Car Lease vs Buy Calculator

Lease interest is quoted as a money factor rather than an APR, and the conversion is not obvious: multiply by 2,400. A money factor of 0.00125 is a 3% APR; 0.0025 is 6%.

There is no technical reason for this convention. It has the practical effect of making the interest rate hard to compare against a loan quote, and of making a bad rate look like a small number.

Always ask for the money factor explicitly and convert it. A dealer quoting "0.00292" is charging 7% — which may or may not be reasonable, but you cannot judge it until you have done the multiplication.

Manufacturer-subsidised leases sometimes carry a genuinely low money factor as an incentive, which is one of the few situations where leasing is straightforwardly the better financial choice.

The residual is set by the leasing company as a percentage of sticker price, and it drives the payment more than almost anything else. Depreciation is the gap between what the car costs and what it is worth at the end, and that gap is what you are paying for.

A high residual means a low lease payment: a car holding 60% of its value depreciates less over three years than one holding 45%. This is why cars with strong resale reputations often lease well and cars with weak resale lease badly, regardless of sticker price.

It also creates a genuine asymmetry in your favour. The residual is fixed at signing. If the car is worth more than that at lease end, you can buy it and capture the difference — as many lessees discovered when used-car prices spiked. If it is worth less, that is the leasing company's problem and you simply hand it back.

That downside protection is a real and underrated benefit of leasing, particularly for models with uncertain resale — early electric vehicles being the obvious current case.

Excess mileage —

typically $0.15 to $0.30 a mile over the allowance. Driving 18,000 miles a year on a 12,000-mile lease costs $4,500 to $9,000 over three years at $0.25.

Wear and tear —

charged at lease return for anything beyond "normal". Kerbed alloys, seat tears and stone chips all appear on the bill, and the standard is the leasing company's.

Disposition fee —

commonly $350 to $500 simply for returning the car, unless you lease again from the same brand.

Acquisition fee —

typically $600 to $1,000 at the start, often rolled into the payment where it is easy to miss.

Gap insurance —

usually included in a lease, and a real cost you must buy separately when financing — a new car can be worth less than the loan for the first couple of years.

Early termination —

leaving a lease early is expensive and often means paying most of the remaining payments. A loan can be settled by selling the car.

Maintenance —

a lease usually sits entirely within the warranty period. Ownership means paying for the years after it expires, which is when costs rise.

Leasing suits a specific profile: you want a new car every two to three years regardless, your mileage is predictable and within the allowance, you value a fixed cost with no repair exposure, and you can use the car as a business expense.

It also suits any situation where resale value is genuinely uncertain, because the residual transfers that risk to the leasing company.

Buying wins on the long horizon, and it wins decisively. The cheapest way to own a car is to buy one and keep it well past the loan term. Years six through twelve of a paid-off car cost you maintenance and nothing else, and that is where the money is saved. Serial leasing means a permanent car payment for life.

Buying is also the answer if your mileage is high or unpredictable, if you want to modify the car, or if you simply do not want an asset whose condition is being assessed by someone else at the end.

The middle path most financial writers favour: buy a two or three-year-old car, which someone else has already absorbed the steepest depreciation on, and keep it for ten years.