Buy vs Lease a Car

Same car, two ways to pay for it. Buying gives you the asset at the end; leasing gives you the lower monthly payment. See exactly what each costs you over the term.

The car + your offer

$
$
Most leases are 24/36/39 months. Loans typically 36–84.
%
Money factor × 2400 ≈ APR equivalent (0.0020 → ~4.8% APR).
% of MSRP
$
What the car is worth on the used market when the loan is paid off.

Buy

Monthly payment

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Total cost over term

—

You own a car worth

—

Net cost (cash out − equity)

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Lease

Monthly payment

—

Total cost over term

—

You own a car worth

$0

Net cost (cash out − equity)

—

The fundamental difference

When you buy, you're paying for the entire car over the loan term. At the end you own an asset. When you lease, you're paying for the depreciation during the term — the gap between the sale price and the residual value — plus a finance charge. At the end, the car goes back.

Because depreciation in years 1–3 is steep but partial (~40% of the value), the lease payment for the same car is roughly half of the buy payment. The trade is real: at the end of a buy you have ~$20k of car; at the end of a lease you have nothing.

How the lease payment is calculated

monthly = (cap cost − residual) / months + (cap cost + residual) × money factor

Two parts: the depreciation portion (dividing the price drop over the term) and the finance portion (interest on the average outstanding balance). Money factor × 2400 is a reasonable approximation of the APR equivalent.

When leasing makes sense

  • You drive under the mileage cap (typically 10–15k/yr; overage fees are punishing).
  • You want a new car every 2–3 years and don't want resale hassle.
  • You're a business owner who can deduct lease payments.
  • The leased model has notoriously high depreciation (luxury sedans, EVs) — leasing externalizes the risk.

When buying makes sense

  • You'll keep the car 6+ years. Each year past the loan term is essentially free transportation.
  • You drive above the mileage cap a lease would allow.
  • You want to modify the car (most leases forbid permanent changes).
  • You value the optionality of owning an asset you can sell, borrow against, or trade in.

FAQ

Why is the residual percentage so important?

A car with a 60% residual leases for less per month than one with a 45% residual — the lessor "loses" less to depreciation. Luxury and reliable Japanese brands tend to have higher residuals.

What's "drive-off" cash?

The amount due at signing on a lease — typically first month + cap-cost reduction (lease equivalent of down payment) + acquisition fee + taxes/fees. Reducing drive-off raises the monthly payment.

Why don't I see the dealer fees here?

To compare cleanly. Both buying and leasing involve title/registration/destination/doc fees that vary by state and dealer. Add them equally to both sides to model your specific deal.