Lease vs Buy Car Calculator
The lease payment is always lower, and comparing the two payments is the wrong comparison. What matters is what each costs once you count the car you still own at the end of one of them.
Lease payment
$477.54per month
- Lease payment
- $477.54
- Finance payment
- $988.07
- Paid out leasing
- $20,191.50
- Paid out buying
- $38,570.42
- Car worth at the end
- $20,300.00
- Net cost of buying
- $18,270.42
- Money factor
- 0.00292
- Over this term leasing costs $1,921.08 more than buying, once the car you own at the end is counted at its residual value.
- The comparison only holds if you would genuinely sell the car at the end of the term. Keeping it for years after the finance clears is where buying pulls decisively ahead, because those years cost nothing but upkeep.
- A lease is priced from the residual, which the lender sets. A car that holds its value leases cheaply and a car that does not leases badly, regardless of price.
- Mileage limits and wear charges are real costs that are not in this. Going over the allowance is charged per mile and adds up quickly.
About leasing against buying
Leasing is priced in its own dialect, and the dialect is most of why it is hard to compare. The money factor is an interest rate divided by 2,400 — so 0.00292 is 7%. The residual is what the lender assumes the car will be worth at the end, as a share of list price, and it is set by them rather than negotiated. A car that holds its value leases cheaply and one that does not leases badly, almost regardless of price.
The payment covers two things: the depreciation you use up, and the finance charge on the money tied up. On a $35,000 car with $3,000 down, a 58% residual and 7%, the lease is $477.54 a month against $988.07 to finance it over the same three years. That gap is the entire sales pitch.
It closes once you count the car. Leasing costs $20,192 over the term and leaves you with nothing. Buying costs $38,570 and leaves you a car worth about $20,300, so the net cost is $18,270 — around $1,900 less than leasing.
That comparison only holds if you would genuinely sell at the end of three years. Keeping the car after the finance clears is where buying pulls decisively ahead, because those years cost nothing but upkeep. The case for leasing is not financial: it is a new car every three years, under warranty throughout, with no resale to deal with — and it is reasonable to pay for that as long as you know you are.
Mileage limits and wear charges are real costs not in this. Going over the allowance is charged per mile and adds up quickly.
What it works out
- Both monthly payments from the same car and terms
- Total paid out either way
- The car's residual value credited against buying
- The money factor translated into a real interest rate
The formula
Lease = (Cap cost − Residual) ÷ Months + (Cap cost + Residual) × Money factor
Start with the capitalised cost — the price less anything you put down. $35,000 less $3,000 is $32,000. The residual is 58% of the list price, which is $20,300.
The first term is depreciation: the value the car loses while you have it, spread over the term. $32,000 less $20,300 is $11,700 across 36 months, or $325.00 a month.
The second is the finance charge, and it looks wrong until you think about it. It is levied on the capitalised cost plus the residual, not on the balance — because the lender has money tied up in the whole car for the whole term, not just the part you use up. $52,300 times a money factor of 0.00292 is $152.54.
Together that is the $477.54 payment.
A higher residual pulls the payment in two directions and lowers it on balance: less depreciation to pay for, slightly more finance charge. It is why the same money leases a car that holds its value far more cheaply than one that does not.
- Cap cost
- The capitalised cost — the price less any down payment or trade-in.
- Residual
- What the lender assumes the car is worth at the end. Their figure, not yours.
- Money factor
- The lease rate. Multiply by 2,400 for the annual percentage it really is.
A worked example
A $35,000 car with $3,000 down over 36 months, at a 58% residual and 7%, leased against financed.
That works out to $477.54 per month.
- Lease payment
- $477.54
- Finance payment
- $988.07
- Paid out leasing
- $20,191.50
- Paid out buying
- $38,570.42
- Car worth at the end
- $20,300.00
- Net cost of buying
- $18,270.42
- Money factor
- 0.00292
Questions
Is it cheaper to lease or buy a car?
Leasing has the lower payment and buying usually has the lower cost. On these figures leasing costs $20,192 over three years and leaves nothing; buying costs $38,570 and leaves a car worth about $20,300, so the net cost is $18,270.
What is a money factor?
The lease equivalent of an interest rate, expressed as a small decimal. Multiply it by 2,400 to get the annual percentage — 0.00292 is 7%. Dealers quote the factor rather than the rate, which makes it harder to compare.
What is the residual value?
What the lender assumes the car is worth at the end of the lease, as a percentage of list price. It is set by them and not negotiable, and it is the single biggest driver of the payment.
Why is the lease payment so much lower?
Because you are only paying for the part of the car you use up. Financing repays the whole $35,000; leasing repays the $11,700 of depreciation plus the finance charge. At the end you have paid for less and you own less.
When does leasing make sense?
When you genuinely want a new car every few years, value being under warranty throughout, and would rather not deal with a resale. Those are real benefits and it is reasonable to pay for them — as long as you know that is what the extra cost is buying.
What happens if I go over the mileage limit?
You are charged per mile over, typically fifteen to thirty pence or cents, and it adds up fast. A few thousand miles over on a three-year lease is a bill worth hundreds. Buy the extra allowance up front if you know you will need it — it is cheaper than the excess charge.
Does buying always win if I keep the car longer?
Decisively. Once the finance clears, the car costs only upkeep, and every year after that widens the gap. Leasing never reaches that point, because the payments never stop.
Can I negotiate a lease?
The capitalised cost, yes — it is the price, and it is negotiable like any price. The residual and usually the money factor are not. Negotiating the price down lowers the depreciation you pay for, which is where the saving is.