Lease vs Buy Auto Calculator

Use this calculator to find out how much buying a car and leasing a car will actually cost, and which is truly the better value. You can compare both the cost of monthly payments, and the total cost. Leasing vs. buying can be a complicated financial decision because of all the little cost factors. The calculator takes account of most of those factors for you. Such factors include: the residual value of the car vs. depreciation, leasing fees, down payments, auto loan interest, sales tax, lease term, and security deposit.

Because there are so many variables in the lease-vs-buy equation, little differences in any variable can make a big difference in which is better. One of the most important issues to think about is how long you want to own the car. If you were planning on getting a new car within a few years anyway, leasing is very likely your best option. However, if you are hoping to hold onto your car for as long as possible, leasing is likely an equally bad idea. If you're on the fence about how long you want to keep your car, this calculator can help you see the issue of losses vs. gains in your particular case more clearly.

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Calculator Legend

Purchase Price: the advertised purchase price of the automobile, taking into account any discounts or rebates.
Down Payment: Enter the down payment as a whole dollar amount. When selling a car, dealers traditionally ask for a down payment, though "no-money-down" offers are common, too.
Sales Tax Rate: Enter the state sales tax as a percentage. Sales tax can add a lot to the cost of buying a car. For a $20,000 car, a 5% sales tax would be $1,000.
Rate of Return: Enter what you would expect to get in interest if you placed the money in an investment account instead of placing it in a security deposit. Currently, the rates of return for CDs, money markets, and other relatively low-risk investment accounts are quite low, often under 2%. Mutual funds offer a higher possible rate of return, but may also very likely lose money. Generally speaking the security deposit is so low that the lost investment value of the money is not that much.
Loan Term (months): Enter the number of months you will be making loan payments, also called the term. A common loan term is 60 months.
Interest Rate: Enter as a percentage the interest rate of the auto loan.
Upfront Fees: Enter the total dollar amount of all fees you have to pay at the time you buy the car or take out the lease.
Annual Depreciation: Enter the percentage the car is expected to lose value by each year. Of course, if you knew this figure with absolute certainty, the decision would be much easier. The idea is to make an educated guess; you can try searching the web on your car's make and model names along with the term "annual depreciation" to find out what other people are saying about the car's expected annual depreciation.
Lease Term (months): Enter the total number of months you will be leasing the car (term). Usually the term is either 24 or 36 months.
Interest Rate: Enter as a percentage the interest rate of the auto lease.
Upfront Fees: Enter the total dollar amount of all fees you have to pay at the time you buy the car or take out the lease. Some leases do not charge anything upfront.
Residual Value: This is what the dealer or lease company says the car will be worth at the end of the lease term. The higher the residual value, the less you have to pay for the lease--but the more you'll have to pay if for some reason you decide to buy the car at lease end.
Security Deposit: Enter the whole dollar amount of the security deposit. Assuming you get the security deposit back at the end of the lease, this isn't really a cost, but it is money you will have to come up with before driving off. There is some risk, however, to the security deposit if you are not meticulous in keeping receipts of every instance of scheduled maintenance: more than one unscrupulous dealer has pulled out the magnifying glass to find excuses for not returning the security deposit.

Auto Loans vs. Leasing: How to Decide

Whether an auto loan or car loan is more affordable is not a straightforward proposition. It all depends on you and what you plan on doing with your car. The calculator checks your current financial situation against well-established guidelines for the lease vs. loan decision.

Immediate Acquisition Costs

Buying a car will generally require a significant down payment, regardless of how good a loan you get. Auto leases, meanwhile, may not ask for a down payment, or only ask for a smaller one. Auto leases may ask for a security deposit, but at least you should get that money back.

Auto Loan vs. Lease Monthly Payments

If you lease cars for the rest of your life, you will never stop making payments. If you buy a car and choose to keep it after you stop making payments, you will be saving yourself money, at least on the cost of the car. However, if you like to get a new car every two to three years, leasing is very likely your best bet. Since your car loses value as soon as it leaves the dealer's lot, you will take a big hit when you go to trade in a car that you bought, which you will not be able to regain by reselling the car at that time.

Depreciation vs. Residual Value

When you buy a car, the value lessens or depreciates as soon as you drive it off the lot. A car you buy for $20,000 may be worth a few thousand less the next day if you try to sell it. The great advantage of leasing is you don't have to worry about depreciation. If you were to resell the car after two years, it is very likely you would have lost more total on the car than you would have spent to lease it.

However, there is still some residual value left in the car for as long as you keep it, until the day it finally gets totaled by the insurance company. You can convert that residual value into actual money by selling the car. If you keep driving the car year after year, you save the cost of getting another car, another side of residual value. Residual value, then, is the essential advantage of buying a car.

Figuring out whether depreciation outweighs residual value is the hardest part of making a financial decision as to whether to lease or buy a car. As a rule of thumb, if you will only be keeping a car for two-three years (say, because you want a new model or will move far away), leasing will be less expensive. The longer you keep the car, the better a value ownership is.