Lease vs Buy: How to Compare the True Cost
The sticker price of a car tells you very little about what you will actually spend. Whether you lease or buy, the real cost depends on your down payment, financing terms, how long you keep the vehicle, and what it is worth when you are done with it. This calculator puts both options side by side so you can see the total out-of-pocket cost over the same period.
The comparison is made over the lease term because that is the natural end-point for a lease. For the buy side, the calculator computes your monthly loan payment using the standard amortization formula, applies your loan payments for the same number of months, and then credits back the estimated resale value — giving you the true net cost of ownership for that period.
How Lease Costs Are Calculated
A lease has several cost components that are easy to overlook when comparing only the monthly payment:
- Capitalized cost reduction (down payment): money paid upfront that reduces your monthly payment but does not contribute to ownership.
- Acquisition fee: a dealer or lender charge collected at signing, typically $700–$1,000.
- Disposition fee: charged at lease end if you do not buy or re-lease the car, usually $300–$500.
- Sales tax on monthly payments: most states tax each payment rather than the full vehicle price.
- Excess mileage charges: penalties applied at lease end for every mile over the contracted annual limit.
How Buy Costs Are Calculated
The buy side uses the standard loan amortization formula: M = P × r(1+r)^n / ((1+r)^n − 1), where P is the amount financed (price minus down payment plus sales tax), r is the monthly interest rate, and n is the loan term in months. The calculator then subtracts the expected resale value at the end of the lease period to arrive at the net cost of ownership.
When Leasing Makes Sense
- You want lower monthly payments and a new car every 2–3 years.
- You drive predictable, moderate mileage (under the annual cap).
- You prefer not to deal with selling or trading in a used car.
- The vehicle will be used for business and you can deduct lease payments.
When Buying Makes Sense
- You plan to keep the car for 5+ years — the longer you own it, the more the resale value advantage compounds.
- You drive high mileage and want to avoid per-mile overage penalties.
- You want to modify the vehicle or are not concerned about return condition.
- You want to eventually own the car outright and have zero monthly payments.
Frequently Asked Questions
Is leasing always cheaper per month than buying?
Lease payments are typically lower than loan payments because you are only financing the depreciation of the vehicle over the lease term, not the full purchase price. However, at the end of a lease you own nothing, so the true cost comparison depends on how you account for the car's residual value.
What is a good resale value to enter for the buy side?
You can look up used car values on sites like Kelley Blue Book or Edmunds. A rough rule of thumb is that new cars lose about 15–25% of their value in the first year and continue to depreciate. For a 3-year lease comparison, a resale value of 55–65% of the original price is a reasonable starting estimate for a typical mainstream vehicle, though this varies widely by make and model.
Does this calculator account for opportunity cost?
This calculator shows the direct cash outflow for each option. It does not model the opportunity cost of the larger down payment required to buy, nor does it factor in potential investment returns on the cash difference. For most consumers, the direct cost comparison is the most practical guide.