How we compare leasing and buying
Comparing monthly payments alone favors leasing, because a lease only pays for the part of the car you use. To compare fairly, we look at the same stretch of time: the length of the lease.
- Lease cost = everything you pay: cash at signing, every monthly payment (with sales tax), and lease fees. At the end you return the car with nothing left.
- Buy net cost = your down payment and loan payments during that same time, plus the loan balance you'd still owe, minus what the car is worth then. That's what owning the car really cost you over the period.
We estimate the car's value at the end using the same residual percentage as the lease, so both sides use the same assumption.
How a lease payment is calculated
A lease payment has two parts. The depreciation charge is the price (minus your cap cost reduction) minus the residual value, spread over the months of the lease. The finance charge is the price plus the residual, times the money factor. Most states then charge sales tax on each payment.
Frequently asked questions
Is it cheaper to lease or buy a car?
Over the length of a lease, leasing often has a lower monthly payment, but buying usually costs less in the long run because you keep the car and the equity you build. This calculator compares both over the lease term, counting the value of the car you would own at the end if you buy.
What is a money factor?
It is how leases express interest. To convert, multiply the money factor by 2,400 to get an approximate APR (for example, 0.0025 × 2,400 = 6%). This calculator takes the APR and shows the money factor so you can compare it with a dealer's quote.
What is a residual value?
It is what the leasing company expects the car to be worth at the end of the lease, set as a percentage of MSRP. A higher residual means lower lease payments. We also use it as an estimate of the car's value if you buy, so both options are compared fairly.
When does leasing make sense?
Leasing can fit if you want a new car every few years, drive within the mileage limit (often 10,000–12,000 miles per year), keep the car in good condition, and value a lower payment over long-term cost. Some business owners can also deduct part of a lease payment.
What costs does this leave out?
It does not include lease mileage overage charges, excess wear fees, or maintenance and repairs after the warranty ends if you buy. Insurance can also differ, since leases often require higher coverage.
Last reviewed November 8, 2026. Estimates only; your dealer's and lender's figures may differ.