Is it cheaper to lease or buy a car?

It depends on how long you keep the car. Leasing typically has lower monthly payments, but you never build equity. Buying costs more per month but you own the car outright after the loan is paid off. If you keep a car for 5+ years, buying usually costs less overall.

What hidden costs should I watch for when leasing?

Common hidden lease costs include: acquisition fees ($500-$1,000), disposition fees ($300-$500) at lease end, excess mileage charges ($0.15-$0.30/mile over the limit), excess wear-and-tear charges, and early termination penalties. Always read the lease agreement carefully.

When does leasing make more sense than buying?

Leasing may make sense if you prefer driving a new car every 2-3 years, want lower monthly payments, don't drive more than 10,000-15,000 miles per year, want a car covered by warranty at all times, or can deduct lease payments as a business expense.

Car Lease vs Buy Calculator

Compare the total cost of leasing versus buying a car over your ownership period.

Vehicle Info

Vehicle MSRP

Negotiated Price

Sales Tax Rate

How Long You Plan to Keep the Car

years

Lease Terms

Down Payment (Cap Cost Reduction)

Lease Term

months

Money Factor (APR / 2400)

Residual Value

Equivalent Lease APR

3.00%

Buy / Finance Terms

Down Payment

Loan Term

months

Loan APR

Results

Lease Monthly Payment

Buy Monthly Payment

Total Lease Cost

Total Buy Cost

Equity at End (Lease)

Equity at End (Buy)

Net Cost (Lease)

Total paid minus equity

Net Cost (Buy)

Total paid minus equity

Verdict

Cost Component	Lease	Buy

Lease vs Buy a Car: Which Is Right for You?

Deciding whether to lease or buy a car is one of the biggest financial decisions drivers face. Both options have advantages and drawbacks, and the best choice depends on your driving habits, financial goals, and how long you plan to keep the vehicle. This calculator helps you compare the true total cost of leasing versus buying over your actual ownership timeline.

How Car Leasing Works

When you lease a car, you're essentially paying for the vehicle's depreciation during the lease term plus a financing charge (the money factor). Your monthly lease payment is based on the difference between the car's negotiated price (capitalized cost) and its predicted value at lease end (residual value), divided by the number of months, plus a monthly finance charge.

The lease payment formula is: Monthly Payment = Depreciation Fee + Finance Fee, where the depreciation fee equals (Net Cap Cost - Residual Value) / Lease Term, and the finance fee equals (Net Cap Cost + Residual Value) x Money Factor. Sales tax is applied on top of the monthly payment in most states.

How Buying (Financing) Works

When you buy a car with financing, you take out a loan for the purchase price minus your down payment. You make monthly payments over the loan term (typically 48 to 72 months) that include both principal and interest. Once the loan is paid off, you own the car outright and can drive it payment-free for as long as you keep it. The key advantage of buying is that you build equity — the car retains some value that you can recoup when you sell or trade it in.

Hidden Costs to Consider

When comparing lease vs buy, several hidden costs can tip the balance:

Lease fees: Acquisition fees ($500-$1,000), disposition fees ($300-$500), excess mileage charges ($0.15-$0.30 per mile), and wear-and-tear penalties can add thousands to the cost of a lease.
Maintenance after warranty: If you buy and keep the car past the warranty period (typically 3 years / 36,000 miles), you'll pay for all repairs out of pocket. Leased cars are usually covered by warranty for the entire lease term.
Gap insurance: Recommended for leases, this covers the difference between what you owe and the car's value if it's totaled. Some leases include it; others charge extra.
Opportunity cost: A larger down payment on a purchase means less money available for other investments. Consider whether that capital could earn more in the stock market.
Tax deductions: If you use the car for business, lease payments may be fully deductible, while purchased vehicles must be depreciated over time.

When Buying Wins

Buying almost always wins financially if you plan to keep the car for 5 years or more. Once the loan is paid off, you enjoy years of payment-free driving while the car still has value. The longer you keep a purchased car, the lower your effective cost per month becomes. If you drive more than 12,000-15,000 miles per year, buying also avoids the mileage penalties that make leasing expensive for high-mileage drivers.

When Leasing Wins

Leasing can make financial sense if you prefer to drive a new car every 2-3 years and value always being under warranty. Monthly payments are typically 20-40% lower than a loan payment for the same car, which can free up cash for other goals. Leasing also makes sense for business use where you can deduct the full lease payment, and for people who want to minimize their upfront cash outlay.

The Break-Even Point

For most vehicles, the break-even point where buying becomes cheaper than serial leasing is around 4-5 years. This calculator factors in multiple consecutive leases if your ownership period exceeds the lease term, giving you a true apples-to-apples comparison. The key insight is that buying front-loads cost (higher monthly payments during the loan) but back-loads savings (payment-free ownership after the loan), while leasing spreads cost evenly but never stops.

Frequently Asked Questions

It depends on how long you keep the car. Leasing has lower monthly payments but you never build equity. Buying costs more per month initially, but once the loan is paid off you own the car outright. If you keep a car for 5+ years, buying almost always costs less overall because you get years of payment-free driving.

The money factor is the financing charge on a lease, similar to an interest rate on a loan. To convert a money factor to an equivalent APR, multiply by 2,400. For example, a money factor of 0.00125 equals a 3% APR (0.00125 x 2,400 = 3%). A lower money factor means lower monthly payments. You can negotiate the money factor just like you negotiate a loan interest rate.

Residual value is the estimated value of the car at the end of the lease term, expressed as a percentage of the MSRP. A higher residual value means lower monthly payments because you're paying for less depreciation. Typical residual values range from 45% to 65% for a 36-month lease. Vehicles that hold their value well (like Toyotas and Hondas) tend to have higher residual values.

Common hidden lease costs include acquisition fees ($500-$1,000 upfront), disposition fees ($300-$500 at lease end), excess mileage charges ($0.15-$0.30 per mile over the limit), excess wear-and-tear charges, and early termination penalties. Always read the full lease agreement and ask about all fees before signing.

Leasing may make sense if you prefer driving a new car every 2-3 years, want lower monthly payments, drive fewer than 10,000-15,000 miles per year, want the car always covered by the manufacturer warranty, or can deduct lease payments as a business expense. It also works well if you don't have a large down payment available.