Understanding the Real Cost: Leasing vs. Buying a Car
Deciding whether to lease or buy your next vehicle is a significant financial decision. This calculator helps you break down the monthly payments and the total cost of ownership over a specific period, typically the length of a lease contract (36 to 48 months).
How the Buy vs. Lease Math Works
When you buy a car, you are financing the entire value of the vehicle plus sales tax. Your monthly payments are higher because you are building equity. At the end of the term, you own an asset that still has market value (the residual value).
When you lease, you are only paying for the vehicle's depreciation during the time you drive it, plus a finance charge (called a money factor) and rent fees. Because you aren't paying for the "whole" car, the monthly payments are usually significantly lower than a loan.
Key Factors in the Calculation
Residual Value: This is the estimated value of the car at the end of the lease. A higher residual value makes a lease cheaper.
Money Factor: In leasing, the interest rate is often expressed as a "money factor." To convert a money factor to APR, multiply it by 2400.
Sales Tax: In many states, you only pay tax on the monthly lease payment, whereas when buying, you pay tax on the full purchase price upfront.
Realistic Example Scenario
Imagine a $35,000 SUV with a $5,000 down payment and a 36-month term:
Buying: At a 5.5% interest rate, your monthly payment would be roughly $905. After 3 years, you've paid $37,580 (including tax) but you own a car worth $21,000. Your "net cost" is $16,580.
Leasing: Your monthly payment might be around $450. Over 3 years, you spend $21,200 total. You own nothing at the end, but you kept more cash in your pocket each month.
Which is Right for You?
Leasing is often best for those who want a new car every 3 years and prefer lower monthly payments. Buying is mathematically superior for long-term owners who plan to keep the vehicle for 5-10 years, as the "cost per year" drops drastically once the loan is paid off.
function calculateLeaseVsBuy() {
var carPrice = parseFloat(document.getElementById('carPrice').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var interestRate = parseFloat(document.getElementById('interestRate').value) / 100;
var term = parseFloat(document.getElementById('termMonths').value);
var residualValue = parseFloat(document.getElementById('residualValue').value);
var taxRate = parseFloat(document.getElementById('salesTax').value) / 100;
if (isNaN(carPrice) || isNaN(downPayment) || isNaN(term)) {
alert("Please enter valid numeric values.");
return;
}
// 1. BUYING CALCULATION
var loanAmount = carPrice – downPayment;
var taxOnPurchase = carPrice * taxRate;
var totalFinanced = loanAmount + taxOnPurchase;
var monthlyRate = interestRate / 12;
var buyMonthly = 0;
if (monthlyRate > 0) {
buyMonthly = (totalFinanced * monthlyRate) / (1 – Math.pow(1 + monthlyRate, -term));
} else {
buyMonthly = totalFinanced / term;
}
var totalCostBuy = (buyMonthly * term) + downPayment;
var netCostBuy = totalCostBuy – residualValue; // Net cost is what you spent minus what the car is still worth
// 2. LEASING CALCULATION
// Base Payment = (Cap Cost – Residual) / Term
// Interest (Rent Charge) = (Cap Cost + Residual) * Money Factor
// Money Factor = Interest Rate / 2400
var moneyFactor = interestRate / 24; // Simplified equivalent for our decimal rate
var capCost = carPrice – downPayment;
var depreciationFee = (capCost – residualValue) / term;
var rentCharge = (capCost + residualValue) * (interestRate / 24);
var leaseBasePayment = depreciationFee + rentCharge;
var leaseMonthlyWithTax = leaseBasePayment * (1 + taxRate);
var totalCostLease = (leaseMonthlyWithTax * term) + downPayment;
// Display Results
document.getElementById('resultsArea').style.display = 'block';
document.getElementById('buyMonthly').innerText = '$' + buyMonthly.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('leaseMonthly').innerText = '$' + leaseMonthlyWithTax.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('buyTotal').innerText = '$' + totalCostBuy.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('leaseTotal').innerText = '$' + totalCostLease.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
var verdict = document.getElementById('comparisonVerdict');
if (netCostBuy < totalCostLease) {
var savings = totalCostLease – netCostBuy;
verdict.className = 'comparison-box buy-win';
verdict.innerText = 'Buying is more cost-effective. You save approximately $' + savings.toLocaleString(undefined, {maximumFractionDigits: 0}) + ' in net value over ' + term + ' months.';
} else {
var savings = netCostBuy – totalCostLease;
verdict.className = 'comparison-box lease-win';
verdict.innerText = 'Leasing is more cost-effective for this term. Your total out-of-pocket spend is $' + savings.toLocaleString(undefined, {maximumFractionDigits: 0}) + ' lower than the depreciation cost of buying.';
}
}