- Is it cheaper to lease or buy a car?
- It depends on your situation, time horizon, and driving habits. For short ownership periods (3 years), leasing often wins because you avoid the steepest depreciation and pay lower monthly amounts. For long-term ownership (5+ years), buying typically wins because the car is paid off but still has residual value. This calculator compares total net cost for your specific scenario.
- How does this calculator compare leasing and buying?
- It computes the total cost of each option over your chosen time horizon. For leasing, it calculates monthly payments from the MSRP, selling price, residual, and money factor, then adds fees, taxes, maintenance, and mileage overage. For buying, it calculates loan payments (or cash outlay), taxes, fees, and maintenance, then subtracts the resale value. The lower net cost wins.
- What is residual value in a lease?
- Residual value is the predicted worth of the vehicle at lease end, expressed as a percentage of MSRP. It is set by the leasing company and determines how much depreciation you pay. A higher residual means less depreciation and lower monthly payments. For example, a $35,000 car with 58% residual has a residual value of $20,300.
- What is a money factor?
- A money factor is the leasing equivalent of an interest rate, expressed as a small decimal like 0.0022. It determines the finance charge portion of your lease payment. The rent charge equals (adjusted cap cost + residual value) multiplied by the money factor. A lower money factor means lower financing costs.
- How do I convert money factor to APR?
- Multiply the money factor by 2,400 to get the approximate APR. For example, a money factor of 0.0022 equals roughly 5.28% APR (0.0022 x 2,400 = 5.28). Conversely, divide APR by 2,400 to get the money factor. This is the standard conversion used in the US auto leasing industry.
- What happens if I exceed my mileage allowance?
- You pay excess mileage charges when you return the leased car. The rate is specified in your contract, typically $0.15 to $0.30 per mile over the allowance. On a 36-month lease, driving 5,000 miles/year over the limit at $0.25/mile adds $3,750 to your total cost. This calculator factors overage costs into the comparison automatically.
- What is the break-even resale value?
- The break-even resale value is the percentage of the purchase price you would need to sell the car for at the end of the horizon to make buying exactly as expensive as leasing. If the actual resale value is above this percentage, buying wins. If it is below, leasing wins. It helps you assess how sensitive the result is to depreciation estimates.
- How does the time horizon affect the comparison?
- A shorter horizon (3 years) often favors leasing because it avoids high depreciation costs and keeps payments predictable. A longer horizon (5-7+ years) often favors buying because the car is eventually paid off while still retaining some value. The calculator accounts for multiple lease cycles if your horizon exceeds one lease term.
- Should I include maintenance costs?
- Yes. Maintenance is typically lower during a lease because the car is new and under warranty. After the warranty expires (usually 3-4 years), maintenance costs rise for a purchased car. Including realistic maintenance estimates makes the comparison more accurate. Use the Advanced Options section to set annual maintenance for each option.
- What is cap cost reduction?
- Cap cost reduction is a down payment on a lease that reduces the capitalized cost (the amount you are financing). It lowers your monthly payment but does not reduce the total financing cost proportionally. Financial experts often advise against large down payments on leases because the money is at risk if the car is totaled early.
- What fees are involved in leasing?
- Common lease fees include: acquisition fee ($595-$1,095) charged at signing, disposition fee ($300-$500) charged at lease end if you return the car, and documentation fees ($100-$400). Some fees can be capitalized into the lease. This calculator includes acquisition and disposition fees in the total cost comparison.
- How does sales tax work for leasing vs buying?
- In most US states, sales tax on a lease is applied to the monthly payment, not the full vehicle price. When buying, tax is applied to the full purchase price. This means leasing has a tax advantage in most states. Some states (like Texas and Virginia) tax the full lease value upfront. This calculator applies tax as specified for each option.
- Can I negotiate the money factor?
- The base money factor is set by the manufacturer, but dealers can mark it up for extra profit. Always ask for the base money factor from the manufacturer and negotiate back to that rate. You cannot typically negotiate below the manufacturer rate. Getting quotes from multiple dealers helps ensure you are not paying a marked-up rate.
- What is a disposition fee?
- A disposition fee is charged by the leasing company when you return the vehicle at lease end. It covers the cost of inspecting, reconditioning, and reselling the car. The fee typically ranges from $300 to $500 and is specified in your lease contract. You can avoid it by purchasing the car at lease end or by leasing another vehicle from the same manufacturer.
- How accurate is the resale value estimate?
- Resale value is the most uncertain variable in the comparison. Estimates from guides like KBB or Edmunds are reasonable starting points, but actual resale depends on condition, mileage, market demand, and economic conditions. Use the sensitivity analysis feature to see how changes in resale value affect the result.
- What if I want to buy my leased car at the end?
- You can purchase the leased car for the residual value plus any purchase fees. This makes sense if the market value exceeds the residual (you get a bargain) or if you love the car and want to avoid excess mileage and wear charges. Factor in that you will have already paid lease payments without building equity.
- How does a down payment affect the comparison?
- For buying, a larger down payment reduces your loan amount and total interest. For leasing, a down payment (cap cost reduction) lowers your monthly payment but puts money at risk. In the comparison, the down payment affects total cash outflow and financing costs differently for each option.
- Is leasing better for luxury cars?
- Luxury cars often have subsidized lease rates (lower money factors) and higher residual values from manufacturers, making lease payments relatively attractive. They also depreciate heavily in absolute dollar terms, which means buying and selling at a loss can be very expensive. Leasing lets you drive a luxury car for the cost of depreciation plus financing.
- What about gap insurance for leases?
- GAP (Guaranteed Asset Protection) insurance covers the difference between what you owe on the lease and the car's market value if it is totaled or stolen. Most leases include GAP coverage at no extra cost, which is an advantage over buying. If your lease does not include it, adding it is strongly recommended.
- How does mileage affect total cost?
- Mileage affects both options. For leasing, exceeding the allowance triggers overage charges ($0.15-$0.30/mile). For buying, higher mileage reduces resale value. This calculator includes mileage overage for leasing and lets you adjust the resale percentage for buying based on your expected mileage.
- What is the opportunity cost of a cash purchase?
- When you pay cash for a car, that money cannot be invested elsewhere. If you could earn 5-7% annually on investments, paying $33,000 cash has a significant opportunity cost over 5 years. Use the discount rate in Advanced Options to account for the time value of money. This is why some wealthy buyers still prefer to lease or finance.
- Should I lease if I change cars every 3 years?
- If you consistently want a new car every 3 years, leasing is often more cost-effective than buying and selling repeatedly. Each buy-sell cycle involves transaction costs (taxes, fees, dealer markup on purchase, wholesale discount on sale). Leasing eliminates the resale hassle and provides predictable costs.
- What are the tax advantages of leasing vs buying?
- For personal use, leasing has a tax advantage in most states because sales tax is applied to monthly payments rather than the full price. For business use, lease payments may be fully deductible as a business expense, while purchased vehicles must be depreciated over several years. Consult a tax professional for your specific situation.
- How does credit score affect lease vs buy?
- A higher credit score qualifies you for lower money factors (leasing) and lower APRs (buying). With a score below 680, both lease and loan rates increase significantly, and the gap between options may narrow. Some lease deals require 720+ credit. With poor credit, buying an affordable used car with a reasonable loan may be more practical than leasing.
- What is the total cost of ownership (TCO)?
- TCO includes everything you spend on a vehicle over the ownership period: purchase price or lease payments, financing costs, taxes, fees, insurance, maintenance, fuel, and depreciation. This calculator focuses on the financial comparison (payments, fees, taxes, maintenance, depreciation/resale) but does not include insurance or fuel, which are roughly similar for both options on the same car.