Car Lease vs Buy Calculator — True Cost Comparison
Compare the true cost of leasing vs buying a car. Calculates lease payment from money factor and residual, total cost over the term, and equity advantage of buying.
Quick Presets
Lease Terms
≈ $18,200 residual
≈ 3.48% APR
Buy Terms (same vehicle)
What Is the Car Lease vs Buy Calculator — True Cost Comparison?
When you lease, you pay for the depreciation during the lease term — not the full vehicle. When you buy, you pay for the entire asset. The financial comparison requires looking at total out-of-pocket cost, residual equity, and the cost of always being in a payment vs. eventually owning free and clear.
- ›Lease payment drivers — Lower payments come from high residual value (less depreciation to pay), low money factor (low financing cost), and negotiating cap cost down (lower than MSRP).
- ›Money factor — The leasing equivalent of an interest rate. Multiply by 2,400 to convert to APR. A money factor of 0.00200 = 4.8% APR. Manufacturer-subsidized leases can have very low money factors.
- ›Residual value — Set by the lessor (manufacturer or leasing company), not negotiable. Determines your buyout price at lease end. Higher residuals lower your payment but are not always reflective of actual market value.
- ›Mileage overage — Standard leases allow 10,000–15,000 miles/year. Overage charges run $0.15–$0.30/mile. Exceeding 12,000 miles/year by even 3,000 adds $450–$900 at lease end.
Formula
Lease Monthly Payment
Depreciation Fee = (Cap Cost − Residual) / Term (months)
Finance Fee = (Cap Cost + Residual) × Money Factor
Base Payment = Depreciation Fee + Finance Fee
Money Factor to APR
APR = Money Factor × 2,400
Total Lease Cost
Total = Down Payment + (Monthly × Term) + Acquisition + Disposition
Residual Value
Residual = MSRP × Residual % (set by manufacturer, typically 50–60% for 3yr)
| Term | Typical Residual % | Typical Depreciation |
|---|---|---|
| 24-month | 55–65% | 35–45% of MSRP |
| 36-month | 48–58% | 42–52% of MSRP |
| 48-month | 38–50% | 50–62% of MSRP |
| 60-month | 30–42% | 58–70% of MSRP |
How to Use
- 1Enter vehicle price (MSRP): The manufacturer's suggested retail price. Used to calculate residual value. Cap cost is what you actually pay (after negotiation).
- 2Enter cap cost: The negotiated selling price — what you pay before taxes and fees. Reducing cap cost below MSRP directly lowers your payment.
- 3Enter residual value: Either as a dollar amount or as a percentage of MSRP. Set by the manufacturer — find it on resources like Edmunds or your dealer.
- 4Enter money factor: From your dealer or manufacturer. Multiply by 2,400 to verify the equivalent APR against loan alternatives.
- 5Enter down payment: Putting money down on a lease lowers monthly payments but does not reduce the effective total cost — and is lost if the car is totaled.
- 6Compare buy scenario: Enter your loan rate and down payment for the purchase option. The calculator shows total out-of-pocket for each path over the same period.
- 7Review equity and total cost: Buying builds equity; leasing does not. The total cost comparison reveals which path is financially superior for your usage pattern.
Example Calculation
$45,000 SUV — 36-month lease at 54% residual vs 7% loan buy
LEASE (36-month, MF 0.00175, 54% residual):
Cap cost: $45,000 (MSRP, no negotiation)
Residual: $24,300 (54%)
Depreciation fee: ($45,000 − $24,300) / 36 = $575/mo
Finance fee: ($45,000 + $24,300) × 0.00175 = $121/mo
Base payment: $696/mo
Total (36-mo): $696 × 36 = $25,056 + acquisition $895 = $25,951
BUY (36-month, 7% loan, $0 down):
Monthly payment: $1,388/mo
Total paid (3 yr): $49,968
Vehicle value: ~$24,300 (same residual as lease)
Net cost (3 yr): $49,968 − $24,300 = $25,668
Net 3-year cost: Lease $25,951 ≈ Buy $25,668 (near-equal)
The always-in-a-payment trap
Leasing appears cheaper per month but means perpetual payments with no equity. Buying means higher payments for 5–6 years, then no payment with a vehicle worth $10,000–$20,000. Over 10 years, a buyer who keeps their car after payoff accumulates substantial net savings vs. someone who leases in perpetuity.
Understanding Car Lease vs Buy — True Cost Comparison
When Leasing Makes Financial Sense
- ›You drive under 12,000–15,000 miles/year consistently — mileage overage penalties erode lease economics quickly.
- ›You want a new vehicle every 2–3 years and value warranty coverage throughout ownership.
- ›The manufacturer is offering below-market money factors (subsidized lease deals) that cannot be replicated with a loan.
- ›You use the vehicle for business and can deduct lease payments rather than depreciation (consult a tax professional).
When Buying Makes More Sense
- ›You drive more than 15,000 miles/year — high mileage caps or overage fees make leasing expensive.
- ›You plan to keep the vehicle 7+ years — no payment for 3–4 years after payoff generates significant savings.
- ›You want to modify the vehicle — leases prohibit most modifications.
- ›Your credit or income situation makes lease approval difficult or the money factor offered is high.
The Down Payment on a Lease
Putting money down on a lease lowers your monthly payment but does not reduce total cost (the total depreciation + finance fee is the same). Worse, if the car is stolen or totaled in the first month, you lose that down payment. GAP insurance (Guaranteed Asset Protection) is essential on leases with large down payments — and is often included in manufacturer-backed leases.
Negotiating a Better Lease
Negotiate the cap cost (selling price) just as you would for a purchase. Many buyers focus only on monthly payment and miss the opportunity to lower cap cost. Also verify the money factor — dealers sometimes mark it up without disclosure. Ask for the buy rate (manufacturer-published rate) directly. Resources like Edmunds publish money factors and residuals for popular models monthly.
Disclaimer
Lease terms and residual values vary by manufacturer, region, and credit tier. This calculator uses the standard NAAG lease payment formula. Actual payments may differ based on acquisition fees, dealer markups, local taxes, and specific lease terms. See CFPB vehicle lease guidance.
Frequently Asked Questions
What is money factor and how do I convert it to APR?
Money factor is the lease equivalent of an interest rate. Multiply by 2,400 to convert to an approximate APR.
- ›MF 0.00150 = 3.6% APR — a subsidized manufacturer rate, typically for high-credit lessees.
- ›MF 0.00300 = 7.2% APR — more typical in a normal rate environment.
- ›Dealers are not required to disclose money factor as an APR — ask directly for the "buy rate."
- ›Dealer markup: dealers can often add 0.00050–0.00100 to the MF as profit — verify with Edmunds monthly lease data.
Always ask "What is the money factor, and is this the buy rate or a marked-up rate?" before signing a lease.
What happens if I want to end my lease early?
Early lease termination is expensive. You typically owe the remaining payments plus a termination fee. Options in order of cost:
- ›Lease transfer: sign over the lease to another party via Swapalease or LeaseTrader — lowest cost if allowed.
- ›Buyout and sell: purchase at the residual price and resell privately if market value exceeds residual.
- ›Early return: return the car and pay remaining payments + early termination fee — most expensive option.
- ›Check your contract: some leases restrict transfers; others allow them with a small fee.
If you think there's any chance you'll need to exit early, confirm the transfer policy and termination fee before signing.
Should I put money down on a lease?
Most financial advisors recommend against large capitalized cost reductions (down payments) on leases. Here's why:
- ›No total cost reduction: a down payment lowers monthly payments but the total paid over the lease is the same.
- ›Loss risk: if the car is totaled or stolen in month 1, you lose the down payment — GAP only covers the remaining lease balance.
- ›Opportunity cost: the cash earns nothing in a lease; it's better kept liquid or invested.
- ›Alternative: negotiate a lower cap cost (selling price) instead — this reduces both monthly payment and total cost.
If the goal is a lower monthly payment, negotiate down the cap cost or find a higher-residual model — not a down payment.
Can I buy the car at the end of the lease?
Yes — the buyout price is the residual value set at lease signing, plus a purchase option fee and applicable taxes.
- ›Market value above residual: buying out and keeping (or reselling) is financially advantageous.
- ›Market value below residual: return the vehicle — you'd be overpaying vs. buying an equivalent used car.
- ›Post-2020/2021 market: used car prices spiked, making many buyouts well below market value.
- ›No negotiation: unlike a purchase, the buyout price is fixed at lease inception — not negotiable at the end.
Check the car's current market value (Carmax, KBB, Edmunds) a few months before lease end to determine whether the buyout is a good deal.
Is a lease better for a business vehicle?
For business vehicles, leasing and buying have different tax treatments. The right choice depends on your entity type and income situation.
- ›Lease deduction: lease payments are deductible proportional to business use percentage — simple and predictable.
- ›Purchase deduction: Section 179 or bonus depreciation can front-load large deductions in year 1.
- ›Luxury car limits: both lease and purchase deductions are capped for high-value vehicles (IRC § 280F).
- ›Self-employed / S-corp: the benefit of large year-1 depreciation deductions typically favors buying over leasing.
Consult a tax professional — the optimal structure depends on your vehicle cost, business use percentage, entity type, and current-year income.