Lease vs Buy Car Calculator United States

Making the two options comparable

A lease payment is almost always lower than a loan payment on the same car, and many people decide on that alone. The two payments measure different things: a lease payment pays for the car’s depreciation over a fixed term, and a loan payment buys an asset you keep. This calculator measures what buying costs in cash over the lease window and subtracts the equity you hold at the end of it.

Leasing is the simple side. Multiply the monthly payment by the number of months in the term to get the total. Nothing comes back to you at turn-in.

For buying, the tool amortizes the price less your down payment into a monthly loan payment, adds the down payment to the installments you make during the compared window, and calls that the cash out. It then takes the resale value you expect, less the loan balance still outstanding at that point. That difference is your equity, and subtracting it from the cash out gives the net cost of buying, which is directly comparable with the lease total.

How equity changes the comparison

Part of every loan payment covers interest, which is gone, and part reduces the balance, which you keep as equity. That is why a higher payment can still be the cheaper option.

How much equity you end up with depends mostly on how well the model holds its value. Trucks and body-on-frame SUVs have historically kept a larger share of their price than mass-market sedans, and a car with a strong resale market can build enough equity to outweigh the payment difference. A model that depreciates quickly builds very little, and leasing makes more sense there because the lessor carries the depreciation risk.

Reading a US lease contract

Three numbers determine a lease payment, and usually only the payment itself gets discussed.

The capitalized cost is the price you are leasing against. It is negotiable like a purchase price, and lowering it lowers the payment.

The residual value is what the lessor projects the car will be worth at the end of the term. A high residual lowers your payment because you only finance the gap. It is also the price at which you may buy the car at lease end, which becomes a real option if the market value is higher.

The money factor is the finance charge, quoted as a small decimal. Multiply it by 2400 to get the approximate APR. Knowing that conversion before you negotiate keeps you from accepting a money factor without noticing the rate it implies.

Leases also carry an acquisition fee at signing, a disposition fee at turn-in unless you buy the car, an annual mileage allowance with a per-mile charge beyond it, and an excess wear-and-tear standard. None of these are in the calculator, and any of them can change the answer.

Sales tax treats the two differently

Most states tax a lease on each monthly payment as it is made, so you pay tax only on the part of the car you use, spread across the term. A purchase is generally taxed on the full price at delivery. A few states do the opposite and tax the entire capitalized cost of a lease at signing.

A lease therefore often defers tax and a purchase does not, which helps leasing on cash flow without changing the economics much if you keep the car. Trade-in credit against the taxable amount also varies by state. Because the treatment is local, the calculator leaves tax out; add your own figure to both sides.

If the vehicle is used for business

Under the standard mileage method the IRS allows 72.5 cents per business mile, whether the vehicle is owned or leased, so the financing choice barely matters. Under the actual expense method it matters a lot. A purchased vehicle is depreciated as five-year property, and the statutory limits on passenger automobiles cap how much depreciation you may take each year. A leased vehicle deducts the lease payments instead, reduced by an inclusion amount when the car is above a threshold value. Which gives the larger deduction depends on the car’s price and how long you keep it, so work it through with a tax preparer instead of assuming the smaller payment wins.

A worked comparison

Take a $30,000 car, $3,000 down, financed at zero percent over 60 months, against a $400 monthly lease for 36 months, with the car expected to be worth $18,000 after three years.

The loan payment is $450 a month. Over the 36-month window you pay $3,000 down plus $16,200 in installments, so $19,200 leaves your account. At that point $10,800 remains on the loan, so your equity is $18,000 less $10,800, or $7,200. The net cost of buying is $19,200 less $7,200, or $12,000. Leasing over the same three years costs $14,400, so buying is $2,400 cheaper.

For buying to only match the lease, equity would have to be $19,200 less $14,400, or $4,800, which means a resale value of $4,800 plus the $10,800 owed, or $15,600. Above that figure buying is ahead; below it leasing is. Resale value is the input you are least sure of, so run it across a range.

When leasing makes sense

Leasing tends to win on a fast-depreciating model, on a short holding period, when you want warranty coverage for the whole time you have the car, and when the lower payment matters to your monthly budget. It also saves you from selling the car. It never builds equity, so renewing leases indefinitely means a permanent car payment with nothing accumulating.

What the model excludes

This is a planning estimate of the financing side only. It leaves out sales tax, title and registration, insurance, maintenance, acquisition and disposition fees, mileage overage, excess wear charges, gap coverage, and the opportunity cost of the money in a down payment. It assumes a fixed loan rate for the full term and does not model early payoff, refinancing, or negative equity carried over from a previous vehicle. Resale value has the biggest effect and is the least certain input, so test a range before you commit, and get every lease term from the dealer in writing.

About This Lease vs Buy Car Calculator

Use this lease vs buy car calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.