Lease vs Buy Car Calculator

A lease payment and a loan payment cannot be compared directly. The lease is mostly the depreciation the car will suffer over the term with a finance charge on top, while the loan pays for the whole vehicle and leaves you an asset at the end. Comparing the two monthly figures is the mistake that dealerships are built on.

Leasing is cheaper over 36 months

$22,941

$637 a month as a lease against $737 a month as a purchase, over the same 36 months.

Lease, all in: $22,941
Buy, all in: $26,539
Difference: $3,598
Resale value that flips it: 64%

The lease, month by month

Line	Amount
Cap cost after the cash down	$37,000.00
Residual value at the end	$22,000.00
Depreciation rented each month	$416.67
Finance charge each month	$73.75
Tax on each payment	$34.33
Monthly payment	$524.75
Payments over 36 months	$18,891.00
Due at signing	$4,050.00
Total lease cost	$22,941.00

The money factor of 0.00125 is an interest rate of 3% a year, quoted so that the payment looks smaller. Multiply a money factor by 2,400 to compare it with a loan rate.

The purchase over the same 36 months

Line	Amount
Cash down	$3,000.00
Sales tax on the price	$2,800.00
Loan amount	$37,000.00
Payments over 36 months	$26,375.04
Loan balance left at the end	$16,363.86
Resale value at the end	−$22,000.00
Net cost of the period	$26,538.90

The car is worth $22,000 and $16,364 is still owed on it, so the equity at the end of the period is $5,636.

What the car has to be worth for buying to win

Resale value	Net cost of buying	Cheaper route	Difference
45% of price ($18,000)	$30,539	Leasing	$7,598
50% of price ($20,000)	$28,539	Leasing	$5,598
55% of price ($22,000)	$26,539	Leasing	$3,598
60% of price ($24,000)	$24,539	Leasing	$1,598
65% of price ($26,000)	$22,539	Buying	$402
70% of price ($28,000)	$20,539	Buying	$2,402

This is the table to take to the desk: it shows which depreciation assumption decides the answer, and depreciation is the one input neither the dealer nor the bank controls.

Both routes leave out insurance, fuel, tyres, registration and any mileage or wear charge. Those are identical for the 36 months compared here, but not afterwards: at the end of a lease the car goes back, and at the end of a purchase it is still yours.

JavaScript is off, so the values above are the built-in defaults. Every formula used on this page is documented below, so you can still follow the maths by hand.

This calculator prices both routes over exactly the same months. It separates the depreciation and the finance charge inside the lease, converts the money factor into an interest rate you can recognise, charges the purchase its sales tax and its remaining loan balance, credits the car with what it is worth at the end, and reports the resale value that would flip the decision.

How this lease vs buy car calculator works

What is inside a lease payment

The depreciation part is the difference between the cap cost, which is the negotiated price less any cash down, and the residual value, spread over the term. A $40,000 car with a 55% residual rents $15,000 of depreciation over 36 months, which is $417 a month before anything else.

The finance charge is the money factor multiplied by the sum of the cap cost and the residual, which works out as a monthly figure usually between $50 and $150. Multiply the money factor by 2,400 and you have the annual rate: 0.00125 is 3%, 0.0030 is 7.2%. That conversion is the single most useful thing to do at the desk, because a money factor is quoted precisely so it cannot be compared with a loan rate at a glance.

The purchase side, done honestly

Buying means paying sales tax on the whole price rather than on a monthly payment, which is a large upfront difference. Then the loan amortises, and at the end of the comparison period there is usually a balance outstanding and a car that is worth something. Subtract the second from the first and you have the equity, and the equity is what makes the purchase competitive in most comparisons.

The comparison here charges both routes for the same period, and it does not pretend the car appears from nowhere: the balance still owed is part of the cost, and the resale value is credited against it.

Resale value decides the answer

Everything else in the two contracts is either printed or negotiable, but the resale value at the end of the term is an assumption. That is why the page reports the break-even: the resale value, as a percentage of the price, at which leasing and buying cost exactly the same. If the car will beat that figure, buying wins; if it will not, leasing wins.

Two cautions. Depreciation is worst in the first years and worst on cars bought at full price, so the answer differs sharply between a model that holds its value and one that does not. And a lease carries charges that only appear at the end: excess mileage, wear beyond ordinary use, and a disposition fee. None of them are in the monthly payment you were quoted.

Worked examples

Each example below was run through the calculator on this page when the site was built, so the numbers match what you see when you enter the same inputs.

A $40,000 car leased at a 0.00125 money factor

Negotiated vehicle price: $40,000.00
Residual value at the end: 55%
Money factor: 0
Lease term: 36 months
Cash down at signing: $3,000.00
Acquisition fee: $650.00
Other fees at signing: $400.00
Tax on each lease payment: 7%
Cash down to buy: $3,000.00
Purchase loan APR: 7%
Purchase loan term: 60 months
Sales tax on the purchase: 7%
What the car is worth at the end: 55%

Leasing is cheaper over 36 months

$22,941

$637 a month as a lease against $737 a month as a purchase, over the same 36 months.

Lease, all in: $22,941
Buy, all in: $26,539
Difference: $3,598
Resale value that flips it: 64%

The lease costs about $22,900 over three years and the purchase about $26,500, because the 7% loan pays sales tax on the whole price while the lease taxes only the payment.

A model that holds its value

Negotiated vehicle price: $40,000.00
Residual value at the end: 60%
Money factor: 0
Lease term: 36 months
Cash down at signing: $3,000.00
Acquisition fee: $650.00
Other fees at signing: $400.00
Tax on each lease payment: 7%
Cash down to buy: $3,000.00
Purchase loan APR: 7%
Purchase loan term: 60 months
Sales tax on the purchase: 7%
What the car is worth at the end: 70%

Buying is cheaper over 36 months

$20,539

$580 a month as a lease against $571 a month as a purchase, over the same 36 months.

Lease, all in: $20,897
Buy, all in: $20,539
Difference: $358
Resale value that flips it: 69.1%

At a 70% resale value the answer flips: buying is now the cheaper route, because the equity at the end is worth more than the tax and interest saved by leasing.

A lease with an expensive money factor

Negotiated vehicle price: $40,000.00
Residual value at the end: 55%
Money factor: 0
Lease term: 36 months
Cash down at signing: $3,000.00
Acquisition fee: $650.00
Other fees at signing: $400.00
Tax on each lease payment: 7%
Cash down to buy: $3,000.00
Purchase loan APR: 7%
Purchase loan term: 60 months
Sales tax on the purchase: 7%
What the car is worth at the end: 55%

Buying is cheaper over 36 months

$26,539

$779 a month as a lease against $737 a month as a purchase, over the same 36 months.

Lease, all in: $28,054
Buy, all in: $26,539
Difference: $1,516
Resale value that flips it: 51.2%

A money factor of 0.0035 is 8.4% a year, and it pushes the lease above the purchase: the finance charge alone almost triples.

Frequently asked questions

Is it cheaper to lease or to buy?

Buying usually wins over a long holding period, and leasing often wins over a short one, because depreciation is steepest in the first years. This calculator answers it for a specific contract and a specific resale assumption rather than in general: if the car will be worth more than the break-even percentage after the term, buying comes out cheaper.

What is a money factor?

It is the interest rate on a lease, written as a small decimal so it does not look like one. Multiply it by 2,400 to get the annual rate: 0.00125 is 3%, 0.00250 is 6%. Lessors do not always disclose it, but it can be derived from the payment, and asking for it is entirely reasonable.

Why is there no sales tax on the whole car in a lease?

Because in most states a lease is taxed as a service rather than a sale, so tax is charged on each monthly payment. That is a real saving and one of the reasons a lease can win on a short horizon. A handful of states tax the full price up front, which changes the arithmetic completely, so check the rule where you register the car.

What happens if I go over the mileage allowance?

You pay an excess charge per mile at the end of the term, commonly fifteen to thirty cents, plus any wear beyond ordinary use and often a disposition fee. That is why a lease suits predictable mileage and punishes a change of commute or a long holiday drive. Estimate your annual miles honestly before signing rather than after.

How much cash should I put down on a lease?

As little as the contract allows. A large cap reduction lowers the monthly payment but is generally not refunded if the car is written off or stolen early, because the insurance settles at market value rather than at the balance. Gap coverage can cover the difference, but keeping the cash and taking a slightly higher payment is usually the cheaper protection.

What is left out of this comparison?

Insurance, fuel, registration and any maintenance or repairs that fall outside the warranty. Those are broadly the same over the compared period, but they diverge afterwards: a leased car goes back at the end on terms you do not control, and a bought car keeps needing tyres, brakes and eventually a large repair. Excess mileage, wear charges and the disposition fee are also outside both totals.

Assumptions and sources

Method: the lease payment is the depreciation between the adjusted cap cost and the residual, divided by the term, plus a finance charge of the money factor times the sum of the cap cost and the residual, plus tax on the payment. The purchase route is a standard amortising loan with the remaining balance and the resale value netted at the end.
The money factor is converted to an annual rate by multiplying by 2,400, the convention used in lease contracts, which is what makes a money factor comparable with a loan APR.
Sales-tax treatment of a lease, excess mileage and wear charges, disposition fees, gap insurance and the treatment of a lease in a business sit outside this model and vary by state and contract. This is not tax, legal or financial advice.

Last reviewed 2026-09-14. This page is an estimate tool, not financial, tax or legal advice.Read the full disclaimer.

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