Lease vs Buy Car Calculator

How it works

Both options are measured over the same period: the lease term. Leasing costs the cash down and fees at signing, every monthly payment, and the disposition fee when the car goes back. At the end you own nothing.

Buying costs the down payment and every loan payment made during the term. At the end you still owe whatever is left on the loan, but you own a car you could sell. So the net cost of buying adds the remaining loan balance and subtracts the car's value at that point. If the loan is shorter than the lease term, it is paid off and only its payments count.

The car's value comes from depreciation rates you can edit (a typical rule of thumb is about 20% in the first year and about 15% a year after that) or from a resale value you enter.

Optionally, money spent is charged the return it could have earned instead, at a rate you enter, compounded monthly to the end of the term. Each option is charged on its own cash at signing. The monthly payments differ too: each month, the option with the larger payment is charged the return on the difference. If the loan is paid off before the lease ends, the lease payments in those later months are charged to leasing.

The lower net cost is reported, with the difference. Equal costs, to within rounding noise, are reported as equal with a difference of zero.

Formula

lease payment = ((price − lease cash down − residual) ÷ months + (price − lease cash down + residual) × money factor) × (1 + tax)
lease cost    = lease cash down + fees at signing + lease payment × months + disposition fee + forgone return
loan payment  = P × r ÷ (1 − (1 + r)^−N),   P = price × (1 + tax) − down,   r = APR ÷ 12
loan balance  = loan payment × (1 − (1 + r)^−(N − k)) ÷ r,   k = min(months, N)
car value     = price × (1 − d₁)^(min(months,12)/12) × (1 − d₂)^(max(0, months − 12)/12)
buy cost      = down + loan payment × k + loan balance − car value + forgone return
forgone return on cash C = C × ((1 + i)^months − 1),   i = return ÷ 12
payment gap g = loan payment − lease payment, months 1 to k
forgone return on gap = g × ((1 + i)^k − 1) ÷ i − g × k, grown to the end of the term; charged to buying if g > 0, leasing if g < 0
if k < months: lease payments in months k + 1 to the end are charged their forgone return as well

Example

A $35,000 car (MSRP $36,000) with 7% sales tax, compared over a 36-month lease. Leasing with $2,000 down, a 58% residual ($20,880) and a 0.0025 money factor: the depreciation fee is ($33,000 − $20,880) ÷ 36 = $336.67 and the rent charge ($33,000 + $20,880) × 0.0025 = $134.70, so the payment with tax is $504.36. With $650 in fees at signing and a $395 disposition fee, the lease costs $2,650 + $18,157.04 + $395 = $21,202.04.

Buying with $5,000 down finances $35,000 × 1.07 − $5,000 = $32,450 at 6.5% for 60 months: $634.92 a month. After 36 payments ($22,857.17) the loan balance is $14,253.09. At 20% depreciation in year one and 15% a year after, the car is worth $35,000 × 0.80 × 0.85² = $20,230 at the end. The net cost of buying is $5,000 + $22,857.17 + $14,253.09 − $20,230.00 = $21,880.26, which is $678.22 more than leasing over these three years.

Assumptions and limitations

• The comparison ends at the lease term. Keeping a bought car longer, after the loan is paid off, usually changes the result; this calculator does not model years beyond the term.
• Depreciation rates of 20% in year one and 15% a year after are a rule of thumb, not a forecast for any model; enter your own rates or a resale value from a pricing guide.
• Insurance, maintenance, registration and fuel are treated as the same for both options. Excess-mileage and wear charges at lease end, selling costs and any sales tax on the lease's cap-cost reduction are not included.
• Sales tax is applied to the full purchase price and financed, and to each lease payment. Tax rules vary by state; enter your own rate.
• The lease payment uses the money-factor convention; your contract's disclosed payment governs. Lease residual, money factor and fees are illustrative defaults.
• The forgone return is a rate you enter, not an expected return. It is applied to cash at signing and to the monthly payment gap, with payments treated as made at the end of each month; taxes on that return are not modelled. This is an estimate, not financial advice.

Frequently asked questions