True Cost Comparison · Equity · 2026

Lease vs Buy Calculator

Compare the true total cost of leasing vs buying a car side by side. Enter your lease and loan terms to see monthly payments, total out-of-pocket costs, equity position, and which option saves you more money over any time period.

Last updated · 2026 car loan interest deduction, lease inclusion and mileage rates checked against IRS

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Lease
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Multiply by 2400 = APR%
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Lease vs Buy: The True Cost

Leasing usually costs less if you replace the car every 3 years, and buying costs less if you keep it past the loan payoff. With this page's default $35,000 car, leasing is $4,988 cheaper over 3 years, but buying is $1,339 cheaper over 5 years and $24,790 cheaper over 10. Enter your own lease quote and loan terms above to compare them on equal terms.

Leasing appears cheaper monthly because you're only paying for the depreciation during the lease period, not the full vehicle value. A $35,000 car that depreciates to $19,250 over 36 months has $15,750 in depreciation to finance: versus a purchase loan that finances the full $35,000. But leasing means starting over every 3 years, paying another down payment, and never building equity.

Buying typically wins financially over longer time horizons once the loan is paid off. After 60 months of payments, a buyer owns an asset worth $15,000-$18,000, while a lessee has zero equity and is evaluating a new lease. The break-even point where buying becomes cheaper than leasing is usually 4-6 years for most vehicles.

When Leasing Makes Sense

You drive fewer than 12,000-15,000 miles/year. You want a new car every 2-3 years. You use the car for business (lease payments may be deductible). You prefer lower monthly payments. You don't want to deal with selling or trade-in. You value warranty coverage at all times (new car warranty covers most lease periods).

When Buying Makes Sense

You drive more than 15,000 miles/year. You keep cars for 5+ years. You want to build equity and own an asset. You want freedom to modify the vehicle. You don't mind maintenance after warranty expiration. You want lower insurance costs (no gap insurance requirement). Long-term total cost of ownership is your priority.

Hidden Lease Costs

Acquisition fee ($500-$1,000). Disposition fee at lease end ($300-$500). Excess mileage charges ($0.15-$0.30/mile over limit). Excess wear and tear fees. Security deposit (sometimes). Early termination fees (very expensive). Gap insurance requirement. No equity at end. Perpetual payments if you always lease.

Money Factor Explained

Money factor (MF) is the lease equivalent of an interest rate. Convert to APR: MF x 2400 = approximate APR%. A MF of 0.00125 = 3.0% APR. MF of 0.00300 = 7.2% APR. Dealers rarely disclose money factor voluntarily. Always ask for it and convert to APR to compare against auto loan rates. A good money factor converts to an APR at or below what you would pay on an auto loan for the same car.

Lease vs Buy Over 3, 5, 7 and 10 Years

Default inputs: $35,000 car. Lease: $2,000 down, $465 a month for 36 months, $595 acquisition fee, $395 disposition fee, a new lease every 3 years. Buy: $5,000 down, 8% sales tax, 60-month loan at 6.9%, 15% depreciation a year, $200 a year extra insurance.

Keep forLease, total paidBuy, total paidBuyer's equity at endBuy, net costCheaper
3 years$19,730$31,726$7,008$24,718Lease by $4,988
5 years$33,485$47,676$15,530$32,146Buy by $1,339
7 years$47,240$48,076$11,220$36,856Buy by $10,384
10 years$66,575$48,676$6,891$41,785Buy by $24,790

At 3 years the buyer still owes $14,486 on the loan, so the $21,494 car is only $7,008 of equity. Once the loan is gone the buyer's costs almost stop, while the lessee keeps paying about $5,600 a year in lease payments. The calculator does not add sales tax to lease payments, which most states charge monthly, so in practice the lease column runs a little higher.

How a Lease Payment Is Built

A lease payment has two parts: the depreciation you use up, and a finance charge.

  1. Capitalized cost: $35,000 price minus $2,000 down plus the $595 acquisition fee is $33,595.
  2. Depreciation charge: ($33,595 minus the $19,250 residual) divided by 36 months is $398.47.
  3. Finance charge: ($33,595 plus $19,250) times the 0.00125 money factor is $66.06.
  4. Monthly payment: $398.47 plus $66.06 is $464.53 before sales tax.

If a dealer quotes much less than this formula gives, check for a larger down payment, a higher residual, or a shorter mileage allowance hidden in the deal.

Money factor to APR

Money factorEquivalent APR
0.001002.4%
0.001253.0%
0.001503.6%
0.002004.8%
0.002506.0%
0.003007.2%

2026 Tax Rules for Car Buyers and Lessees

Car loan interest deduction (buyers only)

For 2025 through 2028 you can deduct up to $10,000 a year of interest on a loan for a new personal-use vehicle that had its final assembly in the United States, whether or not you itemize. The loan must have been taken out after 31 December 2024 and be secured by the vehicle, and the deduction phases out above $100,000 of modified AGI for single filers and $200,000 for joint filers. Leases do not qualify. On the default $32,800 loan at 6.9%, first-year interest is $2,085, which saves about $459 for someone in the 22% bracket if the car qualifies.

Business use

If you use the car for business you can deduct the business share of lease payments, but for a lease starting in 2026 on a car worth more than $62,000 you must add back a small "inclusion amount" from the IRS table. Alternatively, the standard mileage rate for 2026 is 72.5 cents a mile for January to June and 76 cents from 1 July.

Method and sources. Lease cost = down payment, acquisition fee and monthly payments for each lease cycle, plus a $395 disposition fee at the end. Buy cost = down payment, sales tax, loan payments (standard amortization formula), extra insurance and maintenance, minus equity, where equity = car value after yearly depreciation minus the loan balance still owed. Lease payment = (cap cost minus residual) ÷ term + (cap cost + residual) × money factor. Every figure above was computed with the calculator's own logic. Tax rules: IRS guidance on the One Big Beautiful Bill Act (car loan interest), Rev. Proc. 2026-15 (lease inclusion amounts) and IRS 2026 standard mileage rates.

Frequently Asked Questions

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 vehicles worth more than $62,000 for leases starting in 2026 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.

Usually leasing, if you would otherwise sell the car at 3 years. On this page's default $35,000 car, leasing costs $19,730 over 3 years against a net $24,718 for buying, because the buyer pays the sales tax up front and still owes $14,486 on a 60-month loan. Buying pulls ahead from about year 5, once the loan is nearly paid off.

Yes, if the loan is for a new vehicle with final assembly in the US, bought for personal use with a loan taken out after 31 December 2024. You can deduct up to $10,000 of interest a year from 2025 through 2028, even if you take the standard deduction, and the deduction phases out above $100,000 of modified AGI ($200,000 for joint filers). Used cars and leases do not qualify, and you must report the vehicle identification number on your return.
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