Auto Loan vs Lease Calculator
A lease payment and a loan payment are not the same kind of number, so comparing them tells you nothing. One rents three years of use, the other buys a car you keep. This tool puts a loan, a lease and paying cash on the same timeline and works out what each one really costs once mileage penalties, residual value, sales tax and the car you own at the end are counted.
Loan vs lease vs cash comparison
Pick a vehicle type to prefill, then adjust to match your deal.
The vehicle and you
If you finance it A normal auto loan, with the car sold or kept at the end of your window.
If you lease it These numbers are all on the lease worksheet. Ask for it, dealers do not volunteer it.
| Line | Loan | Lease | Cash |
|---|
Why comparing monthly payments is useless
Walk into a dealership undecided and you will be shown two numbers. Finance this car for $712 a month, or lease it for $459. The lease looks like it saves you $253 every month and the conversation usually stops there.
Those two payments buy completely different things. The loan payment buys the car. At the end you own an asset worth real money. The lease payment rents the car for three years and at the end you own nothing and hand back the keys. Until you account for that difference you are not comparing anything.
The only fair question is this. Over the same number of years, driving the same miles, how much money leaves your pocket, and what do you have left when the window closes. That is what this calculator answers, and it is why the winner often flips once you change the years or the mileage.
How lease payments are actually built
A lease payment is two separate charges added together, and once you can see them the whole thing stops being mysterious.
The depreciation fee is the value the car loses while you have it, spread across the term. Capitalised cost minus residual value, divided by the number of months.
The rent charge is the interest. Capitalised cost plus residual value, multiplied by the money factor. Note that it is the sum of the two, not the difference, because you are paying interest on the car's full value the whole time.
The money factor trick
Leases quote interest as a money factor, a small decimal like 0.00250. Nobody can price that in their head, which is the point. The conversion is simple.
- Money factor to APR, multiply by 2400. So 0.00250 is 6 percent.
- APR to money factor, divide by 2400. So 7.2 percent is 0.00300.
Ask for the money factor by name. If the answer is vague or you are told it is not something they share, that is information too. The calculator shows the money factor for whatever rate you enter so you can check the worksheet against it.
Residual value is the lever you cannot move
The residual is set by the leasing bank as a percentage of MSRP, not of the price you negotiated. That has an odd consequence worth understanding. A high residual means the bank thinks the car holds its value, which means less depreciation for you to pay, which means a cheaper lease. Cars with strong resale value lease well. Cars that depreciate hard lease badly and are usually better bought used a few years later.
You cannot negotiate the residual. You can negotiate the selling price and you can shop the money factor, and both feed straight into the payment.
The mileage penalty nobody budgets for
This is where leases go wrong for ordinary drivers. A standard lease allows 10,000 or 12,000 miles a year. Average US driving is roughly 13,500 miles a year, so the standard allowance is already below what a typical person does.
Go over and you pay per mile at turn in. Twenty five cents is common and luxury brands charge more.
| Your driving | 12,000 allowance | Overage at 25 cents |
|---|---|---|
| 12,000 a year | on target | nothing |
| 15,000 a year | 3,000 over each year | $2,250 on a 36 month lease |
| 18,000 a year | 6,000 over each year | $4,500 on a 36 month lease |
| 22,000 a year | 10,000 over each year | $7,500 on a 36 month lease |
That bill arrives as a single demand at the end, long after you stopped thinking about the monthly payment. Buying extra miles upfront is cheaper per mile than paying at turn in, but you do not get money back for miles you did not use, so only prepay what you are confident you will drive.
If you drive more than about 15,000 miles a year, leasing is very rarely the cheaper route. The calculator prices the overage into the lease column so you can see it rather than discover it.
What long loan terms really do
Seventy two and eighty four month loans exist because they make expensive cars look affordable. They work, in the sense that the payment fits. What they also do is keep you owing more than the car is worth for years.
A car loses value fastest in the first two years, while an 84 month loan pays principal slowly at the start. The two curves cross much later than most buyers expect, and until they do you are upside down. If the car is written off or you need to sell, you owe the difference in cash.
The calculator flags this when your loan runs past the window you entered, because in that case you either sell at a loss or keep paying on a car you were finished with.
When each option genuinely wins
Leasing wins when
- You want a new car every two or three years regardless of cost
- You drive under the allowance, genuinely
- You can write it off as a business expense
- The car is one that depreciates badly, so a high residual shifts risk to the bank
- You value never being out of warranty over building equity
Financing wins when
- You keep cars a long time, which is where the real savings live
- You drive a lot of miles
- You want no restrictions on modifications, wear or condition
- You are buying something with strong resale value and low running costs
Paying cash wins when
- Rates are high and you have no better use for the money
- You would not reliably invest the difference anyway
Set the return field to 4 or 5 percent and the cash column starts to look worse, because that money could have been working. Leave it at zero and cash usually wins outright at current rates. Both views are legitimate, which is why the field is there rather than baked in.
Before you sign anything
- Negotiate the selling price first and never mention monthly payment, trade-in or financing until it is agreed.
- Get the lease worksheet in writing. Selling price, residual, money factor, term, allowance and every fee.
- Get a loan preapproval from your own bank or credit union before you go in. It gives you a rate to beat.
- Check the money factor against the rate you were quoted verbally.
- Put as little down on a lease as possible. If the car is stolen or totalled, your down payment is gone and insurance pays the bank, not you.
- Ask for the buyout price at lease end. If used values have run up, buying the car at a residual set three years ago can be the best deal on the lot.
Frequently asked questions
Is it cheaper to lease or buy a car?
Over a short window a lease often costs less, because you only pay for the depreciation during those years. Over a long window buying wins clearly, because after the loan ends you drive with no payment at all while a lease keeps charging. The crossover usually sits somewhere around five to six years. Enter your own years, miles and rate above, because the answer genuinely flips depending on those three.
What is a money factor and how do I convert it to an interest rate?
The money factor is how leases express interest, written as a small decimal such as 0.00275. Multiply it by 2400 to get the APR, so 0.00275 is 6.6 percent. Going the other way, divide the APR by 2400. Always ask for the money factor by name and check it against the rate you were quoted, because a small looking number hides a large rate.
What is residual value on a lease?
It is what the leasing bank predicts the car will be worth at the end of the term, set as a percentage of MSRP rather than of your negotiated price. On a 36 month lease it is usually somewhere between 55 and 62 percent. A higher residual means less depreciation for you to pay, so it makes the lease cheaper. You cannot negotiate it, which is why the selling price and the money factor are the only two things worth fighting over.
How much does going over the mileage on a lease cost?
Typically 15 to 30 cents per mile, with 25 cents common and luxury brands charging more. Driving 15,000 miles a year against a 12,000 allowance runs 9,000 miles over on a 36 month lease, which is $2,250 at 25 cents. The whole amount falls due at turn in. Buying extra miles at signing costs less per mile, but you get nothing back for miles you do not use.
Should I put money down on a lease?
As little as possible. A lease down payment, called a capitalised cost reduction, only prepays part of what you already owe and lowers the payment a little. If the car is stolen or written off in month four, that money is gone because the insurance payout goes to the leasing bank rather than to you. On a purchase a down payment builds equity you keep, which is a completely different situation.
Is a 72 or 84 month car loan a bad idea?
It is usually a sign the car is more than you should be spending. The payment fits, but the car depreciates faster than you pay down the balance, so you owe more than it is worth for several years. Sell or crash it during that period and you owe the difference in cash. If you must take a long term, at least confirm you plan to keep the car well past the final payment, because that is the only way the maths works out.
Can I negotiate the price on a lease?
Yes, and most people never try. The capitalised cost starts from the negotiated selling price exactly like a purchase, so every dollar you knock off lowers the depreciation portion of your payment. Agree the selling price before the word lease comes up. Once the conversation moves to monthly payments the price stops being visible and that is generally deliberate.
What happens at the end of a car lease?
You have three options. Hand it back, pay any disposition fee, excess mileage and excess wear, and walk away. Buy it at the residual price set when you signed. Or lease something new, which often waives the disposition fee if you stay with the same brand. Always check the buyout price against what the car is actually worth, because when used values rise a residual set three years earlier can be a genuine bargain.
How is sales tax handled on a lease versus a purchase?
On a purchase you pay tax on the full price once, usually financed into the loan. On a lease most states charge tax on each monthly payment, so you only pay tax on the portion of the car you use. A handful of states work differently, with Texas taxing the full value and New York collecting the entire lease tax at signing. Tick the upfront tax box above if yours does that.
Do I get a sales tax credit for my trade-in?
In most states yes, and you are taxed only on the difference between the price and the trade-in value. On a $42,000 car with a $12,000 trade in a 7 percent state that credit is worth $840. Several states including California, Virginia and Maryland give no such credit and tax the full price. It is worth checking, because it can change whether selling privately beats trading in.
Is leasing better for a business?
Often, though not for the reason people assume. Lease payments are deductible in proportion to business use, which is simple bookkeeping. Buying can be better still, because Section 179 and bonus depreciation allow large first year deductions, especially on heavier vehicles. The right answer depends on your profit, your vehicle weight class and your mileage, so run it past your accountant rather than taking the dealer's word.
What happens if I end a lease early?
It is expensive. You generally owe the remaining payments plus an early termination fee, and you get no credit for handing the car back early. There is no equity to sell against, unlike a loan where you can sell the car and settle the balance. If your window is shorter than the lease term, this calculator warns you, because an early exit can wipe out every dollar the lease appeared to save.
Does leasing require more insurance?
Usually yes. Leasing banks set minimum liability limits that are higher than most state minimums, often 100/300/50, and they require comprehensive and collision with a capped deductible. Gap coverage is normally built into the lease. On a financed car the lender requires comprehensive and collision but leaves liability to you, and gap insurance is something you have to buy yourself, which matters a lot on a long loan.
Is paying cash for a car a good idea?
At today's rates, often yes. Paying cash removes the interest entirely, and avoiding a 7 percent cost is a guaranteed return that no safe investment matches. The argument against it only works if you would genuinely invest the difference and earn more after tax. Set the return field above to what you would realistically make and the calculator will charge every option for the money it ties up.
How much should I spend on a car?
A common guide is to keep the total of payment, insurance, fuel and maintenance under 15 to 20 percent of take home pay, and to keep the purchase price under about half your annual income. The stronger test is the term. If you need 72 or 84 months to make it fit, it is too expensive, no matter what the monthly number says. Use the cost per month figure this calculator gives you, because that includes the running costs a payment quote leaves out.