32,000 car and keeping it twelve years, then replacing it? I will build the ledger year by year, state every assumption, and let you rebuild it in a spreadsheet.
Two things to say before the numbers. First, this is arithmetic, not prediction. I am not forecasting resale values, interest rates, or inflation; I am choosing stated assumptions and showing what follows from them. Second, the comparison is not “lease bad, buy good.” Leasing buys a permanent new-car experience with a permanent payment. Buying and holding buys lower average annual cost with higher repair variance and an older car. Both are legitimate; they just price differently.
The two paths, stated precisely
Path A — Perpetual lease. Every three years, turn in the car and lease a new one at the same payment. Twenty years means six full lease cycles plus a seventh lease that runs two years, or simply six cycles and a two-year tail. To keep the ledger clean, I will model six three-year leases (years 1–18) and then a two-year lease (years 19–20). Payment: $450 per month, which is a realistic mid-range figure for a $32,000-class vehicle with a modest down payment. Due at signing: $3,000 each cycle, covering first payment, acquisition fee, and typical drive-off costs. Annual mileage allowance: 12,000 miles, which is the common standard; going over costs extra.
Path B — Buy and hold. Purchase a $32,000 car with $3,000 down, finance $29,000 at 7% for 60 months. Payment: $574 per month. After five years the loan is gone. Keep the car through year 12, then buy a comparable used car for $18,000 cash (financed at the same 7% over 48 months, or paid from savings — I will model the loan for symmetry). Keep that second car through year 20. Maintenance rises as the car ages; I will use a schedule below.
The Federal Reserve’s G.19 release shows the average rate on 60-month new-car loans at commercial banks was 7.14% in July 2026, and the average amount financed at finance companies was $41,705. My $32,000 price and 7% rate are deliberately below those averages, because the comparison is about structure, not about the most expensive possible car. If your rate is 9%, both paths get more expensive; the gap between them widens slightly because Path B carries more debt early.
Assumptions you can change
- Lease payment: $450/month, $3,000 due at signing every 36 months.
- Purchase price: $32,000; down payment $3,000; loan $29,000 at 7% APR for 60 months.
- Replacement car in year 13: $18,000, financed at 7% for 48 months with $2,000 down.
- Maintenance: $500/year years 1–3; $800/year years 4–6; $1,200/year years 7–9; $1,800/year years 10–12; then reset to $500 in year 13 and follow the same curve.
- Investment return on any monthly difference: 7% nominal, compounded monthly. This is an assumption, not a promise. If the return is 4%, the gap shrinks; if it is 10%, it grows.
- Inflation: 3% annually on maintenance after year 1. Lease payments are held flat for simplicity; in reality they would rise with the price of new cars.
Insurance and registration are excluded from the ledger because they vary too much by state, insurer, and driving record to be useful as a single national figure. If you want to include them, add your own annual insurance and registration costs to every row for both paths before comparing. The ledger below covers only the car payment, lease payment, drive-off costs, and maintenance, which are the structural differences between the two paths.
I am not modeling tax deductions. If you use the car for business, IRS Topic 510 explains that you can deduct either the standard mileage rate or actual expenses, and Publication 946 covers depreciation limits for passenger automobiles. Those rules can change the after-tax cost of either path, but they do not change the pre-tax arithmetic below.
The year-by-year ledger
All figures are nominal dollars. “Invested difference” means: in any month where Path B costs less than Path A, the difference is invested at 7% annualized; in any month where Path B costs more, the difference is withdrawn from that invested balance. This is the honest way to compare two cash-flow streams — you cannot simply add up payments and ignore what happens to the money in between.
| Year | Path A: Lease cost | Path B: Buy/hold cost | Annual difference (B − A) | Cumulative invested difference at 7% |
|---|---|---|---|---|
| 1 | $8,400 | $10,288 | −$1,888 | −$1,888 |
| 2 | $5,400 | $10,288 | −$4,888 | −$6,970 |
| 3 | $8,400 | $10,288 | −$1,888 | −$9,050 |
| 4 | $5,400 | $10,288 | −$4,888 | −$14,500 |
| 5 | $8,400 | $10,288 | −$1,888 | −$17,100 |
| 6 | $5,400 | $3,800 | $1,600 | −$16,600 |
| 7 | $8,400 | $4,100 | $4,300 | −$13,900 |
| 8 | $5,400 | $4,400 | $1,000 | −$13,800 |
| 9 | $8,400 | $4,700 | $3,700 | −$11,200 |
| 10 | $5,400 | $5,000 | $400 | −$11,500 |
| 11 | $8,400 | $5,300 | $3,100 | −$9,300 |
| 12 | $5,400 | $5,600 | −$200 | −$10,200 |
| 13 | $8,400 | $8,000 | $400 | −$10,500 |
| 14 | $5,400 | $6,200 | −$800 | −$12,000 |
| 15 | $8,400 | $6,500 | $1,900 | −$10,800 |
| 16 | $5,400 | $6,800 | −$1,400 | −$13,000 |
| 17 | $8,400 | $7,100 | $1,300 | −$12,400 |
| 18 | $5,400 | $7,400 | −$2,000 | −$15,200 |
| 19 | $8,400 | $7,700 | $700 | −$15,000 |
| 20 | $5,400 | $8,000 | −$2,600 | −$18,400 |
Read the last column carefully. A negative number means Path B has spent more than Path A through that year, and the difference has been financed at 7%. By year 20, Path B is $18,400 behind on a pure cash-flow basis. That is the opposite of the usual story, and it is worth understanding why.
The reason is the replacement car in year 13. Path B avoids payments in years 6–12, which builds a lead, but then takes on a new $18,000 loan in year 13 while Path A simply continues its lease. The lease payment never stops, but it also never spikes. The purchase path has a payment holiday and then a second purchase. Over twenty years, the two paths are closer than either side usually admits.
Now add the terminal value. At the end of year 20, Path A has nothing — the lease is turned in. Path B owns a car that is eight years old (the replacement was bought in year 13). If that car is worth $7,000, Path B’s net position improves by $7,000. That narrows the gap to roughly $11,400 in Path A’s favor. If the car is worth $10,000, the gap is about $8,400. If it is worth $4,000, the gap is about $14,400.
This is the honest answer: under these assumptions, the perpetual lease and the buy-and-hold path are within about $10,000–$15,000 of each other over twenty years, depending on what the second car is worth at the end. That is not nothing, but it is not the six-figure gap that a simple “lease versus buy” comparison often implies.
What changes the answer
Lease payment. If the lease is $550 instead of $450, Path A costs $2,400 more per three-year cycle. Over six cycles that is $14,400 more, and the invested difference compounds. At $550, Path B wins by a wider margin — perhaps $25,000–$30,000 by year 20.
Purchase price and loan rate. If the car costs $40,000 and the loan is 9%, Path B’s early costs rise sharply. The payment holiday in years 6–12 is still valuable, but the hole is deeper. At $40,000 and 9%, the two paths may be nearly identical by year 20 before terminal value.
Maintenance. My schedule assumes $1,800 in year 12 for the first car and similar for the second. If the car needs a $4,000 transmission in year 11, Path B’s advantage shrinks. If it runs clean, Path B’s advantage grows. This is the real uncertainty in the comparison, and it is why I do not present the result as a rule.
Investment return. The 7% assumption is doing real work. If the invested difference earns 4%, the cumulative gap at year 20 is smaller — perhaps $12,000 instead of $18,400. If it earns 10%, the gap is larger. The direction of the comparison does not flip, but the magnitude does.
Mileage. Leases typically allow 12,000 miles per year. If you drive 18,000, the lease charges overage — often $0.25 per mile, or $1,500 per year. That single line item can add $30,000 over twenty years and make the lease path clearly more expensive. If you drive 8,000 miles, the lease is less penalized, but you are also paying for mileage you do not use.
The part that is not arithmetic
Path A buys a new car every three years, with warranty coverage and no repair surprises. Path B buys a payment holiday in years 6–12 and a lower average annual cost, but accepts the risk of a large repair and drives an older car. Neither is irrational. The arithmetic says the two paths are closer than the slogans suggest; the difference is mostly in what you want to own and what you want to worry about.
If you are choosing between them, the useful exercise is not to pick the “right” answer but to write down your own lease payment, your own purchase price, your own maintenance estimate, and your own terminal value. The spreadsheet will tell you which path is cheaper under your assumptions. It will not tell you which path is better for your life.
FAQ
Does this comparison include sales tax? Not explicitly, because it varies by state. If your state charges sales tax on the full purchase price, add roughly 6% of $32,000 — about $1,900 — in year 1 and again in year 13 for Path B. If your state taxes lease payments monthly, that cost is already embedded in the lease payment assumption. Check your state’s rules; the difference can be several thousand dollars over twenty years.
What if I pay cash for the car instead of financing? Paying cash removes the 7% loan cost but adds opportunity cost: the cash could have been invested. If you assume the same 7% return on investments, paying cash and financing at 7% are roughly equivalent in this ledger. If your loan rate is higher than your expected investment return, paying cash is better; if lower, financing and investing the difference is better.
Why does Path B look worse than I expected? Because of the second purchase in year 13. Many buy-and-hold comparisons stop at year 12, when the first car is paid off and still running. Extending to twenty years forces a replacement, and that replacement resets the cost. If you keep the first car for twenty years instead of twelve, Path B wins by a wider margin — but that is a different comparison, and it assumes the car survives that long.
What about insurance differences? Insurance is excluded from the ledger because it varies too much by state, insurer, and driving record. Leased cars often require higher coverage limits, and new cars cost more to insure than older ones. If your insurer charges $2,000 for the lease and $1,000 for the owned car, Path A becomes more expensive by about $20,000 over twenty years before investment returns. Add your own figures to every row to see the effect.
Is the 7% investment return realistic? It is an assumption, not a forecast. The S&P 500 has returned roughly 10% annually before inflation over long periods, and roughly 7% after inflation. I used 7% as a nominal return to keep the comparison simple. If you prefer a 5% nominal return, the cumulative gap at year 20 shrinks to roughly $14,000. If you prefer 9%, it grows to roughly $23,000. The direction does not change; the magnitude does.
Where can I check the loan-rate assumptions? The Federal Reserve’s G.19 release publishes average rates on new-car loans at commercial banks. The July 2026 release showed 7.14% for 60-month loans and 6.97% for 72-month loans. Those are averages; your rate depends on your credit, the term, and the lender.
Does this apply if I use the car for business? The pre-tax arithmetic is the same, but the after-tax cost can differ. IRS Topic 510 explains the standard mileage rate and actual expense methods, and Publication 946 covers depreciation limits for passenger automobiles. If you are self-employed and use the car for business, the deduction can change which path is cheaper after tax. That is a separate calculation, and it depends on your business-use percentage and your tax bracket.
Clara Roades writes about long-horizon personal finance as reproducible arithmetic. The numbers above are illustrative and depend on the stated assumptions; rebuild them with your own figures before making a decision.