A lease almost always has a lower monthly payment than a loan, but that does not make it cheaper. When you buy, part of every payment builds equity you keep; when you lease, you hand the car back with nothing. The fair comparison is the net cost of each option over the same period, and that is what this calculator works out.
How this calculator works
Lease cost is simple: everything due at signing plus every monthly payment over the lease term.
Buy cost over the same period is your down payment plus the loan payments you would make during those months, plus the loan balance still owed, minus what the car is worth at that point. That gives your net out-of-pocket cost if you sold the car when the lease would have ended.
The option with the lower net cost wins on pure dollars. The result is sensitive to resale value: cars that hold their value favor buying, and steep depreciation narrows the gap.
The formula
Lease = Due + L × t; Buy = Down + M × t + Bₜ − V- L
- lease monthly payment
- t
- lease term in months
- M
- loan monthly payment
- Bₜ
- loan balance remaining after t months
- V
- car's market value after t months
Worked example
A $40,000 car can be leased for $450 a month for 36 months with $3,000 due at signing: total lease cost $19,200.
Buying with $5,000 down finances $35,000 at 6.9% over 60 months, a payment of about $691. After 36 months you have paid $5,000 + $24,880 and still owe about $15,500. If the car is worth 58% of its price — $23,200 — your net cost is about $22,200.
In this case leasing costs about $3,000 less over three years. Keep the car longer, though, and buying usually pulls ahead because payments stop while the car keeps working.
Tips
- Leases suit drivers who want a new car every few years and drive under the mileage cap (often 10,000–12,000 miles a year).
- Ask for the money factor on a lease; multiply by 2,400 to get an approximate APR.
- Check resale estimates from guides like Kelley Blue Book or Edmunds for the specific model.
Frequently asked questions
Is it cheaper to lease or buy a car?
Over a short period, leasing can cost less, especially for cars that depreciate quickly. Over the long run, buying and keeping a car for many years is almost always cheaper because you eventually stop making payments.
What is a residual value on a lease?
The residual is the leasing company's estimate of the car's value at lease end, set as a percentage of MSRP. A higher residual means lower lease payments.
Can I buy my car at the end of a lease?
Most leases include a purchase option at the residual value plus a fee. If the car is worth more than the residual, buying it can be a good deal.
Does leasing or buying affect my credit differently?
Both are reported as installment debt. A lease is typically a smaller total obligation, while a loan builds an asset. Paying either on time helps your credit.