This calculator gives estimates for education and planning. It is not investment, tax or legal advice; for decisions about your own situation, talk to a qualified financial professional.
Comparing like with like
A lease usually has a lower monthly payment than a car loan, but at the end of the lease you own nothing, while a buyer owns a car with some value left. A fair comparison looks at the same period, the lease term, and counts what each option leaves you with.
How the comparison works
Leasing cost = due at signing + monthly lease payment × lease term
Buying cost = down payment + loan payments made during the lease term − equity in the car at the end
Equity is the car’s market value at that point minus the loan balance still owed. The loan payment uses the standard amortization formula for the amount borrowed, the rate and the full loan term.
Example
A $35,000 car, with $5,000 down and a 60-month loan at 7%, against a 36-month lease at $450 a month with $3,000 due at signing. The car is expected to be worth $21,000 after 3 years.
- Loan payment: $594.04 a month
- Paid over 36 months: $5,000 + 36 × $594.04 = $26,385
- Loan balance after 36 months: $13,268, so equity is $21,000 − $13,268 = $7,732
- Net cost of buying: $18,653
- Cost of leasing: $3,000 + 36 × $450 = $19,200
Buying comes out about $547 cheaper over the 3 years, and the buyer keeps driving a car that keeps its value afterward.
What tips the balance
- Resale value is the biggest factor: cars that hold their value favor buying, fast-depreciating ones favor leasing.
- Interest rate: a high loan rate makes buying more expensive; leases also carry an interest charge, the money factor.
- Mileage: leases cap miles, often 10,000 to 15,000 a year, and charge for the excess.
- Wear and tear charges at lease return, and sales tax, which most states apply to lease payments rather than the full price.
- How long you keep cars: the longer you drive one, the more buying pays off.