Lease vs Buy Calculator

Leasing tends to win when you want the lowest monthly payment on a newer car, when you trade up every two to four years, or when the vehicle is a business expense you can deduct (single-member LLCs and S-corps often write off the lease payment more cleanly than depreciation on a financed car). You always drive under warranty, you skip the resale hassle, and your cash outlay each month is usually 30 to 50 percent lower than the loan payment on the same vehicle. The trade-off is that you never own the car and start over at the end of every term.

Buying wins when you keep cars for more than five to seven years, when you drive over 12,000 to 15,000 miles per year, or when you want to modify the vehicle. After the loan is paid off you get years of no monthly payment, which is where buying pulls dramatically ahead on lifetime cost. You also avoid mileage penalties, wear-and-tear chargebacks at lease return, and the cycle of always having a car payment. The hidden buy advantage shown in this calculator is the resale credit at the end of the term, which is the equity you walk away with.

The money factor is how dealers quote interest on a lease. To convert it to an approximate APR, multiply by 2400. A money factor of 0.0025 equals roughly 6 percent APR (0.0025 * 2400 = 6). Always ask for the money factor directly, because dealers are not required to disclose an APR on lease paperwork the way they are on a loan. A good money factor for someone with strong credit tracks current new-car loan APRs minus 0.5 to 1 percent, since manufacturers often subsidize lease rates to move inventory.

Standard leases include 10,000, 12,000, or 15,000 miles per year. Going over the contracted limit costs 15 to 30 cents per mile at lease return, with 25 cents being the typical figure for mainstream brands and 30 cents or more on luxury vehicles. Driving 5,000 miles over a 36,000-mile lease at 25 cents per mile is 1,250 dollars on top of the disposition fee. If you expect to exceed the cap, buy extra miles up front at 8 to 12 cents per mile, which is roughly half the back-end rate, or pick a higher mileage tier from the start.

Residual value is what the car is worth at the end of the term, and it sits at the center of both sides. On a lease, a higher residual lowers the monthly payment because you only pay for the depreciation between the cap cost and the residual; that is why models with strong residuals (Toyota, Honda, Lexus) often lease cheaper than similarly priced cars with weak residuals. On the buy side, residual is the resale credit that offsets your loan total, so the same strong-residual model also gives you more equity back when you sell. Plugging realistic residuals (Edmunds and KBB publish them) into both columns is how you make this comparison honest.