Car Lease vs Buy Calculator

• Compares both options over the same number of months, signing more than one lease if needed.
• Derives the lease payment from capitalised cost, residual value and money factor instead of accepting a quote at face value.
• Converts the money factor to an APR, which is the number the lease format is designed to obscure.
• Counts the equity you hold in a purchased car at the end, which is what makes the comparison fair.

How to use this calculator

Negotiate the vehicle price before discussing monthly payments, and enter that price here — it drives both sides of the comparison.

For the lease, you need three numbers from the dealer's worksheet: the residual value as a percentage, the money factor, and the term. Ask for them directly. If you already have a quoted monthly payment, enter it in the advanced fields and the calculator will flag any gap between the quote and what the terms imply.

Set the comparison period to how long you actually expect to need a car, not to the lease term. That is the whole point: comparing a 36-month lease payment to a 72-month loan payment is comparing two different things.

How the lease payment is derived

Capitalised cost   = price − cap cost reduction + acquisition fee
Residual           = price × residual %

Depreciation charge = (cap cost − residual) ÷ term months
Finance charge      = (cap cost + residual) × money factor
Monthly payment     = depreciation charge + finance charge

Implied APR         = money factor × 2400

The buying side runs an amortising loan, applies the same depreciation curve used in the cost-of-ownership calculator, and credits you with the car's value less any loan balance at the end of the period.

That final credit is what makes the comparison honest. Leasing leaves you with nothing; buying leaves you with an asset. Counting the payments on both sides and the asset on only one is how leases end up looking better than they are.

A worked example

A $38,000 car. Lease terms: 57% residual, money factor 0.00250, three-year term, $2,000 down, $895 acquisition fee. Purchase: $5,000 down, five years at 7.5%. Compare over six years at 13,000 miles a year.

Capitalised cost is $36,895 and the residual is $21,660, so the depreciation charge is $423 a month and the finance charge $146 — a payment of $570 before tax, or $598 with 5% sales tax. The money factor works out to 6% APR.

Over six years the lease route means two leases, two acquisition fees, two disposition fees, and about $64,900 in total. Buying costs about $47,400 net once the roughly $16,000 of equity in the car at the end is credited. Buying wins by around $17,500 — and the gap widens the longer the comparison runs.

The money factor is the part worth interrogating

Leases quote the cost of money as a decimal — 0.00250 — rather than as a rate. Multiply it by 2400 and you get the equivalent APR: in that case, 6%. The conversion is trivial and the format is not an accident. A money factor marked up from 0.00150 to 0.00250 is the difference between 3.6% and 6% money, and almost nothing about the quoted payment makes that visible.

The residual value is the other lever, and it moves the payment in the opposite direction: a higher residual means less depreciation to pay for, so a lower payment. Residuals are set by the finance company rather than the dealer, which makes them harder to negotiate but also more honest.

Between them, these two numbers plus the capitalised cost determine the payment entirely. Any quote that does not reconcile to them has something else rolled in.

Assumptions and limitations

• Same car both ways. In practice people lease a more expensive car than they would buy, which is a real effect this comparison deliberately excludes.
• Sales tax on payments. Correct in most states, wrong in a few that tax the full price up front.
• No early termination. Ending a lease early is expensive and is not modelled.
• No lease-end purchase. Buying the car at its residual can be the best outcome of a lease and is not included here.
• Repeat leases assumed identical. Terms, residuals and money factors will differ next time.
• No opportunity cost on the down payment. Cash down on either side could have been invested.

Common mistakes

Comparing payments rather than periods. A lease payment against a longer loan payment is not a comparison, and it reliably favours the lease.

Putting a large cap cost reduction on a lease. It lowers the payment, and if the car is written off you generally do not get it back. Down payments make more sense on something you will own.

Ignoring the mileage allowance. Excess mileage charges are settled at the end, when the amount is no longer negotiable. Buying a higher allowance up front is usually cheaper.

Accepting the money factor without converting it. It takes one multiplication to see what you are being charged.

Frequently asked questions