The cold, hard facts

We won't keep you in suspense: The Money Lab determined that buying a car—in this case, the best-selling 2008 Honda Accord EX, at $24,495—would cost $4,597 less over five years than closed-end leasing for exactly the same model.

We compared the two most common arrangements: a three-year lease and a five-year loan, and analyzed total costs after each year over five years. Since the lease is up after only three, we assumed that the lessor took out a new lease-same terms, same vehicle, only newer-in the fourth year. Specifically, we took Honda's February 2008 online lease offer of 36 monthly payments of $239 and put it up against a typical five-year loan at 6.99 percent, which is the rate a buyer with good credit could expect to get. For comparison, we also did the same exercise with a more expensive model, the 2008 Lexus ES 350, which sells for $38,405 and can be leased for $429 a month.

If you look merely at the monthly costs, leasing seems like the better deal for both cars. But the advantage changes over time, as the totals in our comparisons show. Further, our calculations don't include the equity building in the financed car (but do show the impact of depreciation for both).

Also consider that after three years, the financing buyer will still have a car to drive, while the lessor must return it and start all over. He or she will have to lease another car and fork over a new set of up-front payments or else finance a car, buy one for cash, or bone up on the local bus routes. Our test assumes the lessee enters into a new lease agreement.


And don't forget the end-of-lease costs

Our calculations don't take into account end-of-lease costs. For example, excess mileage charges (15 cents per mile in the case of the Accord) can quickly add up. Data from CNW show that 35 percent of leases with an annual 12,000-mile limit are exceeded, with the average being 2,500 miles. Wear-and-tear assessments averaged $1,700 in 2006. (Not surprisingly, wear-and-tear charges might sometimes be overlooked by a dealership if you lease another car.) CNW also found that excess mileage and excess wear charges account for the bulk of lease dissatisfaction. What's more, a leased car might be more expensive to insure.

Finally, consider that the Federal Reserve cut short-term interest rates 1.25 percent in January 2008 alone. The lower rates are already working their way into the auto-loan market, where rates were trending down in early February after spiking at the start of the year. Consequently, the difference between the monthly payment of a leased car and a financed one should narrow considerably.