Buy or Lease a Car

Should You Buy or Lease Your Next Car?

Lease payments are almost always lower than loan payments for the same car. That much is true. What the dealership does not show you is why: you are paying for three years of depreciation, not for a car. At the end of a lease you hand the keys back and start again, paying for three more years of depreciation on whatever car comes next. After ten years of leasing every three years, you have made about $54,000 in payments — and own nothing.

The math on buying looks worse upfront because the payments are higher. But when you sell or trade a car you bought, you get a check. That check — the residual value — is a return on the investment you made through every loan payment. Subtract it from what you paid and the true cost of buying is often lower than leasing, sometimes significantly.

This calculator does that math honestly. It compares your total out-of-pocket cost for buying against leasing over any period you choose, accounts for the resale value you recover at the end, and shows a 10-year scenario that reveals what perpetually rolling into new leases actually costs over time.

Car: Buy vs. Lease Calculator

The honest comparison - true total cost of buying versus leasing, including depreciation, opportunity cost, and what you own at the end

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.
Vehicle purchase price $35,000
Down payment $5,000
Loan interest rate 6.5%
Loan term 60 mo
Residual value at end of period 45%
Annual maintenance cost $800/yr
Leasing
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.
Cap cost reduction (upfront) $2,000
Monthly lease payment $450/mo
Lease term 36 mo
Annual miles driven 12,000/yr
Mileage allowance (per year) 12,000/yr
Excess mileage fee (per mile) $0.20/mi
Disposition fee (at lease end) $395
Shared assumptions
Annual insurance costLeased cars typically require more comprehensive coverage than owned cars, adding $200-$600/year. Enter the same amount for both, or a higher figure for leasing if your insurer charges more.
Years to modelFor a fair comparison, model the same period for both. For leasing, this covers multiple lease cycles if the period exceeds one term. For buying, this is how long you hold the car.
Investment returnThe opportunity cost rate applied to down payments and any monthly savings. Used to show what that capital could earn if invested instead of committed to a vehicle.
Annual insurance cost $1,600/yr
Years to model 5 yrs
Investment return (opportunity cost) 7.0%
Lower total cost over 5 years
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True monthly cost breakdown
Buying
Loan payment (P+I)-
Insurance-
Maintenance-
Less: monthly equity built-
True monthly cost of buying-
Leasing
Lease payment-
Insurance-
Excess mileage (est.)-
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 value
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Car value at end
resale / trade-in
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Total interest paid (modeled)
interest paid in modeled period
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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.
Disclaimer: Results are estimates for educational purposes only. 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. This calculator does not constitute financial advice.

Sources: Edmunds depreciation data for residual value benchmarks. Experian Automotive for average loan rates. Kelley Blue Book for cost-of-ownership methodology.