Lease vs Buy Calculator | Compare Vehicle Leasing vs Financing Costs

  • Adam
  • December 31, 2025

Free lease vs buy calculator with net present cost analysis. Compare leasing vs buying a car with detailed breakdown, charts, and formulas. Make smarter vehicle financing decisions.

Lease vs Buy Calculator

Compare the true cost of leasing versus buying a vehicle or asset. This calculator uses net present cost analysis to show which option saves you more money over time, accounting for loan payments, depreciation, lease terms, mileage, and opportunity costs.

General Information

Buy Option ▼
Lease Option ▼
APR ≈ Money Factor × 2400 = 5.0%

Comparison Results

✓ Best Option
Buy
Payment: $XXX
$XX,XXX
✓ Best Option
Lease
Payment: $XXX
$XX,XXX
Net Present Cost Comparison
Analyzing break-even point...
Results depend on resale value, mileage, and discount rate assumptions.

Worked Steps

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Detailed Comparison Report

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How to Decide Whether to Lease or Buy

The lease versus buy decision depends on your financial situation, driving habits, and long-term plans. Buying makes sense when you drive more than average mileage, want to build equity, or plan to keep the vehicle for many years. Leasing works better for those who prefer lower monthly payments, want to drive a new vehicle every few years, or stay within mileage limits.

The most accurate comparison uses net present cost analysis, which accounts for the time value of money. This method discounts all future cash flows to today's dollars using your investment or opportunity cost rate. A lower net present cost indicates the financially superior option.

Key factors include loan interest rates, lease money factors, expected depreciation, resale value at your ownership horizon, mileage patterns, and maintenance costs. Tax treatment also matters since some regions tax lease payments differently than purchases.

Lease vs Buy Formulas

Loan Payment Formula

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Present Value of Cash Flows

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Net Present Cost (Buy)

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Net Present Cost (Lease)

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Where:

  • PMT = monthly payment
  • r = monthly interest rate (APR/12)
  • n = number of payments
  • PV = present value / loan principal
  • CFt = cash flow at time t
  • d = discount rate (investment return rate)
  • N = total number of periods

Examples

Scenario 1: Economy Car Lease vs Buy
A $20,000 vehicle with 6% sales tax. Buying with a 60-month loan at 8% APR results in ~$405/month payments. Leasing for 24 months at $250/month with 60% residual. If you plan to keep it only 24 months, leasing shows lower net present cost due to avoided depreciation exposure.

Scenario 2: High Mileage Driver
Driving 18,000 miles annually exceeds typical 12,000-mile lease allowances. At $0.25/mile overage, you'd pay $1,500 extra per year. This penalty often makes buying more economical for high-mileage drivers who can recoup more value at resale.

Scenario 3: Low Mileage Professional
Only 8,000 miles per year means staying well under lease limits. Combined with lower maintenance needs, leasing becomes attractive. You avoid depreciation risk and enjoy new vehicle features every 3 years without ownership hassles.

What People Forget

Opportunity cost of down payment: Money used for a down payment could earn investment returns elsewhere. The calculator accounts for this by discounting cash flows at your expected investment rate of return.

Residual value risk: When buying, you bear the risk that resale value is lower than expected. Market conditions, accidents, or high mileage can significantly reduce what you recover. Leasing transfers this risk to the lessor.

Mileage penalties compound quickly: Exceeding lease mileage by just 2,000 miles annually costs $500/year at $0.25/mile. Over a 3-year lease, that's $1,500 in penalties, substantially increasing effective cost.

End-of-lease charges: Excess wear and tear, disposition fees, and lease-end inspections add costs that aren't obvious in monthly payment comparisons. Budget $300-$800 for these fees.

Gap insurance considerations: If you're in an accident shortly after purchase, you may owe more than insurance pays. Leases often include gap coverage, while buyers must purchase it separately.

Frequently Asked Questions

Is leasing cheaper than buying a car?
Leasing typically has lower monthly payments but doesn't build equity. Whether it's cheaper depends on your ownership horizon, mileage, and resale value. If you keep vehicles for 5+ years and drive average mileage, buying usually costs less long-term. For 2-3 year ownership with moderate mileage, leasing can be more economical due to avoiding maximum depreciation periods.
What is residual value in a car lease?
Residual value is the estimated worth of the vehicle at lease end, expressed as a percentage of MSRP. A $30,000 car with 60% residual has an expected end value of $18,000. Higher residual values mean lower monthly payments since you're only financing the depreciation ($12,000 in this example), not the full price.
What is a money factor in car leasing?
Money factor is the lease equivalent of an interest rate, expressed as a small decimal (e.g., 0.00208). To convert to APR, multiply by 2,400: 0.00208 × 2,400 = 5.0% APR. Dealers often quote money factors instead of APR, so understanding this conversion helps you compare lease costs to loan rates.
How do I calculate my monthly lease payment?
Lease payment = (Depreciation + Finance Charge) + Taxes. Depreciation = (Cap Cost - Residual Value) / Term. Finance Charge = (Cap Cost + Residual Value) × Money Factor. For a $30,000 car with $18,000 residual over 36 months at 0.00208 money factor: ($12,000/36) + ($48,000 × 0.00208) = $333 + $100 = $433 before taxes.
Does mileage significantly change lease costs?
Yes, dramatically. Standard leases allow 10,000-15,000 miles annually with overage fees of $0.15-$0.30 per mile. Exceeding by 5,000 miles per year costs $750-$1,500 annually in penalties. High-mileage drivers should negotiate higher allowances upfront (which increases monthly payments) or consider buying instead.
When does buying make more sense than leasing?
Buying makes sense when you drive more than 15,000 miles annually, plan to keep the vehicle beyond 5 years, want to customize it, or prefer building equity. Once the loan is paid off, you have years of payment-free driving, dramatically lowering total cost of ownership compared to perpetual lease cycles.
What is net present cost and why does it matter?
Net present cost (NPC) converts all future payments to today's dollars using a discount rate. A dollar paid 3 years from now is worth less than a dollar today due to inflation and investment opportunity. NPC accounts for this time value of money, providing an apples-to-apples comparison between buying and leasing despite different payment structures and timelines.
Should I include sales tax in my car loan?
Including sales tax in your loan increases the financed amount, resulting in higher monthly payments and more interest paid over the loan term. Paying tax upfront requires more cash initially but reduces total interest costs. If you have available cash and low investment returns, paying upfront saves money. If cash is tight or you expect strong investment returns, financing may be better.
How does depreciation affect the buy vs lease decision?
Vehicles depreciate most rapidly in the first 3 years, losing 40-50% of value. Leasing lets you avoid ownership during peak depreciation, while buying means absorbing the loss. However, if you keep the vehicle 7-10 years, you spread that depreciation over more years. The key is matching your ownership horizon to expected use—short-term favors leasing, long-term favors buying.
Can I negotiate a car lease like a purchase?
Yes, absolutely. Negotiate the capitalized cost (vehicle price) just as you would for a purchase. Also negotiate money factor, acquisition fees, and disposition fees. Many lessees don't realize these are negotiable and accept the first offer, potentially costing thousands over the lease term. Get multiple dealer quotes and leverage them against each other.

Additional Resources

For more information on lease versus buy decisions:

Created by the OmniCalculator.Space Editorial Team - Expert financial calculators for smart decisions

Disclaimer: This calculator provides educational estimates for comparison purposes. Actual lease and loan terms vary by dealer, credit score, and market conditions. Tax treatment differs by jurisdiction. Always verify calculations with your dealer, financial advisor, or tax professional before making financing decisions.

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