Lease vs Buy Calculator

Vehicle
Lease
Buy with Loan

Solution

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Worked Examples

Short Horizon

36-month lease vs 60-month loan on a $35,000 sedan

The default scenario — a 3-year lease against a 5-year loan with realistic resale at month 36. Leasing usually wins for cash-out-of-pocket over the lease term.

  1. Lease: 3% APR money factor, 60% residual, $2,000 drive-off, 36 months.
  2. Buy: $5,000 down, 6% APR, 60-month loan, $21,000 expected resale at 36 months.
  3. Lease total cash ≈ $19,676 with $0 end equity.
  4. Buy cash out ≈ $27,585 with $6,845 end equity → buy net cost ≈ $20,740.
  5. Lease saves ~$1,060 over 36 months, but you walk away from the lease with nothing.

If you would actually keep the car past month 60 (when the loan is paid off), buying pulls ahead because monthly cost drops to insurance + maintenance only.

Long-Term Owner

Plan to keep the car 7 years — 84-month loan vs back-to-back leases

If you're going to drive the same car for years, leasing means signing a new lease at every term end. Modeling one 36-month lease vs a 7-year loan gives you the per-period cost; the loan side wins the longer you hold.

  1. Same $35,000 vehicle, 7% tax.
  2. Lease side: same 36-month terms but you'll repeat the cycle.
  3. Buy: $4,000 down, 7% APR, 84-month (7-year) loan.
  4. Compare buy net cost over 36 months — it's higher than the lease, but you own the car.
  5. At month 84 the loan ends; the lease keeps going. From month 85 onward you have $0 monthly cost.

The lease vs buy break-even crossover is usually somewhere between the lease term and the loan term. Beyond that, ownership compounds.

Luxury Lease

$60,000 luxury vehicle with high residual

Luxury brands often offer high residuals to make leases attractive. This pushes the lease side hard.

  1. $60,000 vehicle, 65% residual ($39,000), 4% money factor APR, 36 months.
  2. Buy: $10,000 down, 7.5% APR, 60-month loan, $36,000 expected resale at 36 months.
  3. Lease monthly is dramatically lower due to the high residual.
  4. Buy side ends underwater or barely equity-positive at month 36.
  5. Lease commonly wins these comparisons by $3,000-$5,000 over 36 months.

High-residual luxury cars are the textbook lease-favored scenario. Just don't forget you walk away with nothing.

Lease Monthly Payment

A lease monthly payment is the sum of two pieces: depreciation (the value the car loses during the lease, spread evenly across the term) and a finance charge (interest on the average of cap cost and residual, expressed as a money factor). Sales tax is applied on top. The money factor is roughly APR ÷ 2400.

Monthly = (CapCost − Residual) / Term + (CapCost + Residual) × MoneyFactor, then × (1 + Tax)

Buy Monthly Payment (Standard Amortization)

Buying with a loan uses the standard amortization formula: principal P (vehicle price plus sales tax, minus down payment), monthly rate r = APR ÷ 1200, and total payments n. The remaining loan balance at any month is what you would still owe if you sold the car at that point.

Monthly = P × r(1+r)^n / ((1+r)^n − 1)

How It Works

This calculator compares the total cost of leasing a car against buying it with a loan, evaluated at the same horizon (the lease term length). For the lease side, you pay a depreciation charge plus a finance charge each month and walk away at the end with no equity. For the buy side, you make a loan payment each month and at the end of the comparison horizon you own a car worth whatever the resale value is, minus whatever you still owe. Net cost is cash out minus end equity — that is the apples-to-apples number for which option actually costs less for the period you'll keep the car.

Example Problem

$35,000 vehicle. Lease option: 60% residual, 3% APR money factor, 36-month term, $2,000 drive-off. Buy option: $5,000 down, 6% APR, 60-month loan, expected resale at 36 months of $21,000. Sales tax 7%.

  1. Lease residual = $35,000 × 60% = $21,000.
  2. Lease depreciation = ($35,000 − $21,000) / 36 ≈ $388.89 per month.
  3. Lease finance charge = ($35,000 + $21,000) × 0.00125 = $70.00 per month.
  4. Lease pre-tax monthly = $388.89 + $70.00 = $458.89, then × 1.07 (tax) = $491.01 per month.
  5. Lease total over 36 months = $491.01 × 36 + $2,000 drive-off ≈ $19,676 total cash, $0 equity at end.
  6. Buy loan principal = ($35,000 × 1.07) − $5,000 = $32,450, monthly ≈ $627.36 over 60 months.
  7. Buy cash through month 36 = $5,000 + $627.36 × 36 ≈ $27,585; remaining loan balance ≈ $14,155; equity = $21,000 − $14,155 = $6,845.
  8. Buy net cost over the same 36 months = $27,585 − $6,845 ≈ $20,740.
  9. Lease net cost vs buy net cost: leasing is about $1,060 cheaper over 36 months with these inputs — but the buyer keeps the car and the lease ends with nothing.

The choice depends on how long you actually keep the car. Leasing tends to win for short horizons; buying tends to win the longer you drive the car after the loan is paid off.

Key Concepts

Three numbers move the lease vs buy decision the most: residual value (higher residual = lower lease cost), money factor / APR (the lease equivalent of a loan rate; lower = cheaper financing on both sides), and how long you keep the car. A lease compares only against the cash you would have paid in the same period — it never compares against the equity you would have built. Keeping a car past the loan payoff is where buying pulls dramatically ahead, because the monthly cost drops to zero while a lease keeps going every term.

Applications

  • Deciding between a 36-month lease and a 60-month loan on the same vehicle
  • Comparing total cost of ownership over a 2-3 year period
  • Estimating equity at lease-end if you bought instead
  • Spotting underwater situations where the resale value is below the remaining loan balance
  • Modeling drive-off / cap-reduction trade-offs on a lease

Common Mistakes

  • Comparing the lease monthly to the loan monthly directly without accounting for end equity
  • Forgetting that a lease has $0 equity at term end — total cash spent is the only comparison value
  • Using a 60-month loan monthly against a 36-month lease without normalizing to the same horizon
  • Overestimating the resale value at lease-term end (use realistic depreciation, not list price)
  • Ignoring sales tax differences between leases and buys (some states tax monthly payments differently)
  • Confusing money factor with APR: MF × 2400 ≈ APR, not MF × 100

Frequently Asked Questions

What is a money factor and how does it relate to APR?

A money factor is the lease equivalent of an interest rate, expressed as a small decimal (like 0.00125). Multiply by 2400 to get the approximate APR. So a 0.00125 money factor is roughly 3% APR. This calculator accepts APR directly and converts internally.

What is the residual value?

The residual is what the leasing company estimates the car will be worth at lease end. A higher residual means less depreciation during your lease, which lowers the monthly payment. Residuals are typically quoted as a percentage of vehicle price (40-65% is typical for 36-month leases).

Why does the buy side need an expected resale value?

To compare apples-to-apples, the calculator looks at both options over the lease term length (e.g., 36 months). On the buy side, after 36 months you still own a car worth some amount. That value minus your remaining loan balance is your equity, which subtracts from the buy total cost. Without it, the calculator would double-penalize the buyer for the price they paid.

When is leasing better than buying?

Leasing tends to win for shorter horizons (under 4 years), for cars that depreciate rapidly, when you want a new car every few years, or when you can write off the lease as a business expense. Cash out of pocket is usually lower for the lease over a 2-3 year period.

When is buying better than leasing?

Buying tends to win whenever you keep the car past the loan payoff. Once the loan is paid off, monthly cost drops to insurance and maintenance only, while leases continue at the same monthly payment forever. Buying is also better if you drive a lot of miles (leases charge for excess mileage) or modify the vehicle.

Does this calculator include lease mileage charges or wear-and-tear fees?

No. It models the base monthly payment, drive-off, and sales tax. Mileage overages, wear-and-tear charges, disposition fees, and acquisition fees are real costs that should be added to the lease side manually for a complete comparison.

What about gap insurance, taxes on the buy side, and registration fees?

The calculator includes sales tax on the buy side as part of the loan principal. Other fees (title, registration, gap insurance, doc fees) apply to both options to varying degrees and are not modeled. For an exact dealer comparison, get itemized quotes for each.

Why is end equity negative in some scenarios?

If the expected resale value at the comparison horizon is less than your remaining loan balance, you are underwater on the car. Selling it would not cover what you still owe. This is common with long loan terms (72-84 months), high APRs, or low down payments on fast-depreciating vehicles.

Reference: Lease math follows standard US dealer-financing convention (money factor × 2400 ≈ APR; tax applied to monthly payment). Buy math uses standard amortizing-loan formulas. Results are educational estimates, not financial advice — verify with the dealer's official lease and loan worksheets.

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