One of the most common questions we get: “Should I buy new, buy used, or lease?” The internet is full of simplistic advice—“always buy used,” “leasing is throwing money away.” The reality is more nuanced. Each option can be the right choice depending on your budget, how long you keep cars, how many miles you drive, and what you value.
In this analysis, we model the total 5-year cost for all three options across five popular vehicle types, using real 2026 pricing and cost data from Kelley Blue Book, Edmunds, and AAA.
The Three Scenarios We Modeled
For each vehicle type, we calculate the total 5-year cost under these assumptions:
- Buy New: Purchase at average MSRP, 20% down, 60-month loan at 7.2% APR. Includes depreciation, maintenance, insurance, fuel, and fees.
- Buy Used (3 years old): Purchase at average 3-year-old market price, 20% down, 60-month loan at 9.5% APR. Higher maintenance budget.
- Lease (36 months x2): Two consecutive 36-month leases. Lower monthly payments but no equity built. 12,000 miles/year limit. Includes disposition fees and excess wear charges where typical.
All three scenarios assume 12,000 miles driven per year.
Vehicle Segment #1: Compact Sedan (Honda Civic / Toyota Corolla Class)
| Cost Component | Buy New | Buy Used (3yr) | Lease (2x36mo) |
|---|---|---|---|
| Purchase Price / Cap Cost | $26,000 | $18,000 | $26,000 (cap cost) |
| Down Payment / Drive-Off | $5,200 | $3,600 | $3,000 (first lease) |
| Monthly Payment | $405/mo | $344/mo | $289/mo (avg) |
| Depreciation (Change in Value) | -$15,600 | -$10,800 | N/A (no equity) |
| Maintenance & Repairs | $4,000 | $7,500 | $1,500 (mostly covered) |
| Insurance (Avg) | $9,000 | $7,200 | $10,200 (higher req’d coverage) |
| Fuel (30 MPG, $3.25/gal) | $6,500 | $6,500 | $6,500 |
| Sales Tax & Fees | $1,800 | $1,260 | $2,340 (on payments) |
| Residual Value at Year 5 | +$10,400 | +$7,200 | $0 |
| 5-Year Net Cost | $31,700 | $29,660 | $23,540 |
Compact sedan estimates assume Honda Civic EX or Toyota Corolla LE equivalent. Used = 2023 model year. Residual value = estimated private-party sale value after 5 years of ownership (8 years total age for used). Lease assumes $0 down payment (only drive-off fees), 36-month standard lease, residual ~58%, money factor equivalent to 7.5% APR.
Surprise finding: Leasing comes out cheapest over 5 years for a compact sedan—about $6,100 less than buying used and $8,200 less than buying new. This is because compact sedans have strong residual values (lenders predict they’ll retain ~58% of value after 3 years), which keeps lease payments low. The trade-off: you own nothing at the end.
Vehicle Segment #2: Midsize SUV (Toyota RAV4 / Honda CR-V Class)
| Cost Component | Buy New | Buy Used (3yr) | Lease (2x36mo) |
|---|---|---|---|
| Purchase Price / Cap Cost | $35,000 | $26,000 | $35,000 |
| Down Payment | $7,000 | $5,200 | $3,500 |
| Monthly Payment | $546/mo | $440/mo | $399/mo |
| Depreciation | -$21,000 | -$15,600 | N/A |
| Maintenance & Repairs | $4,500 | $8,000 | $1,800 |
| Insurance | $10,000 | $8,500 | $11,500 |
| Fuel (28 MPG) | $6,964 | $6,964 | $6,964 |
| Sales Tax & Fees | $2,450 | $1,820 | $3,150 |
| Residual Value at Year 5 | +$14,000 | +$10,400 | $0 |
| 5-Year Net Cost | $37,914 | $35,484 | $26,914 |
Midsize SUV estimates assume Toyota RAV4 XLE or Honda CR-V EX equivalent. Used = 2023 model year. RAV4/CR-V have among the best residual values in the industry, which benefits both buying (less depreciation) and leasing (lower payments).
Again, leasing wins on pure 5-year cost. But notice that buying used narrows the gap vs. new to just $2,430—far smaller than the compact segment. The SUV’s strong resale value means the 3-year used price isn’t discounted as much vs. new, and the higher used-car interest rate eats into savings.
Vehicle Segment #3: Full-Size Pickup Truck (Ford F-150 / Ram 1500 Class)
| Cost Component | Buy New | Buy Used (3yr) | Lease (2x36mo) |
|---|---|---|---|
| Purchase Price / Cap Cost | $55,000 | $38,000 | $55,000 |
| Down Payment | $11,000 | $7,600 | $5,000 |
| Monthly Payment | $859/mo | $653/mo | $589/mo |
| Depreciation | -$33,000 | -$22,800 | N/A |
| Maintenance & Repairs | $6,000 | $10,000 | $2,200 |
| Insurance | $12,500 | $10,000 | $14,000 |
| Fuel (20 MPG) | $9,750 | $9,750 | $9,750 |
| Sales Tax & Fees | $3,850 | $2,660 | $4,950 |
| Residual Value at Year 5 | +$22,000 | +$15,200 | $0 |
| 5-Year Net Cost | $54,100 | $47,610 | $35,900 |
Full-size pickup estimates assume Ford F-150 XLT or Ram 1500 Big Horn. Used = 2023 model year. Trucks have strong residual values (F-150 retains ~55% after 5 years), making leasing relatively affordable despite the high purchase price.
Here’s where the analysis gets interesting. Buying used saves $6,490 vs. new—but leasing saves $11,710 more than used. The reason: trucks depreciate heavily in absolute dollars (losing $33K over 5 years new), and lease payments are based on the predicted residual, not the total price. Plus, truck lease deals are often subsidized by manufacturers to move inventory.
Vehicle Segment #4: Luxury Sedan (BMW 3 Series / Mercedes C-Class)
| Cost Component | Buy New | Buy Used (3yr) | Lease (2x36mo) |
|---|---|---|---|
| Purchase Price / Cap Cost | $50,000 | $32,000 | $50,000 |
| Down Payment | $10,000 | $6,400 | $5,000 |
| Monthly Payment | $781/mo | $550/mo | $599/mo |
| Depreciation | -$30,000 | -$19,200 | N/A |
| Maintenance & Repairs | $7,000 | $14,000 | $1,500 (under warranty) |
| Insurance | $14,000 | $11,000 | $16,000 |
| Fuel (25 MPG premium) | $9,120 | $9,120 | $9,120 |
| Sales Tax & Fees | $3,500 | $2,240 | $4,500 |
| Residual Value at Year 5 | +$20,000 | +$12,800 | $0 |
| 5-Year Net Cost | $54,480 | $49,160 | $36,120 |
Luxury sedan estimates assume BMW 330i or Mercedes C300. Used = 2023 model year. Premium fuel at $3.80/gal. Luxury cars depreciate the fastest of any segment (losing ~60% in 5 years), which makes buying new particularly expensive.
Critical finding for luxury buyers: The used luxury car saves $5,320 vs. new—but note the maintenance line. A 3-year-old BMW out of warranty can cost $2,000–$3,000/year in repairs by years 5–8 of its life. This narrows the advantage of buying used. Leasing a luxury car keeps you under warranty and avoids the maintenance risk entirely, which is why roughly 55–60% of new luxury vehicles are leased (Experian data).
Vehicle Segment #5: Electric Vehicle (Tesla Model Y / Hyundai Ioniq 5 Class)
| Cost Component | Buy New | Buy Used (3yr) | Lease (2x36mo) |
|---|---|---|---|
| Purchase Price / Cap Cost | $45,000 | $30,000 | $45,000 |
| Down Payment | $9,000 | $6,000 | $5,000 |
| Monthly Payment | $703/mo | $515/mo | $449/mo |
| Depreciation | -$27,000 | -$18,000 | N/A |
| Maintenance & Repairs | $2,500 | $5,000 | $1,000 |
| Insurance | $14,000 | $11,000 | $16,000 |
| Fuel/Electricity | $3,000 | $3,000 | $3,000 |
| Federal Tax Credit | -$7,500 | -$4,000 | -$7,500 (passed through) |
| Sales Tax & Fees | $3,150 | $2,100 | $3,150 |
| Residual Value at Year 5 | +$18,000 | +$12,000 | $0 |
| 5-Year Net Cost | $24,853 | $28,615 | $20,650 |
EV estimates assume Tesla Model Y Long Range or Hyundai Ioniq 5 SEL equivalent. Assumes home charging at $0.14/kWh. Federal tax credit of $7,500 for new EVs, $4,000 for used EVs (up to $25K purchase price, at least 2 model years old). Tax credits reduce effective purchase price in buy-new and buy-used scenarios; in leasing, the credit is often passed through by the leasing company as a cap cost reduction.
EVs flip the script: The combination of the $7,500 federal tax credit, low fuel costs, and low maintenance makes buying a new EV cheaper than buying a used EV over 5 years. This is unique among all segments we analyzed. The used EV’s advantage is partially erased by losing the full tax credit and higher financing rates. Leasing remains cheapest, but buying new is remarkably close—only $4,200 more over 5 years.
The Big Picture: Which Option Wins?
| Vehicle Type | Buy New (5yr cost) | Buy Used (5yr cost) | Lease (5yr cost) | Cheapest Option |
|---|---|---|---|---|
| Compact Sedan | $31,700 | $29,660 | $23,540 | Lease |
| Midsize SUV | $37,914 | $35,484 | $26,914 | Lease |
| Full-Size Truck | $54,100 | $47,610 | $35,900 | Lease |
| Luxury Sedan | $54,480 | $49,160 | $36,120 | Lease |
| Electric Vehicle | $24,853 | $28,615 | $20,650 | Lease |
At first glance, leasing appears to win across the board. But this analysis has an important limitation: it assumes a 5-year horizon. The real question is what happens after year 5.
The Critical Variable: How Long You Keep the Car
Leasing looks cheapest because you’re essentially renting the car for the steepest depreciation years and handing it back. But if you buy and keep the car longer, the math shifts dramatically:
| Ownership Period | Buy New (Compact Sedan) | Lease Continuously | Winner |
|---|---|---|---|
| 3 years | $24,500 | $13,500 | Lease |
| 5 years | $31,700 | $23,540 | Lease |
| 7 years | $35,800 | $32,956 | Lease (barely) |
| 10 years | $42,100 | $47,080 | Buy New |
Buy scenario assumes car is kept for the full period, with loan paid off in year 5 and only maintenance + insurance + fuel thereafter. Lease scenario assumes continuous leasing with similar vehicle. Compact sedan baseline.
The break-even point is around year 8: if you keep a car for 8+ years, buying beats leasing. If you swap cars every 3–5 years, leasing is cheaper. This is the single most important insight in this analysis.
When Buying Used Makes the Most Sense
Used cars shine in two scenarios that our 5-year model doesn’t fully capture:
- You pay cash (no financing). Our model assumes financing at 7.2–9.5% APR. If you pay cash, the used car saves an additional $3,000–$5,000 in interest, making used the clear winner over new in every segment except EVs.
- You buy a reliable older car (5–7 years old). A $12,000 7-year-old Civic will cost far less over 5 years than any option in our analysis—but comes with higher maintenance uncertainty. For budget-conscious buyers, this is often the best financial move.
- Luxury cars specifically. A 3-year-old luxury car has already absorbed ~40–45% depreciation. If you can find one with remaining warranty (or buy a CPO with extended coverage), you get the luxury experience at a dramatic discount.
When Leasing Makes the Most Sense
- You want a new car every 3 years. If this is your preference, leasing is unequivocally cheaper than buying new and trading in every 3 years.
- You want lower monthly payments. Lease payments are typically 30–40% lower than loan payments for the same vehicle.
- You drive 12,000 miles/year or less. Exceeding mileage limits (typically 12K/yr) costs $0.15–$0.25/mile, which quickly erases leasing’s advantage.
- You’re buying an EV. EV technology is advancing rapidly and depreciation is uncertain. Leasing protects against the risk that your EV is worth far less than predicted in 3 years.
- You want to avoid maintenance surprises. Leased vehicles are always under warranty, and many include free scheduled maintenance.
Verdict: A Decision Framework
Instead of a one-size-fits-all answer, use this decision tree:
- Do you keep cars for 8+ years? → Buy new or lightly used. The longer you keep it, the more buying wins.
- Do you swap cars every 3–5 years? → Lease. You’ll always have a warranty, predictable costs, and lower payments.
- Are you on a tight budget? → Buy a 5–7 year old reliable used car (Honda, Toyota, Mazda). Finance as little as possible.
- Buying an EV? → Lease unless you plan to keep it 10+ years. The technology is evolving too fast to bet on long-term resale value.
- Buying a luxury car? → Lease new or buy a CPO used. Do not buy a new luxury car unless you plan to keep it 8+ years.
- Drive more than 15,000 miles/year? → Buy. Mileage overage fees make leasing impractical.
Use our New vs. Used Comparison Calculator and Lease Calculator to run the exact numbers with your specific vehicle, rates, and assumptions.
Data sources: Kelley Blue Book new and used vehicle pricing Q2 2026, Edmunds True Cost to Own data, Experian lease penetration and residual value data Q4 2025, AAA Your Driving Costs 2026, U.S. Energy Information Administration fuel price data, IRS qualified plug-in electric drive motor vehicle credit guidelines (IRC 30D). Federal tax credit eligibility subject to battery sourcing and income requirements.