How the calculator works
- Leasing costs: what’s due at signing, every monthly payment with sales tax, and any fee for handing the car back.
- Buying costs: your down payment and the loan payments over the same months, less what you’d have if you sold the car then and paid off the rest of the loan.
- The difference: what one costs more than the other over the length of the lease.
Example
A $35,000 car over 36 months: leased at $480 a month, or bought with $3,500 down and a 5-year loan at 7.54%, before sales tax:
| Lease | Buy | |
|---|---|---|
| Up front | $3,000 due at signing | $3,500 down |
| Monthly payment | $480 | $632 |
| Paid over 36 months | $20,680, with the fee at the end | $26,244 |
| What you own at the end | Nothing | $5,216: a $19,250 car, less $14,034 still owed |
| Real cost | $20,680 | $21,029 |
Keep the car for 2 more years, though, and the loan is paid off: from then on, buying gets cheaper every month.
What changes the answer
Changing one thing at a time from the example:
| If | Lease costs | Buying costs | Cheaper |
|---|---|---|---|
| The example | $20,680 | $21,029 | Leasing, by $349 |
| Car worth 45% at the end | $20,680 | $24,529 | Leasing, by $3,849 |
| Car worth 65% at the end | $20,680 | $17,529 | Buying, by $3,151 |
| 7% sales tax | $21,890 | $23,890 | Leasing, by $2,000 |
| Lease payment $430 | $18,880 | $21,029 | Leasing, by $2,149 |
| Lease payment $530 | $22,480 | $21,029 | Buying, by $1,451 |
| Loan rate 5.54% | $20,680 | $19,584 | Buying, by $1,096 |
| Loan rate 9.54% | $20,680 | $22,504 | Leasing, by $1,824 |
What the car is worth at the end matters most. In most states, sales tax on a lease is charged on the monthly payments, not the whole price, which tips the sums towards leasing where tax is high.
Lease terms explained
- Capitalized cost: the price the lease is based on. Negotiate it like a purchase price.
- Residual value: what the lease says the car will be worth at the end, and the price to buy it then.
- Money factor: the lease’s interest charge. Multiply it by 2,400 to compare it with a loan rate.
- Acquisition and disposition fees: charged at the start and when you hand the car back.
- Mileage limit: each mile over it costs a set charge at the end.
Before you sign
- Negotiate the price first: a lease payment is worked out from the car’s price, so a lower price lowers the payment.
- Count the mileage: pick a limit that matches how far you really drive.
Learn more
See our car loan calculator, the car affordability calculator, and the budget calculator.