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Buy vs Lease Car

Which costs less over 3–5 years?

About this calculator

Leasing a car means paying for the part of its value you use up over a few years, plus interest and fees, and then handing it back. Buying with a loan means paying for the whole car, but you own it at the end and can sell it or keep driving it. Lease payments are usually lower than loan payments, so leasing looks cheaper month to month; buying gets some of that money back as equity when you sell. This calculator puts both on the same footing over 3, 4 or 5 years: what each option costs you in total, after the car you bought is sold and its loan is paid off.

How to use this calculator

Choose How Long You Keep the Car; the lease is assumed to run for the same term. For buying, enter the Vehicle Price, your Down Payment, the Sales Tax rate, the Loan APR and Loan Term in months, and the Resale Value at the End as a percentage of the price. For leasing, enter the monthly Lease Payment before tax, the amount Due at Signing (not counting the first monthly payment), the Miles Allowed each year by the lease and the Miles You Drive. Under Advanced assumptions you can change the Acquisition Fee, the Disposition Fee charged when you return the car, the Overage Fee per Mile, and the Sales Tax on Lease Payments, which follows the sales tax rate unless you change it. Every result updates as you type, and the inputs are saved in the page address so you can bookmark or share a scenario.

The method

The loan is amortized month by month from the price plus sales tax minus the down payment, with the sales tax financed. The net cost of buying is the down payment plus the loan payments made by the end of the period, minus your equity: the resale value less any loan balance still owed. The net cost of leasing is the amount due at signing, the acquisition fee, every monthly payment plus the tax on it, the disposition fee, and a charge for each mile you drive over the allowance. Both net costs are also shown spread evenly over the months, so you can compare them as a monthly cost. The chart shows the same net costs at the end of each year; for the years before the end, the car's value is estimated by depreciating it at a steady yearly rate from the price to your resale value.

Worked example using the default values

A $40,000 car with $5,000 down and 7% sales tax ($2,800) needs a $37,800 loan. At 6.5% over 60 months the payment is $740. After 3 years you have made $26,626 of payments and still owe $16,603. At 57% resale the car sells for $22,800, leaving $6,197 of equity, so buying costs $5,000 + $26,626 − $6,197 = $25,429, or $706 a month. A 36-month lease at $499 a month costs $17,964 in payments and $1,257 in tax at 7%, plus $3,000 due at signing, a $695 acquisition fee and a $395 disposition fee: $23,311 in total, or $648 a month. Leasing comes out ahead by $2,117 over 3 years. Driving 15,000 miles a year on the 12,000-mile lease adds $2,250 of overage charges, and buying then comes out ahead by $133. Over 5 years with a 43% resale value, buying costs $32,176 against $36,126 for leasing at the same payment, so buying comes out ahead by $3,950.

Interpreting the results

The headline names the option with the lower net cost over the period you chose and by how much. Equity You Keep is what you would have in hand after selling the car and paying off the loan; a negative figure means you would owe more than the car is worth. Over 3 years leasing often wins, because a new car loses value fastest in its first years and a loan is still paying off interest. The longer you keep a car you bought, the more its cost per month falls, because the payments end while the car keeps working.

Practical tips

Ask the dealer for the money factor, residual value and capitalized cost of a lease, not only the monthly payment. Multiplying the money factor by 2,400 gives an approximate interest rate you can compare with a loan APR. Be realistic about mileage: overage fees at $0.15 to $0.30 a mile add up quickly, and buying extra miles up front is usually cheaper than paying for them at the end. Check what your state taxes on a lease; some tax each payment, others tax the full price up front. For the resale value, look up what similar cars of the same age and mileage sell for today.

Limitations

The comparison counts dollars at face value and does not discount future payments or account for what the down payment could earn if invested. It leaves out costs that are similar either way, such as insurance, registration, fuel and routine maintenance, though lease contracts often require higher insurance coverage. It does not model wear-and-tear charges at lease end, a purchase option, early termination, trade-in value, or sales tax charged on the amount due at signing. Resale values vary with the model, mileage, condition and the used-car market, so try a few values to see how sensitive the answer is.

Frequently Asked Questions

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