Car Lease vs. Buy Comparison Calculator
Compare the monthly and total costs of financing a car versus leasing one.
Financing (Buy)
Leasing
Should You Lease or Buy Your Next Car?
The decision between leasing and buying a car is one of the most common financial dilemmas for drivers. Both options have distinct advantages depending on your lifestyle, driving habits, and long-term financial goals.
The Mechanics of Buying (Financing)
When you buy a car using a loan, you are borrowing the full purchase price of the vehicle (minus your down payment). Each monthly payment goes toward paying off the principal and interest. Once the loan is paid off, you own the asset outright. This is generally the more cost-effective choice for those who plan to keep their vehicle for 5 to 10 years.
The Mechanics of Leasing
Leasing is essentially renting the car for a fixed period, usually 36 months. You only pay for the vehicle's depreciation during that time, plus interest (known as the Money Factor) and fees. Because you aren't paying for the entire value of the car, monthly payments are typically much lower than financing payments.
Key Factors to Consider
- Mileage: Leases come with strict mileage limits (usually 10,000 to 15,000 miles per year). If you have a long commute, buying is usually better.
- Maintenance: Leased cars are almost always under the manufacturer's warranty, meaning fewer out-of-pocket repair costs.
- Equity: Buyers build equity. At the end of a loan, you have a vehicle you can sell. At the end of a lease, you have nothing unless you choose to buy the car at its residual value.
- Monthly Budget: If you need a premium car with a lower monthly payment, leasing offers that flexibility.
Understanding the Residual Value
The Residual Value is the estimated value of the car at the end of the lease term. A higher residual value results in lower monthly lease payments because the car depreciates less during your time with it.
Frequently Asked Questions
What is a Money Factor?
The money factor is the interest rate for a lease. To convert it to a standard APR, multiply the money factor by 2400. For example, a money factor of 0.0025 is equal to a 6% interest rate.
Can I negotiate a lease?
Yes. You can negotiate the capitalized cost (the sale price of the car) just as you would if you were buying it. Reducing this price lowers your monthly payment.