Deciding whether to lease or buy your next car is one of the most significant financial choices a driver can make. There's no single "right" answer; the best option depends entirely on your financial situation, driving habits, and personal priorities. Buying offers the long-term benefit of ownership and equity, while leasing provides the short-term advantages of lower monthly payments and always having a new car. Our Lease vs. Buy Calculator is designed to cut through the complexity and compare these two options purely from a cost perspective, helping you make an informed decision that aligns with your lifestyle.
How to Use the Lease vs. Buy Calculator
Comparing the total cost of leasing versus buying is easy:
- Set the Comparison Period: Enter the number of months you plan to keep the car. This is typically the length of the lease term (e.g., 36 months).
- Enter Buying Details: Fill in the vehicle's purchase price, your planned down payment, the loan interest rate, and the estimated resale value of the car at the end of the comparison period.
- Enter Leasing Details: Fill in the quoted monthly lease payment and the total amount due at signing (your down payment for the lease).
- Compare the Costs: Click the "Compare" button to see the total estimated cost for both options over the specified term and find out which is cheaper.
The Core Difference: What Are You Paying For?
Understanding what your monthly payment covers is the key to seeing why leasing is often cheaper in the short term.
- When you buy a car, your monthly loan payments go toward paying off the entire purchase price of the vehicle. You are paying for the car itself, and each payment builds equity. At the end of the loan, you own a valuable asset.
- When you lease a car, your monthly payments are only covering the vehicle's depreciation over the lease term, plus interest and fees. You are essentially paying for the portion of the car's value that you use up. At the end of the lease, you have no equity and simply return the car.
The Pros and Cons of Each Option
The best choice for you depends on what you value most: long-term savings or short-term flexibility.
Advantages of Buying
- Ownership and Equity: The car is yours. Every payment builds equity, and once the loan is paid off, you have a valuable asset with no more car payments.
- No Mileage Limits: You can drive as much as you want without facing penalties for exceeding a mileage cap. This is crucial for drivers with long commutes.
- Freedom to Customize: You are free to modify or customize your car however you wish.
- Cheaper in the Long Run: Over a 5-10 year period, buying a car and driving it after the loan is paid off is almost always the most cost-effective way to own a vehicle.
Advantages of Leasing
- Lower Monthly Payments: Because you are only paying for the depreciation, monthly lease payments are significantly lower than loan payments for the same car. This allows you to drive a more expensive car for the same monthly cost.
- Always a New Car: Lease terms are typically 2-4 years, meaning you can drive a new car with the latest technology and safety features every few years. - Warranty Coverage: A new car is almost always under the manufacturer's bumper-to-bumper warranty for the entire lease term, meaning you have fewer worries about unexpected, expensive repair bills.
- Simple Turnover: At the end of the lease, you simply return the car to the dealership without the hassle of having to sell it or negotiate a trade-in value.
The Hidden Costs of Leasing
While the low monthly payments are attractive, leasing comes with significant restrictions and potential costs that you must be aware of.
- Mileage Limits: Leases come with a strict annual mileage cap, typically 10,000 to 15,000 miles per year. If you exceed this limit, you will face hefty penalties, often 15 to 25 cents for every extra mile.
- Wear and Tear Charges: You are responsible for keeping the car in excellent condition. At the end of the lease, you will be charged for any "excessive" wear and tear, which can include things like large dents, significant scratches, or stained upholstery.
- Difficulty of Early Termination: Getting out of a lease early is very difficult and extremely expensive. You are typically responsible for most, if not all, of the remaining payments.
Frequently Asked Questions
Should I make a large down payment on a lease?
No, it is generally recommended to put as little money down on a lease as possible (often called a "zero-down" lease). A large down payment on a lease is just pre-paying your monthly payments; it does not build equity. If the car is stolen or totaled shortly after you lease it, your GAP insurance will cover the value of the car, but you will not get your large down payment back.
Is it a good idea to buy my car at the end of the lease?
It can be. At the end of your lease, you have the option to buy the car for a predetermined price set at the beginning of the lease, called the "residual value." You should compare this buyout price to the car's current market value. If the buyout price is less than or equal to the market value and you like the car, buying it can be a good deal.
Who is leasing a good option for?
Leasing is best suited for individuals who want to drive a new car every few years, have a very predictable and low annual mileage, take excellent care of their vehicles, and prioritize a lower monthly payment over long-term ownership and cost savings.