Lease vs Buy Calculator
Compare the true out-of-pocket cost of leasing versus financing a vehicle purchase over the same period. Helps you decide whether leasing or buying makes more financial sense for your situation.
About this calculator
This calculator computes the net cost difference between leasing and buying over a common time horizon. The total lease cost is simply leasePayment × leaseTerm. The total buy cost is the sum of all loan payments over the same term minus the vehicle's residual value (what the car is worth at term end). The loan payment uses the standard amortization formula: M = P × [r(1+r)^n] / [(1+r)^n − 1], where P = vehiclePrice − downPayment, r = loanRate / 100 / 12, and n = leaseTerm. The residual value recovered = vehiclePrice × residualValue / 100 is subtracted because the buyer still owns an asset. A negative difference means buying is cheaper net; positive means leasing costs less over the period.
How to use
Vehicle price: $30,000; down payment: $3,000; lease payment: $350/month; lease term: 36 months; loan rate: 5%; residual value: 55%. Total lease cost = $350 × 36 = $12,600. Loan principal = $30,000 − $3,000 = $27,000; r = 0.05/12 ≈ 0.004167; M = $27,000 × [0.004167 × (1.004167)^36] / [(1.004167)^36 − 1] ≈ $809/month; total payments = $809 × 36 = $29,124; residual = $30,000 × 0.55 = $16,500; net buy cost = $29,124 − $16,500 = $12,624. Difference ≈ $24, meaning costs are nearly equal in this example.
Frequently asked questions
When does leasing a car make more financial sense than buying?
Leasing tends to make financial sense when you prefer lower monthly payments, drive under the mileage cap, and like switching to a new car every few years. It also works well for business owners who can deduct lease payments as an operating expense. However, leasing builds no equity—at the end of the term you own nothing unless you exercise a buyout option. Buyers who keep cars long-term (beyond the loan payoff) almost always come out ahead financially because they eliminate payments entirely.
What is residual value and how does it affect the lease vs buy decision?
Residual value is the estimated worth of the vehicle at the end of the lease or loan term, expressed as a percentage of the original price. A high residual value (e.g., 55–65%) means the car depreciates slowly, which benefits buyers because they retain more asset value. In leasing, a higher residual value also lowers monthly payments since you are only financing the depreciation portion. When comparing lease vs. buy, the residual value is credited back to the buyer's net cost, making buying more attractive for vehicles that hold their value well.
How does the down payment affect the lease versus buy comparison?
A down payment reduces the financed principal for a purchase loan, directly lowering monthly payments and total interest paid. In the lease vs. buy comparison, the down payment is applied only to the buy scenario and reduces the net cost of ownership. Putting a large down payment on a lease, however, is generally discouraged by financial advisors because it reduces monthly payments but is not recoverable if the car is totaled or stolen early in the lease. For buying, a larger down payment almost always improves the total cost advantage over leasing.