Lease vs Buy Calculator

It depends on your situation and priorities. Financially, buying is almost always better over the long term (5+ years) because you build equity and eventually have no payment. Leasing is better if: you change cars frequently, want lower monthly payments, drive moderate mileage, or use the car for business. The key insight: leasing is essentially renting — you'll always have a payment. Buying eventually results in a paid-off asset. Run the numbers for your specific situation using this calculator, comparing total cost over the same time period including the vehicle's residual value.

Lease payment = (Depreciation component) + (Finance component). Depreciation: (Capitalized Cost - Residual Value) / Lease Term. Finance: (Capitalized Cost + Residual Value) x Money Factor. Capitalized Cost = Negotiated price + fees - down payment - trade-in. Residual Value = Agreed end-of-lease value (set by the leasing company, not negotiable). Money Factor = Lease equivalent of interest rate (MF x 2400 = approximate APR). The lower the residual value, the higher the depreciation and monthly payment. The lower the money factor, the lower the finance charge. Always negotiate the selling price (cap cost) and know the residual value before agreeing.

Residual value is the predetermined value of the car at the end of the lease term — essentially what the leasing company predicts the car will be worth. It's expressed as a dollar amount or percentage of MSRP. A higher residual value means lower monthly payments (less depreciation to finance). A 55% residual on a $35,000 car means the car is predicted to be worth $19,250 after 36 months. You have the option (but not obligation) to buy the car at the residual price at lease end. Residual values are set by the manufacturer's captive finance company (not negotiable) and vary significantly by vehicle brand and model.

At lease end you have three options: (1) Return the car: Pay any end-of-lease fees (disposition fee ~$300-$500, excess mileage charges, excess wear fees) and walk away with no asset. (2) Buy the car: Purchase at the predetermined residual price — can be a good deal if the market value exceeds the residual. (3) Lease a new car: Usually the dealer facilitates this, often waiving the disposition fee. Before returning, always check the current market value (Carmax, KBB, Carvana) against your residual. If the car is worth more than the residual, you have equity you can capture by buying and reselling or negotiating with the dealer.

Yes — some components are negotiable, others are not. Negotiable: the capitalized cost (selling price of the vehicle — negotiate this like any car purchase), capitalized cost reductions (down payment, trade-in value), dealer-added fees, and sometimes the acquisition fee. Not negotiable: the residual value (set by the manufacturer's finance company) and the money factor (base rate is set by the manufacturer, though some dealers mark it up — ask for the "buy rate" money factor). The single most impactful thing you can negotiate is the selling price/cap cost. A $1,000 reduction in cap cost saves roughly $28/month on a 36-month lease. Always negotiate selling price before revealing you plan to lease.

Money factor (MF) is the lease equivalent of an interest rate. Convert to approximate APR: MF x 2400 = APR%. Example: MF 0.00150 x 2400 = 3.6% APR. The finance charge portion of your monthly payment = (Cap Cost + Residual) x MF. On a $35,000 car with $19,250 residual: ($35,000 + $19,250) x 0.00125 = $67.81/month in finance charges. Dealers are not required to disclose money factor. Always ask for it explicitly and compare to equivalent APR. Dealers can mark up the money factor above the buy rate — this is dealer profit. Know the published buy rate (available on leasehackr.com forums) before negotiating.

Leases include a mileage allowance (typically 10,000-15,000 miles/year). Every mile driven over that limit is charged at $0.10-$0.30 per mile at lease end, depending on the manufacturer. Example: 15,000 miles/year lease, but you drive 18,000 miles/year = 3,000 extra miles/year x 3 years = 9,000 excess miles x $0.25 = $2,250 surprise charge at lease end. Options to avoid excess mileage fees: (1) Buy additional miles upfront at a lower rate (negotiate this when signing). (2) Buy the car at lease end if it makes financial sense. (3) Accurately estimate your annual mileage before choosing a lease allowance. Never underestimate mileage when leasing.

For business use: lease payments for a vehicle used for business may be deductible as a business expense (proportional to business use percentage). Under IRS rules, there is an "inclusion amount" that reduces the deduction for luxury vehicles (over approximately $20,000) to prevent tax advantages over buying. For self-employed individuals: you can deduct the business-use portion of lease payments on Schedule C. For employees: personal vehicle deductions were largely eliminated by the Tax Cuts and Jobs Act (2018); unreimbursed employee expenses are no longer deductible on federal returns. Always consult a tax professional for your specific situation. Leasing can have genuine tax advantages for business owners, which is a legitimate reason to prefer it.

GAP (Guaranteed Asset Protection) insurance covers the difference between what you owe on a lease or loan and what your regular insurance pays if the car is totaled. In leasing, this matters because: you owe the remaining lease payments AND the residual value if the car is totaled, but regular insurance only pays current market value. Example: car worth $20,000 is totaled, but you still owe $23,000 under the lease — GAP covers the $3,000 difference. Most manufacturer-brand leases include GAP insurance automatically at no extra charge (Honda, Toyota, etc.). Always verify. If you buy using a loan, GAP insurance from a dealer is usually overpriced — you can buy it from your auto insurer for $20-$40/year.

Both leases and auto loans appear on your credit report and affect your credit similarly. Both add an installment account with a monthly payment. Both require a hard inquiry when applying. Both affect your debt-to-income ratio. Key differences: a lease payoff amount (residual) appears as your potential obligation, which can affect mortgage qualification. Multiple open leases increase perceived debt burden. Returning a car in good standing at lease end is treated like paying off a loan. Early lease termination can have significant negative credit impacts. For most consumers, the credit impact of leasing vs buying is minimal compared to payment history and overall debt levels.