What Is a Lease vs Purchase Analysis?
When you get a new car you can either lease it or buy it. A lease is a long-term rental: you pay for the part of the car's value you use up during the lease, plus a finance charge and fees, and you hand the car back at the end. Buying, usually with a car loan, costs more each month, but the car is yours and keeps some of its value when you're done.
Comparing monthly payments alone is misleading, because the costs come at different times and buying leaves you with a car worth money at the end. A lease vs purchase analysis adds up everything each option costs over the same period, so you can see which one is really cheaper.
Leasing vs buying at a glance
- Leasing: lower monthly payments and a new car every few years, usually under warranty. But you own nothing at the end, there are mileage limits (often 10,000–15,000 miles a year), and you pay for excess wear and tear.
- Buying: higher monthly payments, but the car is yours: no mileage limits, you can customize it, and once the loan is paid off you drive payment-free. You take the hit when the car loses value.
- Closed-end vs open-end leases: most personal leases are closed-end ("walk-away"): you return the car and owe only end-of-lease charges such as excess mileage. With an open-end lease you may owe the difference if the car is worth less than expected.
How to Calculate Lease vs Purchase
Add up the total cost of each option over the same term. Leasing:
Buying with a loan, then subtracting what the car is still worth at the end:
Lost interest (the opportunity cost) is what the money you pay up front could have earned elsewhere: the amount × years × your investment return. For a lease it counts the down payment and the security deposit (the deposit itself comes back to you); for buying, the down payment. The loan payment is the usual monthly payment on the price minus the down payment.
Example
A 48-month term (4 years) and money that could earn 3% a year elsewhere:
- Lease: $2,900 down + 48 × $440 = $21,120.00 of payments + ($2,900 + $500) × 4 × 3% = $408.00 of lost interest + $0 end charges = $24,428.00
- Buy: $4,500 down + 5% sales tax on $29,990 ($1,499.50) + 48 loan payments of $575.54 ($27,625.92) + $4,500 × 4 × 3% = $540.00 of lost interest − $16,500 value at the end = $17,665.42
- Buying costs $6,762.58 less, so here buying is the cheaper choice.
How to Use the Automobile Lease vs Purchase Calculator
"The dealer offers a 4-year lease at $440 a month with $2,900 down, or I can buy the same $29,990 car with $4,500 down and a 4% loan. Which costs less?" This calculator answers that.
Let's enter the numbers for this example in each box. They are already filled in when the calculator opens, so you can follow along and then change any box to match your own offers.
Both options
- Lease & Loan Term: Enter 48, which is how many months you would lease the car, and how long the car loan would last. It must be a whole number from 1 to 120.
- Return Rate: Enter 3, which is the yearly return in percent your money could earn elsewhere, for example in savings, CDs or Treasury bonds. It must be from 0 to 99.99.
Lease
- Down Payment: Enter 2,900, which is the cash you pay at the start of the lease (the capital cost reduction). Enter 0 for a zero-down lease.
- Security Deposit: Enter 500, which is the deposit the dealer refunds when you return the car. Enter 0 if there is none.
- Monthly Payment: Enter 440, which is the monthly lease payment the dealer quotes. It must be greater than 0.
- End Charges: Enter 0, which is what you expect to pay when you return the car, such as excess mileage or wear and tear. Use 0 for a closed-end lease with no extra charges.
Buy
- Car Price: Enter 29,990, which is the price you would pay to buy the car. It must be greater than 0.
- Sales Tax: Enter 5, which is your state's sales tax rate in percent.
- Down Payment: Enter 4,500, which is the cash you put down if you buy. It can't be more than the price.
- Loan Rate: Enter 4, which is the yearly interest rate on the car loan in percent. Enter 0 for a 0% deal.
- Value at End: Enter 16,500, which is what the car will be worth at the end of the term. The Automobile Depreciation calculator can estimate it.
Calculate and Reset
Click Calculate to see your results. If a box has a problem, such as a down payment bigger than the price, a message pops up under that box instead. With the default numbers you get:
- Your Results: a short summary in words: the total cost of leasing ($24,428.00) and of buying ($17,665.42), and which one saves you money.
- Savings: the headline number, $6,762.58, with the cheaper option named under it.
- Total Cost of Leasing, Total Cost of Buying, Monthly Lease Payment and Monthly Loan Payment: the cheaper total is highlighted.
- Waterfall charts: one for each option, on the same scale. Each cost steps up from the one before; for buying, the car's value at the end steps back down (green) to the total.
- Lease vs Purchase Report: every line of the calculation, numbered, ending with the decision. Download PDF saves it as a formatted report; Download Excel saves a spreadsheet with the formulas, so you can change a number and see the totals update.
- Share Results: a link that opens this calculator with your numbers filled in. Copy it, or share it on Facebook or X.
Amounts of $1 million or more are shortened, for example $1.25M. Click Reset to put every box back to its default and show the default results again.