Lease vs Buy Car Calculator

Lease vs buy: which is better?

The lease vs buy decision is one of the most debated topics in personal finance. Neither option is universally better—the right choice depends on your driving habits, financial situation, and preferences.

This calculator compares the total cost of ownership over your planned ownership period, accounting for down payments, loan interest, lease payments, taxes, and resale value.

How the calculation works

Buying costs

When you buy a car, your total cost includes:

$$\text{Total Buy Cost} = \text{Down Payment} + \text{Loan Payments} + \text{Sales Tax} - \text{Resale Value}$$

The monthly loan payment uses the standard amortization formula:

$$\text{Monthly Payment} = \frac{P \times r \times (1+r)^n}{(1+r)^n - 1}$$

Where:

• P = loan principal (price + tax - down payment)
• r = monthly interest rate
• n = number of months

Leasing costs

Lease costs over your ownership period include:

$$\text{Total Lease Cost} = \text{Monthly Payments} + \text{Down Payments} + \text{Taxes} + \text{Mileage Overage}$$

If your ownership period exceeds one lease term, the calculator assumes you'll sign consecutive leases.

When buying makes sense

You drive a lot

Leases typically limit annual mileage to 10,000–15,000 miles. If you exceed this, overage fees of $0.15–$0.30 per mile add up quickly.

Annual Miles	3-Year Overage Cost
15,000	$0 (within limit)
18,000	$1,350–$2,700
20,000	$2,250–$4,500
25,000	$4,500–$9,000

You keep cars long-term

The longer you own a car, the more buying makes sense. Once you pay off the loan, you own the car free and clear. A well-maintained vehicle can easily last 10+ years.

Ownership Period	Advantage
3 years	Often favors leasing
5 years	Usually close
7+ years	Strongly favors buying

You want to modify the vehicle

Lease agreements prohibit modifications. If you want to add aftermarket parts, tint windows, or customize your car, you must buy.

You have good credit but limited income

Monthly loan payments can be lower than lease payments, especially with longer loan terms. This gives you an asset at the end.

When leasing makes sense

You want a new car every few years

Leasing lets you drive a new vehicle every 2–3 years without the hassle of selling or trading in.

You want lower monthly payments

For the same car, lease payments are typically 30–60% lower than loan payments because you're only paying for depreciation, not the full value.

You want warranty coverage

New leases always fall within manufacturer warranty periods, eliminating repair costs. When you buy, warranty coverage eventually expires.

Business use

For business owners, lease payments may be fully deductible as a business expense, while purchased vehicles must be depreciated over several years.

Key factors in your decision

Depreciation

Cars lose value fastest in the first few years:

Year	Typical Value Remaining
1	80-85%
2	70-75%
3	60-65%
5	45-55%
7	35-40%
10	25-30%

Some vehicles hold value better than others. Trucks, certain SUVs, and specific brands (Toyota, Honda, Lexus) depreciate slower.

Interest rates

Current auto loan rates range from 5–10% depending on credit score and loan term. Lease money factors (equivalent rates) can be similar or better for those with excellent credit.

Credit Score	Typical Loan Rate
750+	5.0–6.5%
700–749	6.5–8.5%
650–699	8.5–12%
Below 650	12%+

Sales tax treatment

Sales tax treatment varies by state:

• Some states tax the full purchase price (buying and leasing)
• Some states only tax lease payments
• Some states have no sales tax on vehicles

This can significantly impact the comparison.

Hidden costs to consider

Buying hidden costs

• Registration and title fees
• Maintenance after warranty expires
• Higher insurance on newer vehicles
• Opportunity cost of down payment

Leasing hidden costs

• Disposition fee ($300–$500 at lease end)
• Wear and tear charges
• Early termination penalties
• Gap insurance (sometimes required)
• Acquisition fee ($500–$1,000)

Break-even analysis

The break-even point is the resale value percentage where buying equals leasing cost. If you expect to sell your car for more than the break-even value, buying is better. If less, leasing wins.

Example: If break-even is 45% and you expect 50% resale value, buying saves money.

The "true" monthly cost

To compare apples to apples, consider the "effective monthly cost"—total cost divided by months of ownership.

$$\text{Effective Monthly Cost} = \frac{\text{Total Cost}}{\text{Months of Ownership}}$$

This accounts for the fact that buying has a large upfront cost but builds equity, while leasing has consistent costs with no asset at the end.

Third option: buying used

This calculator focuses on new vehicles, but buying used often beats both:

Option	3-Year Cost (Example)
Lease new	$15,000
Buy new	$18,000 net
Buy 3-year-old used	$10,000 net

A 3-year-old vehicle has already experienced the steepest depreciation but still has years of reliable service ahead.

Tips for each option

If you decide to buy

1. Negotiate the purchase price aggressively
2. Get pre-approved for financing before visiting dealers
3. Make the largest down payment you can afford
4. Choose shorter loan terms to minimize interest
5. Consider certified pre-owned for better value

If you decide to lease

1. Negotiate the capitalized cost (vehicle price)
2. Understand the money factor (interest rate equivalent)
3. Choose realistic mileage limits
4. Avoid excessive add-ons at signing
5. Consider multiple security deposits to reduce payments
6. Check residual value—higher is better for leasing

Common mistakes

Buying mistakes

• Financing for too long (7+ years)
• Rolling negative equity into new loans
• Ignoring total cost of ownership
• Not considering insurance cost differences

Leasing mistakes

• Putting too much money down (lost if car is totaled)
• Underestimating mileage needs
• Leasing high-depreciation vehicles
• Not understanding lease-end obligations

Making your decision

Use this calculator to compare costs, then consider qualitative factors:

Factor	Buy	Lease
Own an asset	✓	✗
Always drive new	✗	✓
No mileage limits	✓	✗
Lower monthly payment	✗	✓
Warranty coverage	Limited	Always
Customization	✓	✗
Long-term savings	Usually	Rarely

The "right" answer depends on what matters most to you.