Lease vs Buy Car Calculator
Compare the true cost of leasing versus buying a vehicle over time.
Vehicle Information
Lease Option
Buy Option
Average: 15-20% per year
Lease vs Buy Considerations
Lease if: You want lower monthly payments, like driving new cars every few years, drive less than 12-15K miles/year, and don't want to deal with selling a used car.
Buy if: You plan to keep the car long-term (5+ years), drive a lot of miles, want to customize your vehicle, or want to own an asset outright.
Hidden costs: Leases have mileage limits, wear-and-tear charges, and early termination fees. Buying means paying for maintenance after the warranty expires.
Long-term math: Buying is usually cheaper over 10+ years because you eventually own the car free and clear. Leasing means you're always making payments.
Understanding Car Depreciation
Depreciation is the single largest cost of car ownership, and understanding it is essential to making a smart lease-versus-buy decision. A new car loses approximately 20-25% of its value in the first year alone, and roughly 60% of its value over five years. This means a $35,000 car may be worth only $14,000 after five years of ownership.
How depreciation affects leasing: Your lease payment is essentially the cost of the vehicle's depreciation during the lease term, plus interest (called the money factor) and fees. A car that holds its value well will have lower lease payments because the residual value is higher. This is why brands like Toyota, Honda, and Lexus often have competitive lease deals despite higher sticker prices.
How depreciation affects buying: If you buy and sell after 3 years, you bear the full depreciation hit. However, if you keep the car for 8-10 years, you amortize that depreciation over a much longer period, and the later years of ownership have very low cost since the car has already lost most of its value. This is where buying becomes significantly cheaper than perpetual leasing.
Minimizing depreciation impact: Consider buying a certified pre-owned vehicle that is 1-2 years old. Someone else absorbs the steepest depreciation in year one, and you still get a nearly new car with manufacturer warranty coverage at a 20-30% discount from new.
Frequently Asked Questions
What is the money factor in a lease, and how does it relate to interest rate?
The money factor is the lease equivalent of an interest rate, expressed as a small decimal. To convert a money factor to an approximate annual interest rate, multiply by 2,400. For example, a money factor of 0.0025 equals roughly 6% APR. When negotiating a lease, ask for the money factor explicitly and compare it to current auto loan rates. Lower money factors mean lower total lease costs.
Should I put money down on a lease?
Generally, no. Unlike a purchase where a down payment reduces your loan balance and interest charges, a lease down payment (called a capitalized cost reduction) simply prepays some of your lease payments. If the car is totaled or stolen, insurance pays the leasing company, and you lose your down payment. A better approach is to negotiate a lower monthly payment through the selling price or money factor rather than putting cash down.
What happens if I exceed my mileage limit on a lease?
Most leases include a mileage allowance of 10,000-15,000 miles per year. Excess mileage charges typically range from $0.15 to $0.30 per mile. On a 3-year lease, exceeding the limit by just 5,000 miles per year could cost $2,250-$4,500 at turn-in. If you know you will drive more, negotiate a higher mileage allowance upfront, which is significantly cheaper than paying excess charges later.
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This calculator provides estimates for educational purposes only.