Car Lease vs Buy Calculator to
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This free online Car Lease vs Buy Calculator will calculate a total and year-to-year cost comparison for vast array of lease vs buying a car scenarios.

And unlike other online auto lease calculators, the car lease vs buy calculator on this page will calculate the buy vs lease cost comparison for the number of years you expect to repeat the auto lease or auto purchase.

If you would like to compare the cost of buying one automobile vs another, please visit the Car Buying Calculator. Or if you would just like to calculate a lease payment, visit the Automobile Lease Calculator.

Leasing Should Always Cost More Than Buying a Car

The reason leasing a car should always be the more expensive alternative, is because if you own the purchased vehicle long enough, two things will happen.

First, the longer you own a purchased vehicle, the lower will be the average annual depreciation rate. So if you lease (or buy) a new vehicle every 2 years (typical lease term), the average annual depreciation expense may run as high as 20% of the purchase price. On the other hand, if you purchase a new vehicle every 10 years, the average annual depreciation rate may be less than 10% of the purchase price.

The following chart shows how the average annual depreciation expense percentage drops the longer you own a purchased vehicle (be sure to experiment with your entries into the car buy vs lease calculator to see the difference years of ownership can make).

$20,000 Automobile at 20% Annual Depreciation
Years Owned	End of Year Market Value	Depreciation	Cumulative Depreciation	Average Annual Depreciation
1	$16,000	$4,000	$4,000	20.00%
2	$12,800	$3,200	$7,200	18.00%
3	$10,240	$2,560	$9,760	16.27%
4	$8,192	$2,048	$11,808	14.76%
5	$6,554	$1,638	$13,446	13.45%
6	$5,243	$1,311	$14,757	12.30%
7	$4,194	$1,049	$15,806	11.29%
8	$3,355	$839	$16,645	10.40%
9	$2,684	$671	$17,316	9.62%
10	$2,147	$537	$17,853	8.93%

The second reason buying should always be cheaper than leasing a car, is because if you lease a new vehicle at the end of every lease term you will always have a monthly lease payment. However, if you own a purchased vehicle long enough eventually the auto loan will be paid off -- meaning that for as long as you continue to own the vehicle you will not have a monthly car payment.

And take a guess as to what you can do with that monthly car payment that you will no longer have to pay out?

That's right, you can be depositing that amount to your savings account each month. In turn this means that if you keep the vehicle for twice as long as the loan term, you should be able to pay cash for your next vehicle -- thereby avoiding future interest and lease fees all together.

And what can you do with the future lease or interest fees you will be saving?

Yes, you can either invest in your high interest debt or invest in traditional investments -- either of which will serve to increase how much car you can afford.

Cash Versus Buying or Leasing

When it comes to determining how much car you can afford, cash is king. Why?

Because, since you've already earned the cash your are spending, you can assign the proper value to that denomination of cash. Whereas if you borrow the money to purchase a vehicle, or borrow the value of the vehicle (lease), you have no idea what you will have to do to earn the money needed to repay the value you borrowed -- meaning you won't be able to assign a proper future value to it.

What do I mean by "assigning the proper value" to cash or future value?

Think of it this way. Would $100 a month be more valuable to you if you were earning minimum wage than if you were earning $100 per hour?

Or, would $100 a month mean more to you if you were digging trenches by hand in bitter cold weather instead of performing a work you loved in a comfortable environment?

Or, does $100 mean as much to Bill Gates (billionaire) as it means to you?

You see, it's not the denomination of cash that determines its ultimate value, it's what you have to do to earn it.

And since you don't have a crystal ball, you really have no idea of what you will have to do to earn future denominations of money. Therefore it is absolutely impossible to make wise financial decisions with money you haven't yet earned.

What if you lose your job and find yourself making half as much as you used to? Will you be willing to work twice as many hours to make the monthly loan or lease payments?

What if you discover a dream job that perfectly suits your talents, abilities, and genuine interests, but it would require you to take a cut in pay? Would you still consider the auto purchase or auto lease to have been a wise decision if you can't afford to take the dream job due to these high payment obligations?

You see, paying cash for a car is the only way you can make a car buying decision that will serve your best interests now and in the future.

Could You Afford Your Last Car?

Well, if you don't have the cash needed to purchase a car now, then it's likely you couldn't "afford" the last vehicle you purchased.

The only way to determine what price you can afford to pay for a vehicle, is to determine what price range will allow you to set aside the depreciation expense each month. This is an amount that is over and above any lease or loan payments you are making, saved for the purpose of paying cash for your next vehicle -- cash that you can assign a proper value to.

So if you can't afford to pay cash for a car, you can't afford the car. Yes, you may need the car even though you can't afford it. But this only means you will need work twice as hard to save up enough cash so that you can make a wise financial decision when it comes time to buy your next vehicle.

With that, let's use the Car Lease vs Buy Calculator to calculate the total and year-to-year expense comparison of leasing vs buying a car -- for the number of years you expect to repeat the leasing or buying process.

Calculate Lease vs Buying a Car
Instructions: Complete the mutual entry section, the lease entry section, and the buy entry section, then click the "Calculate Lease vs Buying a Car" button. Mouse over the blue question marks for a further explanation of each entry field. More in-depth explanations can be found in the glossary of terms located beneath the Car Lease vs Buy Calculator.
Mutual Entries
Purchase price ($):
Down payment ($):
Sales tax rate (%):
Rate of return on investments (%):
Number of years to compare lease vs buy (#):
Lease Entries		Buy Entries
Lease months:		Loan months:
Interest rate:		Interest rate:
Fees:		Fees:
Residual %:		Ann Deprec %:
Security dep:		Own years:
Lease Results		Buy Results
Lease payment:		Loan payment:
Lease expenses:		Buy expenses:
Lost interest:		Lost interest:
Net cost:		Net cost:
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Car Lease vs Buy Calculator Glossary of Terms

Car Lease vs Buy Calculator Mutual Entries

Purchase price: The purchase price of the car less any dealer rebates or cash incentives. The car lease vs buy calculator will use this price for both buying and leasing scenarios.

Down payment: The amount of cash you plan to pay up front. For leasing, the amount is referred to as a "Capitalized Cost Reduction," as in the prepayment of depreciation. For buying, this amount is referred to as a down payment, which effectively lowers the amount of money you need to borrow for the purchase.

Sales tax rate: The combined total percentage of all applicable tax rates (state, local, etc.). Enter as a percentage (for .07, enter 7%). For leasing, the car lease vs buy calculator will add the taxes to each lease payment. For buying, the car lease vs buy calculator will include the taxes in the loan amount.

Rate of return on investments: The annual percentage return you expect to earn on your investments. Enter as a percentage (for .06, enter 6%). The car lease vs buy calculator will use this entry to calculate lost interest earnings that may result from choosing buying instead of leasing or visa versa.

Number of years to compare lease vs buy: The number of years you would like run the lease vs buy scenario for. The car buy vs lease calculator will generate a new lease at the end of each lease, and a new car purchase at the end of each ownership term.

Car Lease vs Buy Calculator Lease Entries

Lease months: The lease term in number of months. The typical lease term is 24 months. Lease terms over 36 months will usually offset any benefits to be gained by leasing.

Interest rate: The annual interest rate of the lease. If the lease terms state a Money Factor, multiply the money factor by 2,400 to arrive at the annual interest rate. Enter the interest rate as a percentage (for .09, enter 9%).

Fees: The total of any upfront fees that will be due at signing (acquisition fees, etc.). Do not include the down payment as it has its own entry field at the top of the car lease vs buy calculator.

Residual %: The expected residual value percentage (RV%). The residual value percentage estimates the market value of the car at the end of the lease. So if the RV% is 55%, the car is expected to be worth 55% of its original purchase price at the end of the lease. As a reference point, the RV% is usually 50%-58% for a 36 month lease.

Security dep: The amount of any security deposit that may be required at the beginning of the lease. The car buy vs lease calculator will use this figure when calculating lost interest earnings when choosing leasing over buying.

Car Lease vs Buy Calculator Buy Entries

Loan months: The loan term in number of months. The shorter the loan term, the higher the monthly payments will be and the lower the finance charges will be. Conversely, the longer the loan term, the lower the monthly payments, but the higher the finance charges will be.

Interest rate: The annual interest rate of the car loan. Enter the interest rate as a percentage (for .09, enter 9%).

Fees: The total of any upfront fees that will be due at the time of purchase (title, transfer, loan fees, etc.). Do not include the down payment as it has its own entry field at the top of the car lease vs buy calculator.

Ann Deprec %: The annual depreciation percentage of the vehicle. If you expect the car to depreciate quickly, enter 20%. For average rate of depreciation, enter 15%. For a car that holds its value for a longer period of time (typically high-end vehicles), enter 10%.

Own years: The number of years you plan to own the car for before trading it in on a new car. Typically the longer you hold on to the car, the more buying the car will save over leasing the car. This is because the average annual cost of depreciation decreases the longer you own the car. Plus, if you hold onto the car for longer than the loan term, there will be months when you will have no monthly car loan payments.

Car Lease vs Buy Calculator Lease Results

Lease payment: Based on your entries, this is the calculated amount of your monthly lease payment. The car buy vs lease calculator will use this amount as a constant for the number of years you indicated you would like the car buy vs lease calculator to calculate a comparison for.

Lease expenses: This is the calculated total of the combined lease expenses for the number of years you indicated you would like the car buy vs lease calculator to calculate a comparison for.

Lost interest: This is the estimated amount of interest earnings you would lose if you chose to lease at the terms you entered instead of buy at the terms you entered -- for the number of years you indicated you would like car buy vs lease calculator to calculate a comparison for. Essentially this measures how much investment interest you could have earned if you invested the cash flow savings from leasing versus buying. If leasing results in less lost interest, the car buy vs lease calculator will deduct the lost interest from buying from this amount and will set the buying lost interest to zero.

Net cost: This is the total of the leasing expenses and lost interest earnings for the number of years you indicated you would like the car buy vs lease calculator to calculate a comparison for.

Car Lease vs Buy Calculator Buy Results

Loan payment: Based on your entries, this is the calculated monthly car loan payment. This amount may change during the number of years you indicated you would like the car buy vs lease calculator to calculate a comparison for. If the car is depreciating faster than you are paying off the loan, the payment will increase during the next buy year. If you are paying the car loan off faster than the car is dropping in value, the payment will decrease in the next buy year -- because the excess market value can be used to trade-in on the new car -- thus lowering the loan amount.

Buy expenses: This is the calculated total of the combined buy expenses for the number of years you indicated you would like the car buy vs lease calculator to calculate a comparison for. Note that the only portion of a monthly car loan payment that is an actual expense, is the interest portion of the payment. The other actual expense occurs as the market value of the car drops (depreciates). The specific amount of the depreciation expense cannot be determined until the car is actually sold, traded-in, or scrapped. Therefore all depreciation expenses are merely estimates based on the annual depreciation rate you entered.

Lost interest: This is the estimated amount of interest earnings you would lose if you chose to buy at the terms you entered instead of lease at the terms you entered -- for the number of years you indicated you wanted to scenario to be played out for. Essentially this measures how much investment interest you could have earned if you invested the cash flow savings from buying versus leasing. If buying results in less lost interest, the car buy vs lease calculator will deduct the lost interest from leasing from this amount and will set the leasing lost interest to zero.

Net cost: This is the total of the buying expenses and lost interest earnings for the number of years you indicated you would like the car buy vs lease calculator to calculate a comparison for.

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