Buying vs. Leasing a Car: The New Reality in 2026

[00:01] in 2026, what people are getting wrong is that the price that you see is not your true cost of ownership. To make the best financial decision, we need to run ownership will actually cost you for both buying and leasing. As of right

[00:14] now, the average car payment for a new car in America is over $750 a month or $9,000 a year in just payments, and that doesn't even include insurance, rates have come down a little bit from 2024, which was the last time I made

[00:30] expensive. For today's video, we're going to reference a Toyota RAV4 Woodland Edition that starts at $39,900, and that's actually $10,000 below the average new car price of $50,000 in 2026. And the best part is is I'm going

[00:45] to show you a side-by-side comparison of what the numbers look like when you buy so let's get into buying. For buying a car, you can either pay cash for a car or most people will probably put down a down payment and finance the rest. So,

[00:58] scenario looks like. Let's pretend that you have a prime credit score, so your car is 6.51%. We'll make a 20% down payment on this car, which is $7,980, and we're going to finance the car for

[01:12] States right now, which is around 6 years, so 72 months. That means your monthly payments at a 6.51% interest rate is going to be $537 per month or about $38,664

[01:26] over the course of 6 years. Now, here's the kicker. Of that 38.6K, you're paying $6,744 just in interest. And again, that's just the loan payment, and here's where most people actually stop calculating their

[01:38] true cost, but that's a huge mistake because we also have to factor in what our 72-month cost of insurance, maintenance, and fuel is as well. Luckily, you can look up these numbers for most car models on edmunds.com, and

[01:50] you guys. But for now, I filled this in for you for the sake of this video. So, insurance is going to cost you $8,640 over 6 years based on estimates. Fuel is just under $12,000 at 11,880 or about 165 bucks a month. And

[02:07] maintenance will run you 7272 over the course of 72 months. According to caredge.com, the RAV4 actually holds its value really well. So, after 6 years, it retains 68% of its value, meaning that you can resell it for about $27,403.

[02:22] That means your total cost to own this RAV4 over 6 years, if you add up all of is the following. You want to add up 7980 plus 38664 in payments plus the 8640 in insurance, $11,880 in fuel, and 7272 in maintenance for a

[02:39] subtotal of $74,436. Subtracting the resale value of $27,403, you can see that your total cost to own you can see that your total cost to own this car over 6 years is $47,033.

[02:52] That's $7,839 per year to own this car. Now, what's really interesting with this number in particular, the 47K number, is that that's actually pretty good in the car world. Your sticker price on the

[03:05] Woodland RAV4 was $39,900, and you paid just over $7,000 extra over sticker to own the car outright over 6 years. That's not particularly great, but it could actually be a lot worse depending on the resale value of the car

[03:19] that you choose. Pretend that the residual value was 47% over 6 years instead of 68%. Now, 47% is actually a pretty common depreciation amount with the case, then your total cost of ownership over 6 years is just over

[03:33] $55,500, which is 40% more than the sticker price of the car. But now, let's go over the leasing scenario. So, leasing is where you are basically renting the car for a period of 3 or sometimes 4 years. It

[03:47] payment as well as less money due at signing. Now, if you didn't know this, paying for the depreciation of the car over a set period of time. That way, the dealership takes the car back after your lease is over and then is able to sell

[04:01] it on their own. For example, if a car is worth $30,000 and they know that at the end of 3 years, it's going to be worth $20,000 based on depreciation, essentially by leasing, you're paying for that $10,000 loss in value over

[04:13] those 3 years. Your monthly lease payment also covers two extra things. charge and that charge is going to be determined by your car dealership's bank, as well as broad economic factors like the current interest rate. The

[04:26] second factor it also includes is any taxes and fees. Now, since you aren't buying the entire value of the car, leasing on a monthly basis is usually cheaper, but what about the true cost of ownership for the entire term? Let's get

[04:38] scenario, we will assume that we take out two back-to-back 3-year leases for a total of 6 years in order for an apples-to-apples comparison. In terms of $3,750

[04:52] and we'll multiply that by two leases for a total of $7,500. That means your payment will be $450 a month for 72 months or about $32,400 over the course of these 6 years. You're still going to add in the same insurance

[05:05] because that doesn't really change just because you're leasing the car. In terms keep this at $0 because it's often general. So, that means if you add up all of these numbers, that's a grand

[05:18] total of $60,420 over the course of 6 years or on a per year basis, it will cost you $10,070 per year. The key difference here is that there is no resale value since you are turning the car back in and that in

[05:32] the leasing scenario, it will cost you $2,231 more per year in order to drive this Toyota RAV4. In other words, buying will save you $13,386 over the course of 6 years. Now, you You might think, "Okay, well, video's over.

[05:46] We already figured out buying is better than leasing. Let's, you know, call it a before you make your decision, we need to talk about the three scenarios where everyone's situation is the same. So, these three situations are the

[06:00] following. Number one, if you keep your car for 3 years instead of 6. Number two, if you drive for way more than the average lease amount, so more than 12,000 miles. And number three, if your interest rates change either up or down.

[06:12] So, going over number one, what actually happens if you keep the car for 3 years instead of 6? Does actually leasing get better at this point? So, this is where Let's run the numbers to show you because there is something tricky about

[06:25] this entire scenario. For buying, you would still pay the $7,980 down payment. You'll have 36 months of payments at $978 a month, which totals $35,208. Insurance and fuel and maintenance,

[06:38] cost because you're only doing it for 3 years, and that is $57,084 in total costs. Now, the RAV4 holds its value very, very well over 3 years, and it's going to be worth $32,319 at the end of 3 years, or the equivalent

[06:54] 81% residual value. So, your true cost over 3 years is going to be $24,765 or about $8,225 per year. For leasing over 3 years, I'm not going to say all the screen. You can see that the total is going to be $30,210

[07:11] or still $10,000 per year. So, even over 3 years, buying still saves you money, about $5,445, but the gap is smaller. But, the key number here, the very key number here is the resale value. The RAV4 holds its

[07:25] value exceedingly well, 81% residual value after 3 years. But, if the residual value is 60% over 3 years like many of the cars out there, well, guess what? Leasing actually is cheaper by about 2,900-ish dollars. So, when it

[07:39] comes to buying versus leasing a car for 3 years and 3 years only, you really run them yourself. Sometimes buying could be cheaper, but other times leasing could be cheaper, but I will say the nice part is is that if you buy a

[07:51] car after 3 years, at least you own an asset versus if you lease the car, you of 3 years. Now, let's get into the second scenario where perhaps you drive more than the average person does or you drive a lot more than what your lease

[08:04] terms come with. Standard leases are usually 10 or 12,000 miles per year. If you exceed that, you generally pay between 15 to 25 cents per mile in drive 18,000 miles a year instead of 12,000. That's going to be 6,000 extra

[08:18] miles and at 25 cents per mile, that's going to be about $4,500 in fees extra per lease. If you did that for two leases back-to-back, so six total years, that would be an extra $9,000 in fees on top of the original amount that we

[08:31] calculated and that just means leasing becomes significantly more expensive. understands themselves and just knows that, "Hey, I might drive more than the mileage limit or more than 12,000 miles," I would probably stay away from

[08:44] going to be very applicable to you, especially if you're watching this in the future, is if interest rates change. For today's video, we used a 6.51% interest rate in our scenario, but let's say in the future interest rates dropped

[08:57] to 4.5%. Your monthly payment will drop about $30 a month to 507 a month and that will save you about $2,160 over 6 years. The lower the interest rates get, typically the better it becomes to finance a car. However,

[09:11] examine the opposite situation, which is the interest rate environment where you case, your monthly payments would balloon up to 571 per month, costing you an extra at $2,448 over the loan term in our scenario with

[09:26] actually still wins out because you own the asset at the end of the day, but the leasing. All right, some of you watching might have watched all of this and say to yourself, "Okay, but I still want to lease a car every 3 years because I'm

[09:40] car. I don't really have to worry about repairs and the warranty really covers a here to tell you that you were wrong for doing that. Leasing might actually make example, if you're running a business and you can write off the lease

[09:54] payments, then perhaps the tax benefits might offset the higher costs. Another example I thought of is that if you have a job where your image matters a lot, so sales, or maybe you're a consultant or something. If you want to project

[10:07] success and image, then having a new car every 3 years might be a business that just knows you're going to get bored every 3 years, you're one of those people that also enjoy cars and you value peace of mind, then paying more

[10:20] perfectly fine. I've been personally reading a book lately about the art of spending money by Morgan Housel and in it he says that everyone has different values really drive how people spend money, so it's not for me to say whether

[10:34] or not decision is good or bad for you or not. This video is made to serve you your eyes open about what the potential costs are going to be. Now, this video with you guys what I personally would do when I'm buying a car. The first option

[10:50] cash if I have the budget and I can afford it. There's going to be some comments of you guys saying, "Yeah, but Humphrey, you could just finance a car though at the average interest rates of around 6.5% that the decision is really

[11:04] outright and investing the difference of that money. The stock market averages might be able to make more in the stock market, I would prefer a guaranteed return on my money. So, if a car loan is going to cost me 6.5% I'm just going to

[11:19] on hand. All right, but what if I am financing a car or contemplating putting monthly payment? If that were the case, I'm going to make sure that I buy a reliable car, or like the Toyota RAV4 that holds its value very well. Then,

[11:33] shortest term that I can afford possible. Now, this is the actual key of as long as I can and drive it into the ground. Hopefully, that's 10 years, maybe 12 years instead of six because if you're able to do that, then your cost

[11:49] thing that people don't really talk about is that when you get to the point you want to take any extra money that would have gone towards your car payment good wealth hack because when you have no car payment, you really want to take

[12:03] most people will underestimate the true cost of their decisions over their lifetimes, but I hope that this video enlightened you a little bit at least in interested in another video about cars, I will leave it up on the screen for you

[12:17] guys right here. Again, thank you guys for watching. I will see you guys in a make this all possible, so thank you again. I'll see you later. Peace.