Car Lease vs. Buy Calculator
Should You Lease or Buy Your Next Car?
Choosing between a car lease and an auto loan is one of the most significant financial decisions for drivers. Both options have distinct advantages depending on your driving habits, budget, and long-term financial goals.
How This Calculator Works
Our Lease vs. Buy Calculator compares the monthly payments and total out-of-pocket costs for both financing methods. It uses the Standard Loan Amortization formula for buying and the Industry Standard Lease Formula (Depreciation + Rent Charge) for leasing.
- Loan Calculation: We take the vehicle price minus your down payment and apply the interest rate over your chosen term.
- Lease Calculation: We calculate the depreciation by subtracting the residual value (what the car is worth at the end) from the initial price, then add the "Money Factor" (lease interest).
Example Comparison
Imagine a car priced at $35,000 with a $5,000 down payment:
If you buy it at a 5.5% interest rate for 60 months, your monthly payment would be approximately $573. Over five years, you will own the car outright, which then has trade-in value.
If you lease the same car for 36 months with a 60% residual value ($21,000) and a .0025 money factor, your monthly payment might drop to around $430. While the payment is lower, you must return the car at the end of the term or buy it for the residual price.
Key Factors to Consider
1. Ownership: When you buy, you are building equity. Once the loan is paid, you own an asset. With a lease, you are essentially "renting" the vehicle during its most depreciable years.
2. Mileage Limits: Leases usually limit you to 10,000 or 12,000 miles per year. If you have a long commute, buying is almost always the better financial choice to avoid per-mile penalties.
3. Monthly Cash Flow: Leasing typically offers lower monthly payments, which can free up cash for other investments or expenses. However, you will always have a car payment if you continue to lease indefinitely.
4. Maintenance: Most leased vehicles are under the manufacturer's bumper-to-bumper warranty for the entire duration of the lease, meaning your repair costs are virtually zero.