📜 Lease Terms
$
Enter amount (0 or more).
Also called capitalized cost reduction
$
Enter monthly lease payment.
From dealer quote (before tax)
%
Enter residual 20-80%.
% of MSRP at lease end (typical: 45-65%)
$
Enter fee (0 or more).
Lender fee charged at lease start
💰 Buy (Finance) Terms
$
Enter amount (0 or more).
Cash paid upfront when buying
%
Enter rate 0-30%.
Annual percentage rate (APR) on auto loan
Full loan length (can differ from comparison period)
%/yr
Enter 5-40%.
Annual value loss (avg new car: 15-20%/yr)
Winner
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⚠️ Disclaimer: This calculator provides estimates for comparison purposes. Actual lease and loan terms, fees, taxes, and vehicle depreciation will vary. Always verify specific figures with your dealer and lender before signing. Consult a financial advisor for major purchase decisions.
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Sources & Methodology
Lease and auto loan formulas verified against Consumer Financial Protection Bureau (CFPB) auto loan guidance and standard automotive lease accounting methods used by major lenders.
Consumer Financial Protection Bureau — Auto Loans
Official guidance on auto financing, lease terms, and total cost calculations used as the basis for buy scenario calculations
Edmunds — Understanding Car Leasing
Industry-standard lease payment formula (depreciation component + finance charge component) used to validate lease cost calculations
Lease methodology: Total Lease Cost = Lease Down Payment + Acquisition Fee + (Monthly Payment × Term × (1 + Tax Rate)) + Disposition Fee. Net Lease Cost = Total Lease Cost (no equity at end).
Buy methodology: Monthly Payment = P × [r(1+r)^n] / [(1+r)^n − 1] where P = financed amount, r = monthly rate, n = loan months. Total Buy Cost = Down Payment + Total Loan Payments + Tax. Car Value at end of comparison period = MSRP × (1 − Depreciation Rate)^Years. Net Buy Cost = Total Out-of-Pocket − Car Residual Value.
Buy methodology: Monthly Payment = P × [r(1+r)^n] / [(1+r)^n − 1] where P = financed amount, r = monthly rate, n = loan months. Total Buy Cost = Down Payment + Total Loan Payments + Tax. Car Value at end of comparison period = MSRP × (1 − Depreciation Rate)^Years. Net Buy Cost = Total Out-of-Pocket − Car Residual Value.
⏱ Last reviewed: April 2026
Lease vs Buy a Car — Which Is Actually Cheaper?
The lease-versus-buy decision is one of the most common and misunderstood financial choices in personal finance. Most people focus on the monthly payment when comparing, but that comparison is fundamentally flawed — a lease payment buys nothing, while a loan payment builds ownership. The only honest comparison is total cost over the same time period, adjusted for what you own at the end.
The Formulas
Monthly Lease Payment = Depreciation Fee + Finance Charge
Depreciation Fee = (Capitalized Cost − Residual Value) ÷ Lease Term
Finance Charge = (Capitalized Cost + Residual Value) × Money Factor
Example: $35,000 car, 55% residual ($19,250), 36 months, MF 0.00130:
Depreciation = ($35,000 − $19,250) ÷ 36 = $437.50/mo
Finance charge = ($35,000 + $19,250) × 0.00130 = $70.53/mo
Base payment = $437.50 + $70.53 = $508/mo (before tax)
Finance Charge = (Capitalized Cost + Residual Value) × Money Factor
Example: $35,000 car, 55% residual ($19,250), 36 months, MF 0.00130:
Depreciation = ($35,000 − $19,250) ÷ 36 = $437.50/mo
Finance charge = ($35,000 + $19,250) × 0.00130 = $70.53/mo
Base payment = $437.50 + $70.53 = $508/mo (before tax)
Monthly Loan Payment = P × [r(1+r)^n] / [(1+r)^n − 1]
P = loan amount, r = monthly interest rate, n = number of months
Example: $30,000 loan (after $5K down), 6.5% APR, 60 months:
r = 6.5% ÷ 12 = 0.5417% | n = 60
Monthly payment = $587/mo | Total interest = $5,220
Example: $30,000 loan (after $5K down), 6.5% APR, 60 months:
r = 6.5% ÷ 12 = 0.5417% | n = 60
Monthly payment = $587/mo | Total interest = $5,220
Lease vs Buy Comparison: $35,000 Vehicle, 36 Months
| Cost Item | Lease | Buy (Finance) |
|---|---|---|
| Down payment | $2,000 | $5,000 |
| Monthly payment | $380/mo | $626/mo |
| Total payments (36 mo) | $13,680 | $22,536 |
| Fees & tax | $2,340 | $2,800 |
| Total out-of-pocket | $18,020 | $30,336 |
| Car value at end | $0 (you own nothing) | ~$19,250 (55% residual) |
| Net cost (3 years) | $18,020 | $11,086 |
When Leasing Makes More Sense
- You drive fewer than 12,000 miles per year
- You want a new car every 2–3 years with the latest features
- You use the car for business (lease payments may be fully deductible)
- You prefer predictable, lower monthly payments
- You don’t want to deal with selling or trading in an aging vehicle
When Buying Makes More Sense
- You drive more than 15,000 miles per year
- You plan to keep the car 5+ years (no payment after loan payoff)
- You want to build equity and own the asset
- You customize your vehicle (modifications can void a lease)
- You want total freedom without mileage or wear restrictions
💡 Pro Tip: The most common mistake when comparing lease vs buy is looking only at monthly payments. A $380/month lease vs $626/month loan seems obviously better — but after 3 years the buyer has $19,250 in equity and the lessee has $0. Always compare net cost (total paid minus car value at the end of the same period) for a fair comparison.
Frequently Asked Questions
Leasing is almost always cheaper on a monthly basis but more expensive over the long term if you always lease. When you lease, you pay only for the depreciation during the lease period, so monthly payments are typically 30-60% lower than financing. However, after 3 years of leasing you own nothing and must lease again. Buying costs more per month but builds equity, and after the loan is paid off you have zero monthly payments.
Total lease cost = (Monthly Lease Payment x Number of Months) + Down Payment + Acquisition Fee + Disposition Fee + Total of Any Excess Mileage or Wear Charges. For a 36-month lease at $400/month with $2,000 down: Total = ($400 x 36) + $2,000 + fees = approximately $16,400-$17,500. At the end you own nothing, so your net cost equals your total payments.
The money factor is the interest rate on a car lease expressed as a small decimal. To convert money factor to APR, multiply by 2,400. A money factor of 0.00125 equals 3% APR. A money factor of 0.00250 equals 6% APR. Always ask the dealer for the money factor and convert it to an APR you recognize before signing a lease.
Residual value is the estimated worth of the vehicle at the end of the lease term, expressed as a percentage of MSRP. A car with a 55% residual after 36 months means the leasing company expects it to be worth 55% of its original price when the lease ends. Higher residual values mean lower lease payments because you are financing less depreciation. Residual values typically range from 45% to 65% for 36-month leases.
Financially, putting money down on a lease is generally not recommended. A down payment on a lease reduces your monthly payment but does not reduce your total cost. Additionally, if the car is totaled or stolen, you lose the down payment because gap insurance only covers the difference between the car's value and what you owe. Keep your cash and apply it elsewhere.
Most standard car leases allow 10,000, 12,000, or 15,000 miles per year. The most common default is 12,000 miles per year (36,000 miles for a 36-month lease). Excess mileage charges typically range from $0.15 to $0.30 per mile over the limit. If you drive more than 15,000 miles per year, leasing may become much more expensive due to excess mileage fees.
At the end of a lease you have three options: 1) Return the car and walk away, 2) Purchase the car at the predetermined residual value, or 3) Lease a new vehicle. If you return the car, you may owe a disposition fee ($300-$500) and charges for excess mileage or wear and tear beyond normal. If you buy it, the residual value was set at the beginning of the lease.
Yes, several lease terms are negotiable: the capitalized cost (selling price), money factor (interest rate), and acquisition fees. The residual value and mileage allowance are typically set by the manufacturer and are not negotiable. Getting the selling price as low as possible is the most impactful negotiation because it directly reduces your monthly payment by reducing the depreciation amount you finance.
Leasing is not necessarily a waste of money — it depends on your priorities. Leasing makes financial sense if you always want a new car, drive fewer than 12,000 miles per year, want lower monthly payments, use the car for business (lease payments are deductible), or prefer not to deal with maintenance on older vehicles. Buying makes more sense if you drive a lot, want to build equity, or plan to keep the car long term.
Most car lessors require a credit score of at least 700 for standard lease approval. The best lease rates (lowest money factors) are typically reserved for scores of 720 or higher. Scores below 680 may still qualify but usually at significantly worse terms or with a larger security deposit. A score below 620 makes lease approval very difficult from most manufacturers.
The correct way to compare lease vs buy is to calculate total net cost over the same period. Total lease net cost = all lease payments + fees - $0 equity. Total buy net cost = all loan payments + down payment + interest - car value at end of period. The option with the lower net cost over the same timeframe is the financially superior choice for that specific situation.
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