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How Much Do You Know About Buying vs. Leasing a Car?
Eight questions on depreciation, money factors and lease fees.
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Car Buy vs. Lease Calculator
Compare the true total cost of buying versus leasing a car, including depreciation, interest, fees and the value you keep at the end.
Questions this answers
- Should I buy or lease my next car?
- How much will buying cost me over 5 years versus leasing?
- When does buying break even compared to leasing?
- Will my mileage make a lease too expensive?
- How much equity will I actually build by owning?
- Is leasing cheaper if I always want a newer car?
Buying
Vehicle priceThe negotiated purchase price, not the MSRP sticker. Most buyers pay 3-8% below MSRP on new cars. Used cars are typically priced closer to market value.
Down paymentLarger down payments reduce monthly payments and total interest but increase the opportunity cost of capital. The money you put down could instead be invested.
Loan rate and termNew car loans average 6-7% in 2024. Credit unions often offer better rates than dealerships. Longer terms lower payments but significantly increase total interest paid.
Residual valueWhat the car is worth at the end of the model period as a percentage of purchase price. New cars lose roughly 20% in year one and 50% by year five per Edmunds data.
Leasing
Cap cost reduction applies to first lease only. Renewals use payment + fees.
Cap cost reductionThe upfront payment on a lease (similar to a down payment). Many advisors recommend putting nothing down on a lease: if the car is stolen or totaled, you lose the cap cost reduction with no benefit.
Monthly lease paymentIncludes depreciation, finance charge (money factor), and fees. Does not include insurance or maintenance unless specified. Compare this against the true all-in monthly cost of buying.
Mileage allowanceMost leases allow 10,000-15,000 miles per year. Excess mileage fees typically run $0.15-$0.30 per mile. If you drive more than the allowance, leasing costs increase significantly.
Disposition feeA fee paid at lease end if you do not purchase or re-lease the vehicle. Typically $300-$500. Some manufacturers waive it if you lease again.
Lower total cost over 5 years
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True monthly cost breakdown
Buying
Loan payment (P+I)-
Insurance-
Maintenance-
Less: equity kept, net of down payment-
True monthly cost of buying-
Leasing
Lease payment-
Insurance-
Excess mileage (est.)-
Drive-off and fees (spread)-
True monthly cost of leasing-
Total cost - buying
all-in over period
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Total cost - leasing
all-in over period
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Net cost of buying
after resale and loan payoff
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Car value at end
resale / trade-in
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Interest paid (model period)
cost of financing during modeled years
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Break-even year
buying overtakes leasing
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Cost per mile - buying
all-in net of resale
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Cost per mile - leasing
all-in including fees
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Opp. cost of down pmts
if invested instead
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Chart view
Buying (net exposure)
Leasing
Why does buying dip below zero early? The line subtracts the car's current market value from cumulative costs paid. Early on the asset you own is worth more than what you've spent: a net gain. The line rises as the car depreciates and costs accumulate, crossing zero when costs exceed remaining value.
This calculator is for educational and informational purposes only. Results are estimates based on the inputs you provide and should not be taken as professional advice. Actual costs depend on specific vehicle, market conditions, credit score, insurer, and negotiated terms. Residual values are estimates: actual resale prices vary significantly by make, model, mileage, and condition. Always consult a qualified financial advisor before decisions involving major financial commitments. Sources: Edmunds for residual-value benchmarks, Experian Automotive for average loan rates, Kelley Blue Book for cost-of-ownership methodology.
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Frequently asked questions
Why does buying look cheaper if the monthly payment is higher?
Because a chunk of every loan payment goes to principal, not expense. The "true monthly cost of buying" subtracts the equity you're building from the cash going out the door. The lease payment, by contrast, is pure expense: nothing comes back at the end. Look at "net cost of buying" rather than just the monthly payment to see the apples-to-apples number.
What residual value should I actually use?
Edmunds and Kelley Blue Book publish make/model-specific residuals. As a default: new cars lose ~20% in year one and ~50% by year five, so 5-year residual of 45-55% is typical. Luxury sedans and high-mileage daily drivers depreciate faster (35-40%); Toyotas, Hondas, and trucks hold value better (55-65%). Used cars have lower percentage depreciation but lower starting value.
Does this include the cost of capital tied up in down payments?
Yes, as a separate line: the "Opp. cost of down pmts" KPI shows what the lump sums would have grown to at your chosen investment return if invested instead. Buying typically has a larger down payment than a lease cap cost reduction, so the opportunity cost usually favors leasing. It's a real cost, but it's a "would have earned" cost, not a "had to pay" cost: weigh it accordingly.
How should I think about the 10-year hold scenario?
It's the strongest case for buying. Once your loan is paid off, you have several years of "free" car ownership: only insurance and maintenance. Perpetual leasing, by contrast, never stops paying. The 10-year scenario assumes the buyer keeps the car the whole time; the leaser keeps signing new leases. If you trade in every 3-4 years anyway, the 10-year math doesn't apply to you.
Why does the chart dip below zero in early years?
The buying line subtracts the car's current market value from cumulative cash paid. In the first year or two, the car is still worth more than what's been paid out of pocket, so net exposure is negative: you'd be money-ahead if you sold right then. The line rises as depreciation outpaces principal repayment, crossing zero when costs exceed remaining value.
What does this calculator NOT include?
Sales tax, registration, title fees, and dealer fees are excluded: they vary by state. Lease excess-wear charges, lease early-termination penalties, and gap insurance are not modeled. The calculator also assumes you can actually qualify for the loan rate and lease terms entered. Real lease offers often have stricter mileage caps for the lowest payments and may bake in dealer markups not visible to you.
Is it ever worth leasing despite the math?
Yes, for three real reasons the math can't capture. First, you always have a new car under warranty, so your repair risk is near zero. Second, the lower monthly payment can free up cash for higher-return investments (the calculator's opp-cost line gestures at this but doesn't model it fully). Third, business deductibility: if a self-employed person uses the car for business, the lease payment is fully deductible while the loan interest plus depreciation is more complicated. Talk to your accountant.
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