Lease vs. Buy: Which Car Financing Path is Right for You?
Deciding whether to lease or buy a car is one of the most significant financial decisions for any household. While leasing offers lower monthly payments and the ability to drive a new car every few years, buying build equity and provides long-term ownership benefits. This calculator helps you compare the financial impact of both choices over a specific timeframe.
Understanding the Financial Mechanics of Leasing
When you lease a car, you are essentially paying for the vehicle's depreciation during the period you drive it, plus interest and fees. Because you aren't paying for the entire value of the car, your monthly payments are typically 30% to 60% lower than a standard loan payment.
Pros: Lower monthly costs, warranty coverage throughout the term, no resale hassle.
Cons: Mileage limits (typically 10,000-12,000 miles/year), no ownership equity, potential "wear and tear" fees at the end.
The Real Cost of Buying and Ownership
Buying a car involves financing the full purchase price (minus your down payment). While the monthly payments are higher, every payment increases your equity in the vehicle. Once the loan is paid off, you own an asset that still has significant market value.
Example Comparison: The $35,000 Sedan
Consider a $35,000 car with a $5,000 down payment:
Leasing: You might pay $450/month for 36 months. Total cost: $16,200 plus the down payment. After 3 years, you return the car and have $0 equity.
Buying: With a 5.5% interest rate over 60 months, your payment is roughly $575/month. Over 36 months, you've paid $20,700 in payments. However, after 36 months, the car might still be worth $21,000, and your remaining loan balance is about $13,000. Your net equity is $8,000.
When Should You Lease?
Leasing is often the better choice if you use your car for business (tax benefits), prefer having the latest safety technology every three years, or need a lower monthly payment to fit your current cash flow. However, if you drive more than 15,000 miles per year, leasing can become prohibitively expensive due to overage charges.
When Should You Buy?
Buying is almost always the better long-term financial move. If you plan to keep the car for 5 to 10 years, the "cost per mile" drops significantly once the loan is cleared. Buying also gives you the freedom to customize the vehicle and drive unlimited miles without penalty.
function calculateLeaseVsBuy() {
// Inputs
var carPrice = parseFloat(document.getElementById('carPrice').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var taxRate = parseFloat(document.getElementById('taxRate').value) / 100;
var loanTerm = parseFloat(document.getElementById('loanTerm').value);
var interestRate = parseFloat(document.getElementById('interestRate').value) / 100 / 12;
var leaseMonthly = parseFloat(document.getElementById('leaseMonthly').value);
var leaseTerm = parseFloat(document.getElementById('leaseTerm').value);
if (isNaN(carPrice) || isNaN(downPayment) || isNaN(leaseMonthly)) {
alert("Please enter valid numerical values.");
return;
}
// 1. Loan Calculation
var principal = (carPrice * (1 + taxRate)) – downPayment;
var loanMonthly = 0;
if (interestRate === 0) {
loanMonthly = principal / loanTerm;
} else {
loanMonthly = principal * (interestRate * Math.pow(1 + interestRate, loanTerm)) / (Math.pow(1 + interestRate, loanTerm) – 1);
}
// 2. Lease Total Cost (over lease term)
var totalLeaseCost = (leaseMonthly * leaseTerm) + downPayment;
// 3. Buy Total Cost (over the SAME term as the lease for fair comparison)
var totalBuyPayments = (loanMonthly * leaseTerm) + downPayment;
// 4. Equity Calculation (Simplified Depreciation)
// Assume 20% drop instantly and 15% per year thereafter
var monthsToYears = leaseTerm / 12;
var estimatedValue = carPrice * 0.8 * Math.pow(0.85, monthsToYears – 1);
// Remaining Loan Balance after Lease Term
var remainingBalance = principal;
for (var i = 0; i < leaseTerm; i++) {
var interestComp = remainingBalance * interestRate;
var principalComp = loanMonthly – interestComp;
remainingBalance -= principalComp;
}
var equity = estimatedValue – remainingBalance;
if (equity < 0) equity = 0;
// 5. Net Cost Comparison
// Buying Net Cost = Total Payments made – Equity gained
var netBuyCost = totalBuyPayments – equity;
var advantage = Math.abs(netBuyCost – totalLeaseCost);
var winner = netBuyCost < totalLeaseCost ? "Buying" : "Leasing";
// Display Results
document.getElementById('results').style.display = 'block';
document.getElementById('resLoanMonthly').innerText = "$" + loanMonthly.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resTotalBuy').innerText = "$" + totalBuyPayments.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resTotalLease').innerText = "$" + totalLeaseCost.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resEquity').innerText = "$" + equity.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resAdvantage').innerText = winner + " saves you $" + advantage.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
var recDiv = document.getElementById('recommendationText');
if (winner === "Buying") {
recDiv.innerHTML = "Recommendation: Based on the math, Buying is more cost-effective over a " + leaseTerm + "-month period because you build equity in the asset, which offsets the higher monthly payments.";
} else {
recDiv.innerHTML = "Recommendation: In this specific scenario, Leasing appears cheaper. This often happens when lease deals are heavily subsidized or the car depreciates very rapidly.";
}
}