Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Leasing pays for the part of a car you use, and buying pays for all of it and gives you what is left. On a $42,000 vehicle with $3,000 due at signing, a $525 monthly lease over five years is compared here with a purchase loan at 6.5 percent whose payment is about $763, offset by a $22,000 resale value. The model puts the advantage of buying at about $7,715. The result depends heavily on the resale estimate, which nobody knows in advance.
Before you rely on it
What to check
Test the resale value 10 percent lower and higher. If the answer flips inside that range, the decision rests on a guess, and flexibility and mileage limits should weigh more.
The common error
Where people go wrong with lease vs. buy calculator
Comparing only the two monthly payments. The lease payment buys no equity, and the purchase payment does, so the two are not the same kind of money.
Sensitivity evidence
How vehicle price changes the estimated cost advantage of buying
| Vehicle price | Estimated cost advantage of buying | Estimated purchase payment |
|---|---|---|
| $33,600 | $17,577 | $599 |
| $37,800 | $12,646 | $681 |
| $42,000worked example | $7,715 | $763 |
| $46,200 | $2,785 | $845 |
| $50,400 | -$2,146 | $927 |
Every input, tested
Which input moves the estimated cost advantage of buying most
| Input | Tested from | To | Estimated cost advantage of buying at each end | Swing |
|---|---|---|---|---|
| Vehicle price | $37,800 | $46,200 | $12,646 to $2,785 | $9,861 (128%) |
| Comparison period | 4.0 years | 6.0 years | $2,806 to $12,598 | $9,792 (127%) |
| Monthly lease payment | $473 | $578 | $4,595 to $10,895 | $6,300 (82%) |
| Estimated resale value | $19,800 | $24,200 | $5,515 to $9,915 | $4,400 (57%) |
| Purchase loan rate | 5.5% | 7.5% | $8,803 to $6,611 | $2,192 (28%) |
| Cash due at signing | $2,700 | $3,300 | $7,363 to $8,067 | $704 (9.1%) |
Two variables at once
Estimated cost advantage of buying by vehicle price and cash due at signing
| Vehicle price \ Cash due at signing | $2,400 | $3,000 | $3,600 |
|---|---|---|---|
| $33,600 | $16,872 | $17,577 | $18,281 |
| $37,800 | $11,942 | $12,646 | $13,350 |
| $42,000 | $7,011 | $7,715 | $8,420 |
| $46,200 | $2,080 | $2,785 | $3,489 |
| $50,400 | -$2,851 | -$2,146 | -$1,442 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Vehicle price | $42,000 |
| Cash due at signing | $3,000 |
| Purchase loan rate | 6.5% |
| Comparison period | 5.0 years |
| Monthly lease payment | $525 |
| Estimated resale value | $22,000 |
| Estimated cost advantage of buying | $7,715 |
| Estimated purchase payment | $763 |
Where the inputs come from
Vehicle price is the negotiated purchase price, cash due at signing is the up-front cost of the lease, and the loan rate is the rate you would pay to buy. The comparison period is how long you plan to have cars, and monthly lease payment is the quoted amount. Estimated resale value is what you expect the car to be worth at the end, which is the key guess. Include insurance and maintenance costs that would differ, though they are often similar.
Using the estimated cost advantage of buying in a real decision
Leasing wins when you drive few miles, want a new car every few years and value lower payments, and buying wins when you keep a car for many years or drive a lot.
When the result stops applying
The result depends on the resale value and the number of years, and a five-year comparison against two consecutive leases has different math. Mileage limits, wear charges and fees can add to the lease cost. Resale values vary by model and market. Tax deductions for business use can change the comparison for self-employed drivers.
What to compare it with
See the payment on the auto loan and auto lease calculators, and the ownership costs on the vehicle total cost of ownership page. The auto depreciation calculator estimates resale. Consider negative equity risk with the negative equity calculator if you plan to trade early.
People also ask
Frequently asked questions
Is it cheaper to lease or buy a car?
Over many years buying is usually cheaper, since you keep the car after the loan ends. Leasing has lower payments but a permanent car payment.
Who should lease a car?
People who drive limited miles, like a new car every few years, and prefer lower payments and warranty coverage over the long-run cost.
What happens at the end of a lease?
You return the car, buy it at the residual price or lease a new one, and you pay for excess mileage and wear.