How to use the lease vs buy car calculator
- Enter the lease terms: the monthly payment, the length in months, the amount due at signing and any fees at lease end.
- Enter the purchase terms for the same car: the price, down payment, loan APR and loan term.
- Enter the value of the car when the lease ends, your best estimate of what you could sell it for.
- Read which option costs less over the lease length, and compare the net cost, the monthly cost and the equity you would hold.
Formula
Lease cost = due at signing + lease payment x months + fees at lease end
Loan = price - down payment, paid with the standard loan payment formula
Equity = car value at the end - loan balance after the lease months
Buy cost = down payment + loan payments made - equity
Equity is money you keep, because you could sell the car and use the proceeds to settle the loan. If the loan is paid off before the lease would end, only the loan payments up to payoff are counted.
Worked example
A lease costs $450 a month for 36 months with $2,500 due at signing and no end fees, so the lease costs 2,500 + 450 x 36 = $18,700.
Buying the same car for $35,000 with $5,000 down leaves a $30,000 loan at 7% for 60 months, a payment of $594.04. After 36 payments you have paid $21,385.44 and owe $13,267.70.
If the car is worth $20,000 then, your equity is $6,732.30 and the net cost of buying is 5,000 + 21,385.44 - 6,732.30 = $19,653.14. Leasing costs $953.14 less. If the car is worth $24,000, buying costs $15,653.14 and wins.
Why the resale value decides so much
With a lease you hand the car back and walk away. With a loan you keep an asset whose value depends on how it ages. A higher value at the end of the period moves the comparison toward buying, and a lower one moves it toward leasing. Because the value is an estimate, try a low case and a high case before you decide.
Costs the comparison leaves out
The tool compares only the money that changes hands for the same length of time. Insurance, maintenance and registration are similar for both or differ by contract, so they are not included. Lease mileage limits, excess wear charges and the option to buy at the end are also outside the model, although you can add expected end charges in the lease fees field.
Comparing for a longer horizon
If you plan to keep the car after the lease would end, buying gets cheaper per year because the loan eventually ends and you keep driving. To explore that, look at a loan on its own with the car payment calculator or the car depreciation calculator.
Assumptions and limits
- The lease and loan figures are the ones you enter, and the loan APR default is an example.
- The loan uses the standard fixed payment, with interest rounded to the cent each month.
- Both options run for the lease length, and the value you enter is what the car could be sold for at that time.
- Sales tax, insurance, maintenance and the time value of the down payment are not modeled.
Frequently asked questions
Is it cheaper to lease or buy a car?
It depends mostly on what the car is worth when the lease ends, the interest rate and the lease price. Run both a low and a high value for the car to see how the answer changes.
What goes in the due at signing amount?
Add the down payment, the first month's payment, fees and taxes you pay on the first day. If the first payment is included there, do not count it again in the monthly payments.
Why does buying look worse in the first few years?
Early loan payments are mostly interest, and a new car loses value quickly. The comparison counts both, so buying often looks costly over a short period and better over a long one.
What if I would buy the car at the end of the lease?
Then the cost continues beyond this comparison. You could add the buyout price to the lease fees at end field to see the cost of leasing and then buying.