Lease vs Buy Calculator

That is the actual trade, and everything else is detail. A lease payment often runs 30 to 40 percent below the loan payment on the same vehicle, because you are paying for three years of depreciation rather than the whole car. In exchange, the car goes back at the end and the paying starts over. Buying costs more per month during the loan, then costs nothing per month afterward, and an owned car is an asset you can sell whenever circumstances change. The crossover lands around year five or six. Anyone who keeps cars longer than that comes out ahead buying, by a margin that grows every payment-free year. Anyone who would trade in every three years regardless should at least price the lease honestly, since serial three-year ownership carries its own steep depreciation costs.

Three pieces, and separating them is what makes negotiation possible. Depreciation is the largest: the gap between the negotiated cap cost and the residual, spread over the term. A $40,000 car with a $22,000 residual over 36 months carries about $500 a month of depreciation. The finance charge comes next, computed as the money factor times the sum of cap cost and residual, roughly $124 a month at a 0.002 money factor, which is near 4.8 percent APR. Tax rides on top, in most states levied on the payment rather than the car's full price. The split tells you where pressure works. Talking the cap cost down shrinks the depreciation piece. Challenging a marked-up money factor shrinks the finance piece. The residual does not move, so effort spent arguing about it is wasted.

Here is one vehicle, a $38,000 car, over one window of 36 months. The lease runs $475 a month with nothing down. The purchase puts $4,000 down and finances the rest at 6.5 percent over 36 months, and the car is assumed to be worth about 58 percent of its price when the window closes. The lease wins the three-year snapshot on out-of-pocket cost. The purchase converts most of its higher outlay into a $22,040 asset, which is why the net cost lands close despite the very different cash flows. Stretch the horizon past the loan payoff and the purchase pulls ahead for good.

Dealers can fold the unpaid balance from your old car loan into a new lease by inflating the capitalized cost, and the mechanics deserve a hard look before you agree. Say you owe $3,000 more than your trade is worth. Rolled into a 36-month lease at a 0.002 money factor, that adds about $83 a month of depreciation plus $6 of finance charge, call it $89. Over the term you pay roughly $3,216 to retire debt on a car you no longer drive, and at turn-in you own nothing that could recover any of it. In a purchase, at least the rolled-in balance rides on an asset you eventually own and can sell. The CFPB's consumer answers on negative equity walk through how these roll-ins work in both leases and loans. If you carry a gap on the old car, the cleanest options are paying it off separately or delaying the new deal until the loan catches up with the car's value.

Mileage is the leak that costs the most. Track a normal month of driving and multiply by twelve before signing anything, because 3,000 extra miles a year on a $0.25 contract turns into a $2,250 invoice at the end of a 36-month lease. Wear and tear comes second: lessors bill for dents, curbed wheels, stained seats, and tires worn past their standard, all at their own repair rates. Scheduling an independent pre-inspection about 30 days before turn-in leaves time to fix small problems at street prices instead. The habit-level mistake is rolling charges from one lease into the next. Each roll-in inflates the next cap cost, so the payments creep upward while the cars stay the same. The FTC's consumer advice on vehicle leasing and buying is short and worth reading before the first lease, not after the third.