How it works
Leasing and buying have different cash flows, so comparing monthly payments alone is misleading. A lease payment is lower, but at the end you hand back the keys. A loan payment is higher, but part of every payment builds equity you keep. This calculator compares the two over one shared horizon, the lease term.
Net cost of leasing
Lease net cost = down payment + trade-in equity + (monthly payment × months) + disposition fee
The monthly payment uses the same dealer formula as our car lease calculator: depreciation (adjusted cap cost minus residual, divided by the term) plus rent charge ((adjusted cap cost plus residual) × money factor), with sales tax applied to each payment. The acquisition fee is rolled into the cap cost.
Net cost of buying
Amount financed = price + sales tax − down payment − trade-in
Purchase sales tax is the tax rate × price, or × (price − trade-in) if you tick the trade-in credit box; many states give this credit. Lease tax follows the option you choose, per payment or up front. Lease tax rules vary by state; see the note on the car lease calculator.
Buy net cost = down payment + trade-in + (loan payment × months paid) − (resale value − loan balance)
The loan payment comes from the standard amortization formula. The remaining balance after the lease term is computed exactly with B = P(1+r)k − M[(1+r)k − 1] / r, where k is the number of payments made. If the loan is shorter than the horizon, the balance is zero and payments stop when the loan is paid off. Resale value is your estimate of what the car will be worth at the end of the horizon, as a percentage of MSRP. Using the lease residual is a fair, neutral assumption, since it is the lender’s own forecast.
Subtracting equity is what makes the comparison fair. It means the buyer is only charged for the value actually consumed, plus interest, tax and fees, which mirrors what a lessee pays for.
What the comparison leaves out
- The opportunity cost of cash. A larger down payment on the purchase is money that could have earned interest elsewhere.
- Mileage and wear charges at lease end, and repairs after the factory warranty on an owned car.
- Insurance differences. Leases often require higher liability limits and gap coverage.
- Registration and title fees, which are similar for both and are excluded.
Worked examples
$38,000 SUV (MSRP $40,000), 7% tax, 36-month lease vs. 60-month loan at 6.5%
Lease: the payment is $481.21. With $2,000 down and a $395 disposition fee, 36 months cost $19,718.59. Buy: $38,000 plus $2,660.00 sales tax, less $5,000 down, leaves $35,660.00 to finance at $697.73 a month. After 36 payments you have paid $30,118.24 in cash and still owe $15,663.02. The car is worth about $23,200.00 (58% of MSRP), so your equity is $7,536.98 and the net cost of buying is $22,581.26. Leasing comes out $2,862.66 cheaper over three years, largely because the lease’s 3% money factor rate is below the 6.5% loan rate and lease tax is charged only on the payments.
Same deal, but the car holds 65% of MSRP after three years
If the car resells for $26,000.00, buyer equity grows to $10,336.98 and the net cost of buying falls to $19,781.26. The lease stays at $19,718.59, so leasing is now $62.66 cheaper. Strong resale value favors buying.
Same deal with promotional 2.9% financing
At 2.9% the loan payment is $639.18, interest over three years drops to $2,236.95, and the net cost of buying is $19,696.95 against $19,718.59 for leasing. Buying wins by $21.65.
When leasing tends to make sense
- You like driving a new car every two or three years and always being under warranty.
- You drive a predictable number of miles that fits within the allowance.
- The manufacturer is subsidizing the lease with a high residual or a low money factor.
- You use the car for business and your tax advisor confirms lease payments are deductible for you.
When buying tends to make sense
- You keep cars for many years. Once the loan is paid off, the cost of driving drops to fuel, insurance and maintenance, and the long-run cost per year is usually far below leasing again and again.
- You drive a lot of miles, or you are hard on interiors, and would face overage or wear charges.
- You want to customize the vehicle or tow regularly.
- You can get a low loan rate or pay cash.
Looking past the first term
This tool compares one lease with the first few years of ownership. The longer view often tilts toward buying, because a car’s steepest depreciation happens early and a buyer who keeps driving after the loan ends spreads that loss over more years. To see how the total adds up over five or ten years, including fuel, insurance and maintenance, try the car ownership cost calculator, and use the auto loan calculator to explore loan terms.
Frequently asked questions
Is it cheaper to lease or buy a car?
It depends on the money factor versus the loan rate, how well the car holds its value and how long you keep it. Over a single lease term, a subsidized lease can be cheaper. Over many years, buying and keeping a car is usually cheaper.
Why does the calculator subtract equity from the cost of buying?
At the end of the comparison period the buyer owns a car with real value. Subtracting resale value minus the loan balance measures only the money actually used up, which makes it fair to compare with a lease, where you return the car.
What resale value should I enter?
A neutral choice is the lease residual percentage, because it is the lender’s forecast for the same car and term. You can also check used prices for a similar model that is two or three years old.
Does the calculator include sales tax?
Yes. For the lease you choose whether tax is charged on each payment or up front at signing. For the purchase, tax on the price is added to the amount financed, and you can tick the trade-in credit box if your state taxes only the price minus the trade-in. Rules vary by state.
What if my loan is shorter than the lease?
The calculator stops loan payments when the loan is paid off and sets the remaining balance to zero, so your equity is simply the resale value.
Are mileage overage charges included?
No. If you expect to exceed the allowance, multiply the extra miles by the per-mile charge in the contract and add it to the lease cost.
Does it account for investing the money I save?
No. Opportunity cost is not modeled. If buying requires a much larger down payment, consider the interest that cash might otherwise earn.