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Buying vs. Leasing a Car in 2022 (Pros and Cons)

Last updated Apr 20, 2023

One of the most common questions we get asked at CarEdge is, “What’s better right now, buying vs. leasing a car?” In 2022, with car prices going crazy, this question has become even more important to answer. In this article we’ll answer a few of the most common questions when it comes to buying vs. leasing a car. You’ll learn things like:

  • Is it cheaper to buy or lease a car?
  • What are the advantages of leasing versus buying?
  • What car should I lease?

Let’s dive in.

Buying vs. leasing a car in 2022

Depending on who you talk to, leasing is either the best thing since sliced bread, or a foolish financial mistake. Many people misunderstand what leasing is; it’s simply a contract between you and a third party company that allows you to rent an asset for a set period of time with pre-negotiated terms and conditions. It’s nothing more and nothing lease less.

When you lease a vehicle there are four important factors that make up your monthly payment:

  1. The capitalized cost (which is the out-the-door price on a lease)
  2. The residual value of the vehicle
  3. The money factor
  4. The sales tax in your state

Let’s break each of these down.

Capitalized cost

When you lease a vehicle you do not purchase it, instead you are renting it. Instead of negotiating an out-the-door price (which is the price of the vehicle plus all taxes and fees), you negotiate the capitalized cost (also referred to as the “cap cost”) of the lease. The cap cost is the amount that is being financed with a lease. This will include:

  • The negotiated selling price
  • Doc fee
  • Misc. fees
  • Additional products

👉 Be sure to read this guide on which fees are legit and which you should fight back against.

The cap cost plays a major role in your monthly lease payment. As a rule of thumb, for every $1,000 in additional cap cost, that will roughly translate to $20 a month in payment on a 36 month lease. So if the salesperson won’t budge on their $2,000 paint and fabric protection package, that will end up costing you about $40 a month for three years. Ouch. With a lease you always negotiate the cap cost.

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Residual value

The residual value is the pre-set value that the leasing company says a vehicle will be worth at the end of the lease term. Residual values are represented as percentages of a vehicle’s MSRP, not the negotiated capitalized cost.

For example, in this car deal you can see that the dealer provided Maurice with three different residual values for three different lease term lengths.

lease with multiple residual values example

When you lease, you pay for the amount of depreciation that will occur over the course of the lease term. In Maurice’s case if he leased for 24 months the residual value is 68%, which means he will have paid for 32% of the vehicle’s depreciation from MSRP.

👉 Residual values are not negotiable and they are set by the leasing company. Dealer’s cannot modify residual values.

Money Factor

The money factor is the interest rate on a lease. Instead of paying an APR on a loan, you pay a money factor on the lease. Money factors are typically expressed in decimals which can be confusing. Don’t fret. Ask the salesperson for the money factor and then multiply it by 2400, that’s the interest rate you are paying on the lease.

Why do you pay interest on the lease? Because the leasing company is financing the purchase of the vehicle from the dealer. They then turn around and lease the vehicle they just bought to you. To make money they charge the dealer an interest rate (the money factor) to cover their cost of financing the purchase of the vehicle. That then gets passed on to you, the customer.

Money factors can and will be marked up. That means the leasing company may charge the dealer .00125 (3%) for the lease, and the dealer will turn around and tell you the money factor is actually .00175 (4.2%). That’s a sizable difference in rate, and represents a large profit center for dealers on a lease.

👉 You can and should negotiate the money factor on a lease.

Sales tax

Most states charge sales tax on each lease payment, some states do not. NY, NJ, MN, OH, GA for example charge sales tax upfront on the total amount of the lease payments. VA, MD, TX charge sales tax on the total selling price of the vehicle (the cap cost). In all other states, sales tax is simply factored into your monthly payment.

Sales tax is not negotiable.

Okay, so those are the mechanics of leasing, but that doesn’t answer the question, “What’s better right now, buying vs. leasing a car?” We’ll answer that below.

Is it cheaper to buy or lease a car?

As we discussed above, there are four factors that impact how “good” a lease deal is. So far in 2022 we’ve seen two phenomena that make leasing less attractive than in prior years:

  1. Residual values are low
  2. Money factors are high

Since you can’t negotiate the residual value, there are some vehicles that are truly “unleasable” right now. Imagine leasing a Hyundai Kona EV for 36 months and paying for 50% of the vehicle’s depreciation. No thank you!

In most cases right now it is cheaper to buy instead of lease. That being said, there are still some advantages to leasing.

What are the advantages of leasing versus buying?

Proponents of leasing love to tout the benefits of not owning a car. When you lease there are three primary benefits:

  1. You’ll have no negative equity at the end of the lease term
  2. You’ll always be in a new car
  3. If you want to buy your leased car at the end, you know the exact price you’ll pay, and you know how the car’s been driven and its maintenance and repair history

Since a lease is simply a rental, you’ll have no negative equity at the end of the term. Plus, with a lease you are committed for 3 years and then you can switch into something new. And, if you do chose to buy your lease car you know the vehicle history and shouldn’t have any concerns.

These are benefits of leasing no matter how good or bad the lease deal was.

What car should I lease?

So what cars actually lease well right now in 2022? If you’re seriously weighing buying vs. leasing a car, you should consider these vehicle’s as lease options:

TermYearMakeModelMSRPAverage Payment (12,000 miles)
362022KIANIRO EV$43,495.00$395.91
362022CHEVROLETBOLT EV$33,595.00$312.82
362022CHEVROLETBOLT EUV$36,245.00$341.01
362021CHEVROLETBOLT EV$38,567.00$367.63
362021HONDACIVIC TYPE R$41,940.00$409.78
362022TOYOTATUNDRA 4WD$51,455.00$524.43
362022HYUNDAIKONA EV$39,435.00$401.39
362022MITSUBISHIOUTLANDER PHEV$40,356.67$412.84
362021POLESTARPOLESTAR 2$61,200.00$623.95
362022KIANIRO PLUG-IN HYBRID$34,331.67$350.88
362022JEEPWRANGLER UNLIMITED$47,838.86$502.42
362022TOYOTATUNDRA 2WD$48,478.57$527.23

I need help with my car lease

Do you still have questions on buying vs. leasing a car? Get help from CarEdge’s team of car buying coaches. Click here to join CarEdge and get connected with a car lease expert who can help you navigate your deal. Here are some additional resources on car leases as well:


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