Compare the total cost of leasing vs. financing a car over N years, simplified.
Comparing a lease payment against a loan EMI is the wrong comparison, and it is the one most people make. A lease payment covers only the depreciation over the lease term plus a finance charge; a loan EMI buys the whole asset. The lease will almost always look cheaper monthly, and that tells you nothing useful, because at the end of a lease you own nothing and at the end of a loan you own an asset with residual value.
The honest comparison is total cost of ownership across the same period, including what you hold at the end. For buying, that is the down payment, total EMIs, insurance, maintenance and running costs, minus the resale value at the end. For leasing, it is the deposit, total lease payments, any excess-mileage or damage charges, and nothing left at the end. Leasing tends to win where you genuinely want to change the asset every few years, where it is a business expense with favourable treatment, or where the asset depreciates unusually fast. Buying tends to win the longer you keep it, since ownership costs fall sharply once the loan is cleared while a lease payment never stops.
Because a lease payment covers only the depreciation during the lease plus a finance charge, while an EMI buys the entire asset. The monthly figures are not measuring the same thing, so comparing them directly is misleading.
When you want a new asset every few years, when the depreciation is steep, or when it is a business expense with treatment that favours leasing. It also suits anyone who values predictable costs and no resale hassle over building equity.
It is the asset’s estimated worth at the end of the term. It sets your lease payment, since you are financing the gap between price and residual, and for buying it is the value you still hold and can realise by selling.
Commonly excess-mileage charges, wear-and-damage assessments at return, and early termination penalties. These are the costs that most often make a lease end up dearer than the headline monthly payment suggested.