Lease vs. Buy Calculator

Should I Lease or Buy a Car?

The decision to lease or buy a car is one of the most debated topics in personal finance. Dealerships often push leases because the monthly payment is lower, making it easier to sell you a more expensive car. However, a lower monthly payment does not always mean it is cheaper.

How the Calculation Works

To accurately compare leasing and buying, we have to look at the same time horizon (the length of the lease). Here is how the math breaks down:

1. The True Cost of Buying

When you buy a car, your monthly payments are higher because you are paying for the entire value of the car. However, after 3 years, you own a highly valuable asset. To find your "true cost," we calculate all the payments you made over 3 years, and then subtract the equity you built up in the car (its resale value minus your remaining loan balance).

2. The True Cost of Leasing

When you lease a car, you are only paying for the depreciation that occurs during those 3 years, plus a finance fee. Your monthly payments are lower, but at the end of the 3 years, you must return the car. You have zero equity. Your "true cost" is simply every dollar you spent during the lease.

When Leasing Makes Sense

Financially, buying a reliable car and driving it for 10 years is always the cheapest option. However, leasing can make sense if:

• You own a business and can write off the lease payments as a business expense.
• You insist on driving a brand new car every 3 years anyway. If you buy a new car and trade it in every 3 years, you are absorbing the worst part of the depreciation curve yourself, making it often more expensive than a subsidized lease.
• You want the absolute lowest monthly payment to preserve monthly cash flow.

The Mathematical Formula