Is it better to buy or lease a car?

There is no universally better option. Buying builds equity — after the loan is paid off you own an asset you can sell or drive payment-free — but it requires a higher monthly payment and more cash upfront. Leasing offers a lower monthly payment, covers the car during its most trouble-free years, and lets you upgrade every few years, but you build no equity and face mileage limits and wear-and-tear charges. As a rule of thumb, buying is cheaper per year of ownership if you keep the car for 7+ years; leasing wins if you want a new car every 3 years and drive under 12,000 miles per year.

How is the monthly lease payment calculated?

A lease payment has three parts: depreciation (the car's expected loss in value over the lease term), rent charge (interest on the car's value while you drive it), and taxes and fees. The lender sets a residual value — the car's projected worth at lease end — and you pay the depreciation (negotiated price minus residual) plus a money factor (the lease's interest rate, roughly APR ÷ 2400) on the average of the price and residual. A higher residual lowers your payment because you are paying for less depreciation.

What happens at the end of a lease?

At lease end you return the car and pay any excess mileage ($0.15–$0.30 per mile over the limit) and wear-and-tear charges. You have the option to buy the car at the residual value stated in your contract — which can be a good deal if the car's market value exceeds the residual. You build no equity during the lease because your payments cover depreciation and rent, not ownership. The calculator shows the equity at lease end as $0 to make this tradeoff explicit.

How much do I save by buying instead of leasing?

It depends on the residual value, loan rate, and how long you keep the car. The calculator computes total cost for both: for buying, total cost is the down payment plus all monthly payments; for leasing, it is the down payment plus all lease payments plus the disposition fee. Over a 5-year ownership period, buying is typically $5,000 to $10,000 cheaper than two back-to-back leases on similar cars, because the buyer keeps a depreciated-but-valuable asset while the lessee returns both cars. Run both scenarios with your actual quotes to see the difference.

Does leasing have mileage limits?

Yes. Standard leases allow 10,000, 12,000, or 15,000 miles per year. Driving over the limit costs $0.15 to $0.30 per excess mile at lease end — 5,000 excess miles could cost $750 to $1,500. If you drive more than 15,000 miles per year, buying is almost always cheaper because high-mileage lease penalties and lower residual values erase the monthly payment advantage. Some lessors offer high-mileage leases (up to 20,000 miles/year) at a higher payment.

Can I negotiate the price of a leased car?

Yes — the negotiated price (called the capitalized cost) is the single biggest lever on a lease payment, just as it is on a purchase. Negotiate the sale price before discussing lease terms, apply any dealer incentives or rebates to reduce the cap cost, and ask about the money factor and residual value. A lower cap cost reduces both your depreciation charge and your rent charge. Many shoppers focus only on the monthly payment, which lets dealers hide a higher sale price in the lease structure.

Auto Loan vs Lease Calculator

An auto loan vs lease comparison tool is a free online tool that compares buying a car with financing versus leasing. It shows monthly payment, total cost, and equity at the end to help you decide. Free, no sign-up required.

Vehicle & Financing

Car Price?Enter your car price.

Down Payment?The amount you plan to pay upfront when purchasing the home.

Loan Rate?Enter your loan rate.

Loan Term?The length of your mortgage in years. Common terms are 15 or 30 years.

Lease Term?Enter your lease term.

Lease Monthly Payment?Enter your lease monthly payment.

Residual Value?Enter your residual value.

End of inputs

Auto Loan vs Lease

Metric	Auto Loan (Buy) Finance $32,000.00 over 6 years at 6.00%	Lease 36-month lease at $399.00/mo
Monthly Payment	$530.33	$399.00
Total Cost	$41,183.76	$17,364.00
Equity at End	$14,000.00	$0.00
Net Cost	$27,183.76	$17,364.00

$23,819.76 total cost difference. Buying leaves $14,000.00 in equity; leasing leaves $0.00. Compare net cost over the same ownership horizon.

Key Insights

Buying costs $41,183.76 over 6 years but leaves you with $14,000.00 in equity, for a net cost of $27,183.76.

Leasing costs $17,364.00 over 36 months with $0.00 equity — you return the car at lease end.

Net cost difference is $9,819.76. Leasing wins on total cost over this term. Keep the car past the loan term to make buying pull further ahead.

Guide

How to Use This Calculator

1Enter the car's purchase price — the negotiated out-the-door price before taxes and fees, or the capitalized cost on a lease.
2Set the down payment (cash due at signing for a lease, or your trade-in plus cash on a purchase). Both scenarios use the same down payment for a fair comparison.
3Enter the loan interest rate for the purchase scenario. Check your bank or credit union for actual APR quotes; the calculator uses the standard amortizing formula.
4Set the loan term in years (typically 4 to 6 years for a new car). Longer terms lower the monthly payment but increase total interest.
5Set the lease term in months (commonly 24, 36, or 48 months) and the monthly lease payment quoted by the dealer.
6Enter the residual value — the car's projected worth at lease end, shown on the lease contract. For the purchase scenario this is the car's estimated value at the end of the loan term.
7Review the side-by-side metrics: monthly payment, total cost, and equity at the end of the term. The winner banner shows which option has the lower total cost.

Formula

How It's Calculated

BUY SCENARIO uses the standard amortizing-loan monthly payment:

M = P × [r(1+r)^n] / [(1+r)^n − 1]

Where:
- P = loanAmount = carPrice − downPayment
- r = monthly rate = loanRate ÷ 12
- n = loan term in months (years × 12)

  monthlyPayment = M
  totalCost      = downPayment + (monthlyPayment × n)
  loanBalance(end) = 0   (loan is fully paid off after n months)
  carValue(end)  = residualValue
  equityAtEnd    = carValue(end) − loanBalance(end) = residualValue

LEASE SCENARIO uses the dealer-quoted monthly payment:
  monthlyPayment = leaseMonthlyPayment   (from the lease contract)
  totalCost      = downPayment + (leaseMonthlyPayment × leaseTermMonths)
  equityAtEnd    = $0   (you return the car at lease end)

WINNER: the scenario with the lower totalCost.

Example — $35,000 car, $3,000 down:
  Buy: 6% APR, 6-year term → loan $32,000, monthly $530.23,
       total cost ≈ $3,000 + $38,177 = $41,177,
       equity at end (residual $14,000) = $14,000
  Lease: 36 months, $399/mo → total cost ≈ $3,000 + $14,364 = $17,364,
         equity at end = $0

The lease costs less over 3 years but leaves you with no car. To compare
fairly over 6 years, the lessee must lease twice: total ≈ $34,728 with
no equity, versus the buyer's $41,177 with $14,000 equity — net cost of
buying is $27,177 vs $34,728 for two leases.

Glossary

Key Terms

FAQ

Frequently Asked Questions

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