Lease vs Buy a Car Calculator

Buying is almost always cheaper over the long term if you keep the car for many years. Leasing is cheaper in the short term — lower monthly payments and no large down payment — but you own nothing at the end of the lease. Leasing makes sense if you want a new car every 3 years, drive fewer than 12,000 miles per year, and prioritize lower monthly payments. Buying makes sense if you drive a lot, keep cars long-term, or want to build equity in an asset.

Lease agreements typically include mileage limits of 10,000-15,000 miles per year with overage fees of $0.10-0.25 per mile. Excessive wear and tear charges at lease return can add hundreds or thousands of dollars. Lease acquisition fees, disposition fees, and gap insurance are additional costs often overlooked. Early lease termination penalties can be extremely expensive — typically the remaining payments plus fees.

The residual value is the estimated worth of the car at the end of the lease term — set by the leasing company when you sign. A higher residual value means lower monthly lease payments because you are financing less depreciation. Residual values vary significantly by make and model — vehicles with strong resale values like Toyota and Honda typically have higher residuals and therefore lower lease payments.

Financial advisors generally recommend putting $0 down on a car lease. Unlike a home purchase, a lease down payment does not reduce your monthly payment significantly and if the car is totaled or stolen in the first month you lose that down payment entirely. Insurance will only cover the car's value — not your down payment. Keep your money invested and pay the monthly lease payment instead.

At the end of a car lease you have three options: return the vehicle and lease or buy something new, purchase the vehicle at the predetermined residual value, or in some cases extend the lease. If you return the vehicle you may face charges for excess mileage, excessive wear and tear, and a lease disposition fee typically $300-500. If the car's market value exceeds the residual value you may be able to negotiate a favorable purchase.

A car loan finances the full purchase of the vehicle — you own the car and build equity with each payment. At the end of the loan you own the car outright. A lease finances only the depreciation during the lease term — you never own the car. Monthly loan payments are typically higher than lease payments for the same vehicle but you build an asset. A loan has no mileage restrictions and no wear-and-tear charges.