Lease vs. Buy in California: What Consumers Need to Know in 2025

Written By

Peter O'Neil

Published

May 24, 2025

Family driving a mid-size SUV along the Pacific Coast Highway in Carlsbad, California at sunset, surfboards on roof rack, returning from a beach day, with palm trees and ocean in background.
Family driving a mid-size SUV along the Pacific Coast Highway in Carlsbad, California at sunset, surfboards on roof rack, returning from a beach day, with palm trees and ocean in background.
Family driving a mid-size SUV along the Pacific Coast Highway in Carlsbad, California at sunset, surfboards on roof rack, returning from a beach day, with palm trees and ocean in background.
Family driving a mid-size SUV along the Pacific Coast Highway in Carlsbad, California at sunset, surfboards on roof rack, returning from a beach day, with palm trees and ocean in background.

Leasing or buying a car in California? Discover how taxes, repairs, and resale risk shape the smarter choice in 2025—with data-driven insights.

Introduction

If you're shopping for a new car in California, one of the biggest decisions you'll face is whether to lease or buy. With the average new vehicle transaction price around $47,000 to $48,000, according to Cox Automotive, it’s more important than ever to understand how these options compare—especially in a high-cost state like California.

Here’s what you need to know in 2025, particularly if you live in Los Angeles, San Diego, or Orange County (e.g., Irvine or Newport Beach), where sales tax rates, repair costs, and ownership risks make leasing a very smart option.

High Sales Tax Increases Appeal of Leasing

High Sales Tax Increases Appeal of Leasing

California’s statewide base sales tax is 7.25%, but most areas add local district taxes that drive the effective rate much higher. Examples:

  • Los Angeles: 10.25%

  • San Diego: up to 8.75%

  • Irvine / Newport Beach: around 7.75%–8.75%

Source: California Department of Tax and Fee Administration

For Californians who frequently upgrade their vehicles every three to five years, leasing offers a major tax advantage. Unlike in some states like Arizona—where you receive a sales tax credit on trade-ins—California taxes the full purchase price every time. That means buyers are repeatedly paying tax on the full value of each new car.

By contrast, when you lease, you only pay sales tax on the monthly payments, not the full vehicle price. Over time, this can lead to substantial tax savings—especially in high-tax areas. For example, buying a $48,000 vehicle could trigger $4,000–$5,000 in upfront sales tax, while leasing spreads that tax across the term with lower exposure if something happens to the car.

However, with leasing you are also paying sales tax on the money factor—which is essentially the interest portion of the lease. Unless the money factor is zero, you're paying tax on the cost of financing too. Still, for those who tend to replace cars every few years, the tax savings often outweigh the difference, making leasing a financially strategic choice.

Lease Payments Are Lower—and More Predictable

According to Experian’s Q4 2024 Auto Finance Report:

  • Average monthly lease payment: $600

  • Average monthly loan payment: $742

That’s a $142/month savings, or over $5,000 across a 36-month lease.

But the comparison goes beyond just the payment. When you lease, that $5,000 saved stays in your pocket—money you can put toward other goals, investments, or simply keep as a cushion.

Many buyers assume that purchasing a car means building equity, but in reality, there is often little to no equity in the first 36 months of a standard car loan. Most car loans now stretch 66 to 72 months, per Experian data, and because of steep early depreciation and higher interest charges front-loaded into longer loans, buyers typically remain upside-down longer than in years past.

By contrast, lease terms are aligned with the car's depreciation curve and include a predicted residual value, which is usually what the manufacturer expects the car to be worth at wholesale after three years. That means:

  • You’re effectively only paying for depreciation and finance charges

  • You have the option to buy the car at wholesale if market conditions favor it

  • You avoid the risk of being upside-down in the middle of a long loan

Leasing offers a more predictable budget, eliminates surprise repair bills under warranty, and sidesteps the common trap of being in a low-equity position halfway through a 72-month loan.

Depreciation & Resale Risk: Who Should Carry It?

Cars are depreciating assets. Most lose 20%–30% of their value in the first year, and up to 50% within five years. That depreciation affects both buyers and lessees—but in different ways.

For lessees, vehicles with higher expected depreciation typically come with higher monthly lease payments because you're financing a larger drop in value. However, if the actual market value at lease-end ends up being lower than forecasted, the leasing company—not the consumer—is on the hook for that loss.

With a traditional auto loan, if your car depreciates faster than expected, you're still responsible for the balance on the loan, even if the car's resale value falls short. Leasing shifts this resale risk to the lessor, offering more financial protection in volatile or uncertain markets.

When you lease, the leasing company carries the depreciation risk. If used car values fall, you’re protected.

Conversely, if the car ends up being worth more than forecasted, you can buy it at lease-end for the residual value—a predetermined amount stated in your lease agreement, usually based on the forecasted wholesale value. This functions as a purchase option:

  • You can return the car at no penalty if values drop

  • Or buy it at a discount if it’s worth more than expected

That flexibility is unique to leasing and gives consumers an edge in a volatile resale market.

Warranty Coverage and Long-Term Reliability Risk

Most leases fall within the manufacturer’s bumper-to-bumper warranty (typically 3 years or 36,000 miles), which means:

  • Major repairs are covered, unless due to negligence

  • Out-of-pocket costs are minimal, giving peace of mind

Some brands go further:

  • BMW Ultimate Care includes scheduled maintenance (per factory recommendations) for the first 3 years or 36,000 miles

  • Lexus includes complimentary maintenance for the first 2 years or 20,000 miles

Once a car is out of warranty, repair costs can spike—and this is happening more often. According to Travelers Insurance, maintenance and repair costs rose 10% between 2023 and 2024, and the Minneapolis Fed reports a 17% increase year-over-year. CCC Intelligent Solutions finds the total cost of repair rose 3.7% in just the first half of 2024.

As vehicles age—especially past the 7-year mark—repair costs can rise dramatically. Today’s cars are more technologically advanced and tightly integrated, which means higher labor times and parts costs when things fail. According to industry data, the average claim to "make a damaged car good as new" has increased by 36% since 2018, driven in large part by labor shortages and more expensive components.

Examples of common repairs on older vehicles include:

The takeaway? A single out-of-warranty failure could cost as much—or more—than an entire year of lease payments. Leasing helps drivers avoid this volatility, staying within factory warranty coverage for the full term and protecting their budgets from aging-vehicle surprises. By contrast, a lease on a new car usually stays under factory warranty for its entire term, so the lessee never pays these repair bills

Final Thought

In 2025, leasing isn’t just about convenience—it’s a powerful tool for managing uncertainty. Between California’s high taxes, rising repair costs, and increasingly complex vehicles, leasing offers budget predictability, lower risk, and peace of mind.

If you’re weighing lease vs. buy, look at your total financial picture—not just the monthly payment. Leasing can be especially appealing for those who value financial flexibility, want to avoid out-of-warranty risks, or simply prefer a predictable driving experience every few years. When done smartly, leasing can save thousands and help you avoid surprises down the road.

If you're unsure which path makes the most sense for you, consider speaking with an expert or independent broker who can model out both scenarios. Services like CarOracle can help Californians weigh all the local tax implications, lease programs, and ownership goals to find the option that fits best.

Smart Shopper Insights FAQs

What should I look for during a pre-purchase inspection?

A pre-purchase inspection should cover the vehicle's mechanical condition, appearance, and safety features. On the exterior, look for signs of damage or rust, and inside, check for wear and tear, and the condition of the tires. Under the hood, look for any signs of leaks, the condition of hoses and belts, and the state of the fluids. Ideally, a trusted mechanic should conduct a comprehensive inspection, including putting the vehicle on a lift to check the undercarriage, suspension, and to detect any potential leaks or undisclosed damage from an accident. They should also inspect the engine, transmission, brakes, and steering systems, verify the function of warning lights, and take note of any that come on after starting the engine. Finally, a test drive is an essential step to evaluate the car's handling, braking, and overall performance.

What should I look for during a pre-purchase inspection?

A pre-purchase inspection should cover the vehicle's mechanical condition, appearance, and safety features. On the exterior, look for signs of damage or rust, and inside, check for wear and tear, and the condition of the tires. Under the hood, look for any signs of leaks, the condition of hoses and belts, and the state of the fluids. Ideally, a trusted mechanic should conduct a comprehensive inspection, including putting the vehicle on a lift to check the undercarriage, suspension, and to detect any potential leaks or undisclosed damage from an accident. They should also inspect the engine, transmission, brakes, and steering systems, verify the function of warning lights, and take note of any that come on after starting the engine. Finally, a test drive is an essential step to evaluate the car's handling, braking, and overall performance.

What should I look for during a pre-purchase inspection?

A pre-purchase inspection should cover the vehicle's mechanical condition, appearance, and safety features. On the exterior, look for signs of damage or rust, and inside, check for wear and tear, and the condition of the tires. Under the hood, look for any signs of leaks, the condition of hoses and belts, and the state of the fluids. Ideally, a trusted mechanic should conduct a comprehensive inspection, including putting the vehicle on a lift to check the undercarriage, suspension, and to detect any potential leaks or undisclosed damage from an accident. They should also inspect the engine, transmission, brakes, and steering systems, verify the function of warning lights, and take note of any that come on after starting the engine. Finally, a test drive is an essential step to evaluate the car's handling, braking, and overall performance.

Are service records really that important when looking at a used car?

Absolutely, service records are crucial when considering a used vehicle. They provide a detailed history of the maintenance and repairs the car has undergone, giving insight into how well it has been taken care of. Regular maintenance not only improves a vehicle's performance but also extends its life. Observing diligent maintenance intervals also offers insight into the previous owner's responsibility and commitment to vehicle upkeep. If a vehicle lacks service records, it might be challenging to determine its actual condition and if critical maintenance tasks were performed as needed.

Are service records really that important when looking at a used car?

Absolutely, service records are crucial when considering a used vehicle. They provide a detailed history of the maintenance and repairs the car has undergone, giving insight into how well it has been taken care of. Regular maintenance not only improves a vehicle's performance but also extends its life. Observing diligent maintenance intervals also offers insight into the previous owner's responsibility and commitment to vehicle upkeep. If a vehicle lacks service records, it might be challenging to determine its actual condition and if critical maintenance tasks were performed as needed.

Are service records really that important when looking at a used car?

Absolutely, service records are crucial when considering a used vehicle. They provide a detailed history of the maintenance and repairs the car has undergone, giving insight into how well it has been taken care of. Regular maintenance not only improves a vehicle's performance but also extends its life. Observing diligent maintenance intervals also offers insight into the previous owner's responsibility and commitment to vehicle upkeep. If a vehicle lacks service records, it might be challenging to determine its actual condition and if critical maintenance tasks were performed as needed.

AutoCheck vs. CarFax: Is one better than the other?

Both AutoCheck and CarFax provide detailed information about a vehicle's history, though they source their data differently. CarFax is known for its comprehensive service and maintenance records and is extensively used by dealerships. In contrast, AutoCheck, owned by Experian, uses a unique scoring system that helps buyers understand a vehicle's condition at a glance. Depending on your specific needs and the level of detail you're looking for, you might prefer one over the other.


AutoCheck vs. CarFax: Is one better than the other?

Both AutoCheck and CarFax provide detailed information about a vehicle's history, though they source their data differently. CarFax is known for its comprehensive service and maintenance records and is extensively used by dealerships. In contrast, AutoCheck, owned by Experian, uses a unique scoring system that helps buyers understand a vehicle's condition at a glance. Depending on your specific needs and the level of detail you're looking for, you might prefer one over the other.


AutoCheck vs. CarFax: Is one better than the other?

Both AutoCheck and CarFax provide detailed information about a vehicle's history, though they source their data differently. CarFax is known for its comprehensive service and maintenance records and is extensively used by dealerships. In contrast, AutoCheck, owned by Experian, uses a unique scoring system that helps buyers understand a vehicle's condition at a glance. Depending on your specific needs and the level of detail you're looking for, you might prefer one over the other.


What does a rebuilt title or branded title mean?

A rebuilt or branded title indicates that a vehicle has suffered significant damage in the past and was deemed a total loss by an insurance company. This damage might have been due to a collision, flood, or other serious incidents. After the damage, the vehicle was repaired and inspected to ensure it met certain roadworthiness standards. However, understanding the extent of the damage and the quality of repairs is vital as structural deficiencies can be challenging to detect with a visual inspection alone. A branded title can significantly affect a vehicle's value and its potential for future resale. Therefore, it's vital to thoroughly inspect and understand a vehicle's repair history before making a purchase.

What does a rebuilt title or branded title mean?

A rebuilt or branded title indicates that a vehicle has suffered significant damage in the past and was deemed a total loss by an insurance company. This damage might have been due to a collision, flood, or other serious incidents. After the damage, the vehicle was repaired and inspected to ensure it met certain roadworthiness standards. However, understanding the extent of the damage and the quality of repairs is vital as structural deficiencies can be challenging to detect with a visual inspection alone. A branded title can significantly affect a vehicle's value and its potential for future resale. Therefore, it's vital to thoroughly inspect and understand a vehicle's repair history before making a purchase.

What does a rebuilt title or branded title mean?

A rebuilt or branded title indicates that a vehicle has suffered significant damage in the past and was deemed a total loss by an insurance company. This damage might have been due to a collision, flood, or other serious incidents. After the damage, the vehicle was repaired and inspected to ensure it met certain roadworthiness standards. However, understanding the extent of the damage and the quality of repairs is vital as structural deficiencies can be challenging to detect with a visual inspection alone. A branded title can significantly affect a vehicle's value and its potential for future resale. Therefore, it's vital to thoroughly inspect and understand a vehicle's repair history before making a purchase.

Are autobrokers the equivalent of real estate agents?

Auto brokers and real estate agents both serve as intermediaries in their respective fields, offering similar services that streamline and facilitate transactions for buyers. Here's a closer look at the parallels:

  • Advocacy and Representation: Both professionals advocate for your interests, finding options that match your preferences and budget.

  • Negotiation Skills: They negotiate terms on your behalf to secure advantageous deals, from price to financing.

  • Market Insight: With specialized knowledge of their markets, they guide you to make informed decisions.

  • Time-Saving: They manage the complexities of transactions to save you time and effort.

  • Compensation Structure: In many cases, just like real estate agents, auto brokers' fees are paid by the seller, which means their services can often come at no direct cost to the buyer.

An important distinction to note is the regulatory environment. In California, auto brokers are required to have a dealer license issued by the state, similar to real estate agents who must be licensed to operate. This ensures that they adhere to stringent standards of professionalism and ethical conduct, undergo thorough background checks, and comply with specific transaction codes that govern vehicle sales within the state. While the same level of regulation may not apply to auto brokers in other states, many still operate with a strong commitment to honesty and transparency.

When you work with a licensed auto broker in California, you're engaging with a professional who has met all the necessary requirements to legally and ethically conduct car sales, akin to the rigorous process real estate agents go through for licensure. This not only underscores the credibility of the broker but also provides you with added assurance that your transaction adheres to all state laws and regulations.

Are autobrokers the equivalent of real estate agents?

Auto brokers and real estate agents both serve as intermediaries in their respective fields, offering similar services that streamline and facilitate transactions for buyers. Here's a closer look at the parallels:

  • Advocacy and Representation: Both professionals advocate for your interests, finding options that match your preferences and budget.

  • Negotiation Skills: They negotiate terms on your behalf to secure advantageous deals, from price to financing.

  • Market Insight: With specialized knowledge of their markets, they guide you to make informed decisions.

  • Time-Saving: They manage the complexities of transactions to save you time and effort.

  • Compensation Structure: In many cases, just like real estate agents, auto brokers' fees are paid by the seller, which means their services can often come at no direct cost to the buyer.

An important distinction to note is the regulatory environment. In California, auto brokers are required to have a dealer license issued by the state, similar to real estate agents who must be licensed to operate. This ensures that they adhere to stringent standards of professionalism and ethical conduct, undergo thorough background checks, and comply with specific transaction codes that govern vehicle sales within the state. While the same level of regulation may not apply to auto brokers in other states, many still operate with a strong commitment to honesty and transparency.

When you work with a licensed auto broker in California, you're engaging with a professional who has met all the necessary requirements to legally and ethically conduct car sales, akin to the rigorous process real estate agents go through for licensure. This not only underscores the credibility of the broker but also provides you with added assurance that your transaction adheres to all state laws and regulations.

Are autobrokers the equivalent of real estate agents?

Auto brokers and real estate agents both serve as intermediaries in their respective fields, offering similar services that streamline and facilitate transactions for buyers. Here's a closer look at the parallels:

  • Advocacy and Representation: Both professionals advocate for your interests, finding options that match your preferences and budget.

  • Negotiation Skills: They negotiate terms on your behalf to secure advantageous deals, from price to financing.

  • Market Insight: With specialized knowledge of their markets, they guide you to make informed decisions.

  • Time-Saving: They manage the complexities of transactions to save you time and effort.

  • Compensation Structure: In many cases, just like real estate agents, auto brokers' fees are paid by the seller, which means their services can often come at no direct cost to the buyer.

An important distinction to note is the regulatory environment. In California, auto brokers are required to have a dealer license issued by the state, similar to real estate agents who must be licensed to operate. This ensures that they adhere to stringent standards of professionalism and ethical conduct, undergo thorough background checks, and comply with specific transaction codes that govern vehicle sales within the state. While the same level of regulation may not apply to auto brokers in other states, many still operate with a strong commitment to honesty and transparency.

When you work with a licensed auto broker in California, you're engaging with a professional who has met all the necessary requirements to legally and ethically conduct car sales, akin to the rigorous process real estate agents go through for licensure. This not only underscores the credibility of the broker but also provides you with added assurance that your transaction adheres to all state laws and regulations.

Dive Even Deeper into Smart Shopper Insights

Dive Even Deeper into Smart Shopper Insights

Dive Even Deeper into Smart Shopper Insights

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CarOracle is a California-licensed automotive dealer, License No: 43082, with an autobroker's endorsement, enabling us to represent consumers in the purchase or leasing of new and used vehicles.

©2025 CarOracle. All rights reserved

CarOracle Logo

CarOracle is a California-licensed automotive dealer, License No: 43082, with an autobroker's endorsement, enabling us to represent consumers in the purchase or leasing of new and used vehicles.

©2025 CarOracle. All rights reserved

CarOracle Logo

CarOracle is a California-licensed automotive dealer, License No: 43082, with an autobroker's endorsement, enabling us to represent consumers in the purchase or leasing of new and used vehicles.

©2025 CarOracle. All rights reserved

CarOracle Logo

CarOracle is a California-licensed automotive dealer, License No: 43082, with an autobroker's endorsement, enabling us to represent consumers in the purchase or leasing of new and used vehicles.

©2025 CarOracle. All rights reserved