Car Lease vs. Buy Calculator
Vehicle Details
Option 1: Buying (Loan)
Option 2: Leasing
Lease vs. Buy: Which is Financially Smarter?
Deciding whether to lease or buy your next vehicle is a significant financial decision. While buying is often seen as the traditional path to ownership, leasing offers lower monthly payments and the ability to drive a newer car every few years. This calculator helps you compare the Total Cost of Ownership over the same period.
The Math Behind Buying
When you buy a car, you are financing the entire purchase price plus interest and taxes. Once the loan is paid off, you own the asset. The real "cost" of buying is the total of all payments made, minus the equity (resale value) you have left in the car at the end of the term.
- Pros: No mileage limits, complete ownership, no "wear and tear" charges.
- Cons: Higher monthly payments, higher down payment, and you take the risk of depreciation.
The Math Behind Leasing
Leasing is essentially renting the car for its most expensive years of life. You only pay for the depreciation that occurs during your lease term, plus interest (called a money factor) and fees. Because you aren't paying for the entire car, monthly payments are significantly lower.
- Pros: Lower monthly cash flow, always under warranty, latest safety technology.
- Cons: Mileage restrictions (usually 10k-12k/year), no equity at the end, potential end-of-lease fees.
Example Comparison
Imagine a $35,000 SUV. If you buy it with 5% interest over 5 years, your monthly payment might be around $600. After 5 years, you might sell it for $18,000. Your net cost was roughly $22,000. If you lease a similar car for 3 years at $450/month with $3,000 down, your total cost for those 3 years is $19,200. While the lease looks cheaper per month, you have nothing to show for it at the end.
Key Factors to Consider
1. Annual Mileage: If you drive more than 15,000 miles per year, buying is almost always better due to heavy lease penalties.
2. Retention Period: Do you keep cars for 8-10 years? Buying is the clear winner. If you trade in every 3 years, leasing might be more convenient.
3. Business Deductions: Business owners can often deduct lease payments more easily than loan interest and depreciation.