Buy vs. Lease Calculator
Compare the financial impact of buying versus leasing a vehicle
Getting your first car is a major milestone. One of the biggest choices you’ll face is whether to buy or lease your vehicle. Both options have their own pros and cons, and the long-term financial impact isn’t always obvious.
By using this tool, you can:
- See the monthly cost of each option, beyond just the sticker price.
- Understand how much you’ll spend over the entire loan or lease period.
- Discover the long-term financial benefits of owning a car (equity) versus the flexibility of leasing.
What is Buying?
Buying a car means you are purchasing it to own it completely. Most people do this by getting a loan from a bank, which you pay back in monthly installments over a set period (the loan term).
✅ Pros
- At the end of the loan, the car is 100% yours.
- As you pay off the loan, you build ownership value, called equity. You can sell the car at any time and keep the money.
- You can drive as many miles as you want and customize the car however you like.
❌ Cons
- Loan payments are typically higher than lease payments because you’re paying for the entire value of the car.
What is Leasing?
Leasing a car is like a long-term rental. You pay a monthly fee to use the car for a specific period of time (usually 2-4 years).
✅ Pros
- You’re only paying for the car’s depreciation (the amount of value it loses) during your lease term, so payments are generally lower.
- You can get a new, updated vehicle every few years with the latest technology and a full warranty.
❌ Cons
- At the end of the lease, you return the car to the dealership.
- Leases come with a cap on how many miles you can drive per year. You’ll pay a penalty for every mile you go over.
Vehicle Information
Shared Ongoing Costs
Personal Finance Parameters
Comparison Results
| Metric | Buy Option | Lease Option | Difference |
|---|---|---|---|
| Monthly Cost | $747.41 | $650.00 | $97.41 |
| Total Cash Outlay over 36 Months | $31406.67 | $25900.00 | $5506.67 |
| Net Position at End of Term | Vehicle Equity: $7305.82 | Investment Gain: $6488.95 | |
| Final Verdict | Buy is better by $816.88 | ||
| Equity is the vehicle’s value ($14992.38) minus the remaining loan ($7686.56). | |||
Loan Amortization Schedule
| Month | Payment | Principal | Interest | Remaining Balance |
|---|---|---|---|---|
| 1 | $342.41 | $247.62 | $94.79 | $17252.38 |
| 2 | $342.41 | $248.96 | $93.45 | $17003.43 |
| 3 | $342.41 | $250.31 | $92.10 | $16753.12 |
| 4 | $342.41 | $251.66 | $90.75 | $16501.46 |
| 5 | $342.41 | $253.02 | $89.38 | $16248.43 |
| 6 | $342.41 | $254.40 | $88.01 | $15994.04 |
| 7 | $342.41 | $255.77 | $86.63 | $15738.27 |
| 8 | $342.41 | $257.16 | $85.25 | $15481.11 |
| 9 | $342.41 | $258.55 | $83.86 | $15222.56 |
| 10 | $342.41 | $259.95 | $82.46 | $14962.60 |
| 11 | $342.41 | $261.36 | $81.05 | $14701.24 |
| 12 | $342.41 | $262.78 | $79.63 | $14438.47 |
| … | ||||
| 49 | $342.41 | $320.92 | $21.49 | $3646.89 |
| 50 | $342.41 | $322.65 | $19.75 | $3324.24 |
| 51 | $342.41 | $324.40 | $18.01 | $2999.84 |
| 52 | $342.41 | $326.16 | $16.25 | $2673.68 |
| 53 | $342.41 | $327.93 | $14.48 | $2345.75 |
| 54 | $342.41 | $329.70 | $12.71 | $2016.05 |
| 55 | $342.41 | $331.49 | $10.92 | $1684.57 |
| 56 | $342.41 | $333.28 | $9.12 | $1351.28 |
| 57 | $342.41 | $335.09 | $7.32 | $1016.19 |
| 58 | $342.41 | $336.90 | $5.50 | $679.29 |
| 59 | $342.41 | $338.73 | $3.68 | $340.56 |
| 60 | $342.41 | $340.56 | $1.84 | $0.00 |
Key Financial Terms
- Annual Percentage Rate (APR): The interest rate for a full year on a loan. A lower APR means you pay less in interest charges over the life of the loan.
- Depreciation: The decrease in a vehicle’s value over time due to factors like age, mileage, and wear and tear. Leasing is essentially paying for the car’s depreciation during the time you use it.
- Down Payment: The cash you pay upfront when buying a car. This amount is subtracted from the vehicle price to determine the total loan amount.
- Equity: The portion of the car’s value that you own. It is calculated by taking the car’s current market value and subtracting the amount you still owe on your loan. Equity is a financial asset.
- Lease: A long-term rental agreement that allows you to use a vehicle for a set term and mileage limit in exchange for monthly payments. You do not own the vehicle at the end.
- Loan Term: The fixed period of time during which you will make monthly payments to pay back your auto loan.
- MSRP (Manufacturer’s Suggested Retail Price): The base price of a vehicle recommended by the company that built it.
- Opportunity Cost: The potential gain you miss out on when you choose one alternative over another. In this calculator, it refers to the money you could earn by investing the savings from leasing.
Getting Your First Car Scenario
Alex needs a reliable car he can use to get to and from work. After months of working towards his goal, Alex has saved up $5,000 to put toward a vehicle. After visiting a dealership, Alex has two options for a certified pre-owned sedan with an MSRP of $22,000. The car is expected to have an annual depreciation rate of 12%.
The Buy Option:
The bank has pre-approved Alex for a 60-month (5-year) loan with a 6.5% APR. Alex plans to use $4,500 of the savings as a down payment.
The Lease Option:
The dealership is offering a 36-month (3-year) lease on the same car. The deal requires 2,500 due at signing and has a monthly payment of 320. The lease has an annual mileage limit of 12,000 miles, which is more than enough for Alex’s commute.
Shared Costs & Financial Details:
- Insurance: Alex got a quote for $180 per month.
- Fuel: Alex estimates spending $150 per month on gas.
- Maintenance: For the buy option, Alex budgets $75 per month for things like oil changes and tire rotations. (Maintenance is included in the lease).
- Alex has a brokerage account and expects an average return of 8% per year on any invested money (this is the opportunity cost rate).
Use the Buy vs. Lease Calculator to input all of Alex’s information. Analyze the results for the 36-month period (the length of the lease) to answer the questions below and help Alex make the best financial decision.