How to compare a car lease with buying
A lease and a loan are hard to compare by monthly payment alone. A lease payment is usually lower because you only pay for the part of the car's value you use, and you hand the car back at the end. A loan payment is usually higher, but each payment also builds ownership, and at the end of the lease term you still have a car with resale value, often with some loan left on it. This calculator puts both options on the same horizon: the full lease term you enter. For each option it adds up the cash you pay over those months, then for buying it adds the loan balance still owed and subtracts the car's estimated value at that point. The result is a modeled cost you can compare like for like.
Use the quotes you actually have: the all-in purchase price including taxes and fees, your loan rate and term, the lease's amount due at signing, its monthly payment, mileage allowance, excess-mileage charge and return fee. The U.S. Consumer Financial Protection Bureau notes that mileage limits, end-of-lease charges and negotiated terms all affect what a lease really costs, so they are inputs here rather than hidden assumptions.
Lower payment or lower cost?
In the default example the loan installment is $400.00 a month against a $350.00 lease payment, so the lease looks cheaper month to month. Over 36 months, though, buying has a modeled cost of $12,000.00 and leasing $15,300.00: buying has a modeled cost lower by $3,300.00 over 36 months. The reason is the car you keep. After 36 payments you still owe $9,600.00, but the car is assumed to be worth $18,000.00, leaving $8,400.00 of equity. A lower payment is a cash-flow advantage, not proof of a lower total cost. If the monthly budget is the real constraint, check it separately with the car affordability calculator.
The formulas
With N the lease term in months, both options are measured at month N:
- Loan payment: M = P × i ÷ (1 − (1 + i)−n), where P = price − down payment, i = annual rate ÷ 1,200 and n is the loan term. At 0% it is P ÷ n.
- Buy modeled cost = down payment + loan installments paid by month N + N × monthly running cost + selling cost + loan balance at N − resale value at N.
- Lease cost = due at signing + N × monthly payment + N × monthly running cost + return fee + max(0, expected − allowed mileage) × excess charge.
Depreciation is already inside the buy formula: you pay the full price through the down payment, installments and remaining balance, and get back the resale value. Adding a separate depreciation line would count it twice. Interest is the difference between what you pay on the loan and what you borrowed; the same loan payment calculator engine computes the month-by-month balance, with interest charged on the opening balance each month and the final payment capped at what is owed.
Worked example
Buy: $30,000.00 all-in price, $6,000.00 down, a 60-month loan at 0%, and an estimated resale value of $18,000.00 after 36 months. The installment is $24,000.00 ÷ 60 = $400.00. After 36 payments you have paid $14,400.00 and owe $9,600.00. Modeled cost: $6,000.00 + $14,400.00 + $9,600.00 − $18,000.00 = $12,000.00.
Lease: $1,000.00 due at signing, $350.00 a month for 36 months, a $500.00 return fee, a 36,000-mile allowance and 42,000 expected miles at $0.20 per extra mile. Excess mileage costs 6,000 × $0.20 = $1,200.00. Lease cost: $1,000.00 + $12,600.00 + $500.00 + $1,200.00 = $15,300.00. The same loan at 6% instead of 0% raises the buy cost to $15,172.42, so buying still costs $127.58 less.
Resale value and mileage sensitivity
The resale value is the most uncertain input, and the result can be sensitive to it. In the example, every $1,000.00 less in resale value adds $1,000.00 to the buy cost: at $15,000.00 instead of $18,000.00, buying costs $15,000.00 and still beats the lease by $300.00. Mileage works the other way for the lease: driving 48,000 miles instead of 42,000 adds another $1,200.00 of excess charges, for a lease cost of $16,500.00. Higher mileage usually lowers resale value too, so change both inputs together when you test a scenario.
A long, low-down-payment loan can leave you owing more than the car is worth. With no down payment, 9% over 84 months and a $15,000.00 resale value, the balance after 36 months is $19,396.08, so ending equity is -$4,396.08. The calculator keeps that shortfall as a cost. If you are already in that position, the negative equity auto loan calculator shows what rolling it into a new loan would cost.
What this calculator does not include
It compares the two quotes you enter over one lease term. It does not estimate market prices or resale values, calculate sales tax rules, model a lease buyout or early termination, or discount future cash at an interest rate. Refundable deposits are left out; any first monthly payment collected at signing should be counted as one of the N monthly payments, not in the amount due at signing. Running costs are your own estimates and can differ between a new leased car under warranty and an older owned one. Read the lease and loan contracts before signing; this is scenario arithmetic, not advice.
FAQ
Is a lower lease payment always cheaper?
No. The lease payment is lower because you do not keep the car. Over the same months, the purchase can cost less once you count the equity you keep.
What is equity in this comparison?
The car's estimated value at the end of the lease term minus the loan balance still owed. It can be negative if you owe more than the car is worth.
What goes in "due at signing"?
Non-refundable cash paid at the start, such as a down payment or acquisition fee, excluding monthly payments and refundable deposits. Taxes already in the quote are not added again.
How are excess miles charged?
Expected mileage above the allowance for the whole term, times the charge per mile or kilometre in the lease. Use the same unit in all three mileage fields.
What if I keep the car instead of selling it?
The resale value still matters: it is what the car is worth to you at that point. Keeping it is a separate decision after the comparison horizon.