A lease is four numbers. You are shown one.

Money factor

The lender publishes a base rate each month. A dealer may quote above it, which raises your payment without changing the car, the incentives or the residual. A marked-up quote looks identical to a competitive one.

Residual value

The lender's projection of what the car is worth at lease end, as a percentage of MSRP. Set monthly by model, trim, term and mileage. Nobody negotiates it, and a higher one lowers your payment.

Capitalized cost

The price the lease is written on, plus anything rolled into it. This is the same negotiation as a purchase, and it is the one most lessees never have because the conversation is about the payment instead.

Term and mileage

Yours to decide, and the decision moves the payment more than most people expect. We work the lender's menu of terms and mileage tiers against how the car will actually be driven.

The tax compounds across cars, not within one

California gives no sales tax credit for a trade-in, so a purchaser pays tax on the full price every time. At an average new vehicle transaction price near $50,000, and rates running from 7.25 percent statewide to 11.25 percent in parts of Los Angeles County, that is roughly $3,600 to $5,600 per cycle, paid again on the next car. A lease taxes the payment stream instead. The cost is invisible on your first car and obvious by your third.

How the lease and buy math compares in California

Cox Automotive, average new vehicle transaction price, July 2026, US. California Department of Tax and Fee Administration, city and county rate table effective July 1, 2026.

The term decides how long you stay underwater

Once tax, fees and first-year depreciation land, any financed purchase is worth less than the balance. That is true of every loan. What the term changes is how long it stays true. New loans at 61 to 72 months originate near 116 percent of value; at 73 to 84 months, near 129 percent, and nearly a third of new loans now sit in that longer bucket. A buyer who replaces on a four year cadence while financing on a seven year one is trading while still in the hole and carries the difference into the next car. A lease prices that exit at signing.

The full-cost comparison, run with real numbers

Experian, State of the Automotive Finance Market, Q2 2026. New vehicle loans, US: average loan term distribution and average loan to value at origination.

The option is yours to exercise, not to sell

If the car is worth more than the residual at lease end, you can buy it at the lower number. What you mostly cannot do is flip it. Many captive lenders now restrict payoff to the lessee or a same brand dealer, which closed the third party buyout. California then taxes the buyout, roughly $2,200 to $3,400 on a $30,000 residual depending on where the car is registered. The equity is real. It is less liquid than it looks.

What happens at the end of a California lease

California Department of Tax and Fee Administration, city and county rate table effective July 1, 2026. Payoff eligibility varies by lender and is confirmed per transaction.