Lease Vs. Buy Calculator

When you exercise your option to buy at the end of a lease, you'll end up paying more for the vehicle than if you had taken out a regular car loan. However, if you return the car without buying it, the total amount you spend on lease payments is much less than what you would have spent on car loan payments.

When deciding whether to lease or to buy, you must consider the comparative costs of your monthly payments and your likelihood to purchase a leased vehicle at the end of the term. Use the calculator below to examine the costs associated with both choices.

Leasing Vs. Buying: Making the Right Choice

Purchase Price (Capitalized Cost) $
Down Payment $
Value of Any Trade-In $
Net Capitalized Cost $ (auto-filled for you)
Residual Value $
Lease Term in Months   
Annual Interest Rate   %
Money Factor    (auto-filled for you)

Monthly Payment Formulas

Let C be the net cost of the car to buy or lease, R be the residual value of the car at the end of the leasing period, N be the number of months in the lease or loan term, and X be the APR (percent). Then the monthly payments for leasing and buying, Mlease and Mbuy are

Mlease = (1/N)(C - R) + (X/2400)(C + R)

Mbuy = (CX/1200)(1 + X/1200)N/[(1 + X/1200)N - 1]

Mlease is always less than Mbuy, even when R = 0, although this is an unrealistic mathematical condition. Usually R is a fixed percentage of the MSRP (the vehicle manufacturer's suggested retail price for the unit), often around 60%. The larger the value of R, the lower the lease payments per month.

Total Cost to Own Equation

If you buy a car by taking out a loan, the total cost to own the vehicle is the sum of all the monthly payments, which you can calculate by multiplying your monthly auto loan payments by N.

Tbuy = (NCX/1200)(1 + X/1200)N/[(1 + X/1200)N - 1]

If you lease a car and want to keep it at the end of the term, you have to pay the residual value (or finance it). Assuming you pay the residual value in full, the total cost to own a lease is the sum of all the monthly payments plus the residual value.

Tlease = N[(1/N)(C - R) + (X/2400)(C + R)] + R
= C - R + (NX/2400)(C + R) + R
= C + (NX/2400)(C + R)

The total cost to own a vehicle after your lease ends is more than the total cost associated with a traditional auto loan, except in the extremely unlikely scenario that the value of R is near 0. And if you finance the residual value rather than pay it in full, your costs are even higher.

As you can see, your eagerness to own something at the end of the leasing period is a crucial factor. If you return the car and take on another lease, you can keep your monthly payments low while getting to drive a newer model that you couldn't normally afford to buy. If you choose to own the car, you can eliminate that recurring monthly bill, plus you can always make some money by selling the vehicle later.

© Had2Know 2010