Auto Lease vs. Auto Buy Calculator

This Auto Lease vs. Auto Buy Calculator helps you compare the costs of buying a car to those of leasing one. It takes the net cost of buying a vehicle, factors in depreciation and the value of the vehicle as an asset once you've paid off the loan, and compares it to leasing the car and walking away when the lease is done. This calculator can also account for an auto loan that is longer than the lease you might sign, comparing the costs and value of both on equal terms. It even considers what you could have earned by investing the extra money you're spending on car payments, to reflect the opportunity cost of the higher monthly payments.

Auto Lease vs. Auto Buy Calculator Overview

Leasing a vehicle is a popular option these days. You get a brand-new car or truck at a low monthly payment and when the lease is done, simply get to walk away without haggling over a trade-in.

But is it really a good deal? Or are you better off buying the vehicle outright, so you've got something of value at the end of the loan? What's going to be a better strategy over time – to repeatedly lease new vehicles, or to buy new ones and trade them in when it comes time to replace them?

The most important factors in making that determination, after the monthly payments themselves, are the depreciation rate of the vehicle if you're buying it, and its equivalent for a leased vehicle, the residual percentage. Both are ways of looking at how much value you got out of the vehicle while you were paying for it.

Depreciation vs. residual value explained

Most car and truck owners have a pretty good understanding of depreciation. It's how much the value of the vehicle falls while you own it. Residual value, on the other hand, is what the dealer would charge to sell you the vehicle at the end of the lease, and is expressed as a percentage of MSRP, the Manufacturer's Suggested Retail Price. Both reflect what the vehicle is worth once you're done making your lease or loan payments.

They're actually mirror images of each other. Let's say Driver A buys a car for $30,000 (taxes and fees included) and it's worth $20,000 when he pays it off four years later. It's lost a third of its value, or depreciated by 33 percent. Let's also say driver B leases the same car for four years, and he'd have to pay $20,000 to buy it from the dealer at the end of that time. The two drivers are in financially equal positions – one has a $20,000 asset, and the other would have to pay $20,000 to acquire that asset.

The question of who got the better deal depends on what they paid to get to that point. Assuming an interest rate of 3 percent, Driver A would have paid a total of about $31,870 to own that car, with monthly payments of about $665. Let's also assume Driver B leased that same car for $240 a month, with no down payment, or $11,520 over four years. Subtract the $20,000 current value of the vehicle for Driver A (or add it to Driver B) and you find that Driver A had a net cost of $11,870 to buy the car, while Driver B had a net cost of $11,520 to lease it. So in that case, leasing was a slightly better deal.

Of course, it doesn't always work out that neatly. Price negotiations play a key role in what a vehicle is worth, and vehicle leases tend to be shorter than car loans – often three years instead of five, for example – but the example illustrates the basic principle of how net cost is compared in buying vs. leasing.

The rate at which a vehicle depreciates, and the residual value as well, depends on several factors. Some models and makes depreciate faster than others. Mileage is another key factor. And dealers vary in what they will pay or charge on the same vehicle with identical mileage.

Another factor to keep in mind when considering buying vs. leasing is the rate of return you could earn on the money you'd save each month by leasing vs. buying. In the example above, the monthly leasing payment is more than $400 less than the monthly loan payment. That's money you could invest and earn a return on if it wasn't tied up in car payments – and the calculator reflects that opportunity cost as well.

Using the Auto Lease vs. Auto Buy Calculator

Check the explanation above if you're unsure about how the net cost of buying vs. leasing is calculated. You'll need information on the vehicle cost, fees, expected depreciation, residual value at the end of the lease, auto loan interest rates, expected return you could earn on money not spent on a vehicle and the other information indicated by the calculator.

Enter the information indicated. If you have questions, click on the heading by any box for more information. The "investment rate of return" box provides detailed information on historic rates of return to assist you in making a good estimate.

The calculator will show you the net cost of buying a vehicle vs. leasing it, based on the information you provide. Click "View Report" for a detailed breakdown of the two options.