Car Lease vs. Buy Calculator
Deciding whether to lease or buy a car is a significant financial decision. Both options have their advantages and disadvantages, impacting your monthly budget, long-term costs, and ownership experience. This calculator helps you compare the total estimated costs of leasing versus buying a car over a specific period, typically the lease term, to help you make an informed choice.
Lease Details
Buy Details
Understanding Car Leasing vs. Buying
The choice between leasing and buying a car depends heavily on your financial situation, driving habits, and long-term goals. Both options have distinct financial implications that are important to understand.
What is Leasing?
Leasing is essentially a long-term rental agreement. You pay to use a car for a set period (the lease term) and a set number of miles (annual mileage allowance). At the end of the lease, you return the car to the dealership or have the option to buy it.
- Pros of Leasing: Lower monthly payments compared to buying, ability to drive a new car every few years, cars are typically under warranty, no hassle of selling the car.
- Cons of Leasing: You don't own the car, mileage restrictions, potential for excess wear and tear charges, no equity build-up, higher insurance requirements.
- Key Terms:
- MSRP: Manufacturer's Suggested Retail Price, the sticker price of the car.
- Lease Term: The duration of your lease agreement, typically 24 to 48 months.
- Lease Down Payment: An upfront payment that reduces the total amount financed in the lease.
- Residual Value: The estimated value of the car at the end of the lease term, expressed as a percentage of the MSRP. This is a crucial factor in determining your monthly payment.
- Money Factor: The lease equivalent of an interest rate. It's a small decimal (e.g., 0.0025) that represents the finance charge on the lease. To convert to an approximate APR, multiply by 2400.
- Annual Mileage Allowance: The maximum number of miles you can drive per year without incurring penalties.
- Excess Mileage Charge: The fee you pay for every mile driven over your annual allowance.
What is Buying?
When you buy a car, you take out a loan to cover the purchase price (minus any down payment or trade-in) and eventually own the vehicle outright. You are responsible for all maintenance and repairs once the warranty expires.
- Pros of Buying: You own the car and build equity, no mileage restrictions, freedom to customize, ability to sell or trade-in at any time, lower long-term cost if you keep the car for many years.
- Cons of Buying: Higher monthly payments, car depreciates in value, responsible for all maintenance and repairs, hassle of selling or trading in.
- Key Terms:
- Car Purchase Price: The negotiated price you pay for the vehicle.
- Loan Term: The duration over which you will repay your car loan, typically 36 to 84 months.
- Buy Down Payment: An upfront payment that reduces the amount you need to borrow.
- Loan Interest Rate (APR): The Annual Percentage Rate, representing the cost of borrowing money for the car loan.
- Estimated Resale Value: The projected market value of your car at a future point in time (e.g., at the end of what would have been a lease term). This is crucial for comparing total costs.
How This Calculator Works
This calculator estimates the total cost of both leasing and buying over the specified lease term. For leasing, it sums up the down payment, total monthly lease payments (including tax), estimated excess mileage charges, and estimated maintenance/insurance costs over the lease duration. For buying, it calculates the total upfront costs (down payment + sales tax), total loan payments made during the lease term, estimated maintenance/insurance costs, and then subtracts the estimated resale value of the car at the end of that same period. This provides a "net cost of ownership" for buying over the comparison period.
Making Your Decision
Consider more than just the numbers. If you prefer driving a new car frequently, have a predictable commute, and don't want the hassle of selling, leasing might be for you. If you drive a lot, want to build equity, customize your vehicle, or plan to keep a car for many years, buying is likely the better option. Always factor in your personal financial situation and lifestyle.