Lease vs Buy Calculator

By AutoFixr Editorial Team · Updated November 11, 2026

How Leasing and Buying Really Differ

A lease and a loan both start with cash at signing and a monthly payment, so it is tempting to compare the payments. That is misleading. When the lease ends you hand the car back with nothing. When you buy, you still own a car with some value, minus whatever is left on the loan. This calculator lines both up over the same number of months, the lease term, and counts that leftover value.

Leasing is a long-term rental. You pay for the car's depreciation during the lease plus a finance charge, then hand the keys back. Buying means you pay for the whole car, usually with a loan, and at the end you own something worth money. The honest comparison is total cash out over the years you actually keep the vehicle, with the value of what you own at the end counted as a credit.

How to Use This Calculator

Enter the negotiated price of the car and your sales tax rate. For the lease, add what is due at signing, the fees, the residual value, and the money factor from the lease quote. For buying, add your down payment, loan APR and term, and how fast the car loses value each year. The calculator then shows the monthly lease payment with its depreciation and finance parts separated, the monthly loan payment, the total cost of each route, the equity you keep when you buy, and a clear verdict.

The comparison runs over the lease term, so both routes cover exactly the same months. The most useful number to play with is the resale value: it is the one assumption nobody can guarantee, and it often decides the answer. The break-even table below shows the exact resale value at which the two routes cost the same.

What Is Inside a Lease Payment?

A lease payment has two parts. The depreciation fee is the capitalized cost minus the residual value, divided by the months. The capitalized cost is the negotiated price less any cash down. A $40,000 car with a 58 percent residual rents $14,800 of depreciation over 36 months, which is about $411 a month before anything else. The finance fee is the money factor multiplied by the sum of the capitalized cost and the residual, which usually works out to $50 to $150 a month. Most US states then add sales tax to each monthly payment.

The money factor is the lease interest rate written as a small decimal so it does not look like one. Multiply it by 2,400 to compare it with a loan rate: 0.00125 is 3 percent, 0.00250 is 6 percent. Ask for it in writing, because it can be marked up just like a loan rate.

The Purchase Side, Done Honestly

Buying means paying sales tax on the whole price rather than on a monthly payment, which is a large upfront difference. In this calculator the tax is added to the price and financed in the loan, the way most buyers actually pay it. Then the loan amortizes, and at the end of the comparison period there is usually a balance still owed and a car that is worth something. Subtract the balance from the resale value and you have the equity, and the equity is what makes the purchase competitive in most comparisons.

The net cost of buying is everything you paid, the down payment plus the loan payments made, minus the equity you keep. On a $40,000 car with a 7.06 percent loan for 60 months, the payment is about $789 a month. After 36 payments you have paid about $28,400, you still owe about $17,600, and the car is worth about $23,100, so you keep about $5,500 of equity. The net cost is about $25,900, which is the number to compare against the lease total.

Mileage, Fees, and the Costs That Arrive Later

Leases charge for extra miles over the allowance and for wear beyond normal use, and you cannot modify a leased car. Typical leases allow 10,000 to 12,000 miles a year, and the overage charge is commonly 15 to 30 cents a mile. Drive 15,000 miles a year on a 12,000-mile lease and the 9,000 extra miles cost about $2,250 at turn-in, which can erase a lease's whole advantage.

A large down payment on a lease deserves a warning. It lowers the monthly payment, but that cash never comes back, and it is gone if the car is written off early. Keep the cash down on a lease small. On the buy side, the costs that land later are repairs once the warranty ends. A leased car is under warranty throughout, while an owned car past year three is not, which is why this calculator adds extra repairs per year after year three on the buy side.

When Leasing Makes Sense, and When Buying Wins

Leasing can make sense if you want a new car every few years, drive fewer miles than the lease allowance, keep the car in very good condition, or can deduct the payments as a business expense. It rarely makes sense if you drive a lot or keep cars a long time. Over the first two or three years, leasing and buying often cost about the same once you count the equity you keep when you buy. The longer you keep a bought car, the cheaper buying gets, because the loan ends but the car keeps working. Leasing back to back means you never stop paying.

Buying becomes the cheaper choice after about five years of ownership, and the gap keeps growing once the loan is paid off. The multi-year table below shows the crossover point for your numbers. If you keep cars for six years or more, buying almost always wins. If you like a new car every three years and drive under the mileage limit, a lease can be the cheaper and simpler route.

Worked Example: A $40,000 Car Over 36 Months

Take a $40,000 car with 7 percent sales tax, compared over 36 months. Lease: $3,000 down, $1,050 in fees at signing, 58 percent residual, money factor 0.0025 (about 6 percent APR), 12,000 miles a year, $350 disposition fee. The lease payment is about $571 a month including tax, and the total lease cost is about $25,000. Buy: $3,000 down and a 60-month loan at 7.06 percent on $39,800, which is the price plus tax minus the down payment. The loan payment is about $789 a month, so 36 payments come to about $28,400. You would still owe about $17,600, and the car is worth about $23,100, so you have about $5,500 of equity. The net cost of buying is about $25,900.

Leasing is about $950 cheaper over these three years. Drive 15,000 miles a year instead and the 9,000 extra miles cost $2,250, which wipes out the gap and makes buying about $1,300 cheaper. Keep the bought car for several more years with no payment and buying pulls further ahead.

Frequently Asked Questions

Is it cheaper to lease or buy a car?

It depends on how long you keep cars and how much you drive. Over one lease term, leasing can cost less because you pay only for the depreciation. If you keep a car for many years after the loan is paid off, or drive well past the lease mileage limit, buying usually costs less. This calculator answers it for your exact contract and resale assumption.

What is a money factor on a car lease?

It is the interest rate on a lease, written as a small decimal so it does not look like one. Multiply it by 2,400 to get the annual rate: a money factor of 0.00125 is 3 percent, and 0.00250 is 6 percent. Ask the dealer for the money factor in writing, because it can be marked up just like a loan rate.

Why is a lease payment lower than a loan payment?

You pay for the drop in value over the lease plus a finance charge, not the whole price. With a loan you pay off the full price, but you keep the car at the end. That is why comparing monthly payments alone is misleading: the lease ends with nothing in your hands, while the purchase ends with equity.

What happens if I drive more miles than the lease allows?

You pay an excess charge per mile when you return the car, commonly 15 to 30 cents a mile, plus any wear beyond ordinary use and often a disposition fee. The FTC says the annual limit in most standard leases is 15,000 miles or less. Estimate your annual miles honestly before signing, not after.

Should I put money down on a lease?

Usually as little as possible. A large down payment, called a cap cost reduction, lowers the monthly payment but is lost if the car is stolen or written off early. Gap insurance usually covers the loan balance, not your down payment. Keep the cash down small and let the monthly payment show the true cost.

Can I buy my car at the end of the lease?

Only if your lease agreement gives you a purchase option. The price is set in the contract, usually the residual value plus any purchase option fee. Check the contract before you sign so you know whether the option exists and what it costs.

Does sales tax work differently on a lease?

Yes, in most states. A lease is taxed as a service, so sales tax is charged on each monthly payment. A purchase is taxed once on the whole price. That is a real saving and one of the reasons a lease can win over a short period. A handful of states tax the full lease price up front, so check the rule where you register the car.

When does leasing make sense?

Leasing can make sense if you want a new car every few years, drive fewer miles than the lease allowance, keep the car in very good condition, or can deduct the payments as a business expense. It rarely makes sense if you drive a lot, keep cars a long time, or want to modify the car.

Reviewed by the AutoFixr Editorial Team. Results are estimates for planning only, not financial or legal advice. Rates, fees, and prices change, and your actual costs may differ. Check your lease contract and loan offer for the exact terms.