Loan vs Lease Calculator

Loan vs Lease Calculator

The decision to buy or lease a vehicle affects your finances for years. This calculator compares the total cost of financing a car with a traditional auto loan against leasing the same vehicle. It accounts for your down payment, loan APR, loan term, lease monthly payment, lease term, and the vehicle’s residual value to determine which option costs less over the lease period.

How Buy vs Lease Costs Are Compared

For buying, the calculator computes your monthly loan payment using the amortization formula: M = (P - D)[r(1+r)^n] / [(1+r)^n - 1] where P is the vehicle price, D is the down payment, r is the monthly rate, and n is the loan term in months. To make a fair comparison over the lease period, it calculates: Net Buy Cost = (Loan Payment x Lease Months + Down Payment) - Residual Value. For leasing: Total Lease Cost = Lease Payment x Lease Months + Down Payment. The option with the lower net cost wins.

Example

Key Factors That Affect the Buy vs Lease Decision

• Residual value — vehicles that hold their value (55%+ residual) strongly favor buying
• Lease payment vs loan payment — lease payments are lower monthly but you own nothing at the end
• How long you keep cars — if you trade in every 3 years, leasing avoids the depreciation hit; if you keep cars 7+ years, buying wins
• Annual mileage — leases typically cap mileage at 10,000-15,000 miles per year with overage penalties
• Down payment — a large down payment reduces loan costs significantly but is rarely recovered in a lease

Tips

1. If you plan to keep the vehicle beyond the lease term, buying almost always costs less in the long run
2. Compare net cost (total paid minus residual value) rather than just monthly payments for a true comparison
3. Negotiate the vehicle price before choosing buy or lease since both options start from the same MSRP
4. Factor in maintenance costs: leases often include warranty coverage for the full term, while purchased vehicles may not