0% Financing vs Leasing: Which Costs Less?

When a manufacturer offers 0% financing, buying suddenly looks very attractive: you pay the price of the car and nothing more. But a lease on the same car can still make sense, and sometimes the 0% offer is not as generous as it looks.

This is part of our comparison hub, lease vs finance a car.

What 0% financing actually is

A 0% APR offer comes from the manufacturer's finance arm. You borrow the purchase price and repay it with no interest over a set term, commonly 36 to 72 months.

Three conditions usually apply:

Top tier credit. 0% offers are generally reserved for buyers in the lender's best credit tier. See credit score to lease a car for how tiers work.

Shorter terms. The 0% rate is often limited to shorter terms, which means higher monthly payments.

Instead of a cash rebate. Many 0% offers are "in lieu of" a cash rebate. If you take 0%, you give up the rebate. That rebate has a value, and it belongs in the comparison.

A worked comparison

A $40,000 car, both options over three years. Figures are illustrative.

0% financing over 60 months:

• Payment: $40,000 / 60 = $667 a month
• After 36 months you have paid $24,000 and still owe $16,000
• If the car is worth about $24,000 at that point, your equity is about $8,000
• Net cost over three years: $24,000 minus $8,000 = about $16,000

A 36 month lease:

• Payment: $450 a month, with $2,500 due at signing
• Total paid: $450 x 35 + $2,500 = about $18,250
• You own nothing at the end

On these numbers, 0% financing costs less over three years, but demands about $217 a month more along the way. And the result depends heavily on the car's resale value, which nobody can guarantee.

Now add the rebate. If taking 0% meant giving up $3,000 in cash, the buyer's effective cost rises to around $19,000, and the lease is cheaper. The rebate often decides it.

Where each wins

0% financing tends to win when:

• You plan to keep the car well beyond three years. Once the loan is paid, the car costs you nothing but running costs.
• No large rebate is given up.
• The car holds its value well.
• You drive high mileage, which a lease would penalise. See car lease mileage limits.

A lease tends to win when:

• You want the lowest monthly payment.
• You like a new car every few years.
• The manufacturer is subsidising the lease with lease cash, a low money factor or a strong residual. See car lease incentives.
• Taking 0% would mean giving up a large rebate.
• You would rather not carry the risk of the car's resale value.

Taxes

In most states, buying means paying sales tax on the full price up front. Leasing often means paying tax only on the payments. That difference can favour the lease, though some states tax leases in full at the start. See sales tax on a car lease.

The short version

0% financing means no interest, but it usually requires top tier credit and often replaces a cash rebate. Over a short period a subsidised lease can match or beat it; over a long period, 0% financing and keeping the car usually wins.

Compare total cost over the time you will actually keep the car, rebate included. If you want both priced on the same car, send it to us.