How to Calculate Lease vs Buy
What is Lease vs Buy?
Leasing and buying a car both get you transportation, but have very different financial profiles. Leasing offers lower monthly payments but no ownership; buying costs more monthly but builds equity in the vehicle.
Formula
Total lease cost = Σ monthly payments + fees | Total buy cost = Purchase price − resale value + interest
- P
- Purchase Price ($)
- M
- Monthly Payment ($/month)
- R
- Resale Value ($)
Step-by-Step Guide
- 1Buy total cost = Down payment + (Monthly payment × Months) + Interest
- 2Lease total cost = Due at signing + (Monthly payment × Months)
- 3Ownership value: car retains resale value after loan payoff
- 4Opportunity cost: money tied up in a car earns no return
Worked Examples
Input
$35,000 car: buy over 60 months at 6% vs lease at $350/mo for 36 months
Result
Buy: ~$40,500 total, own the car. Lease: ~$14,600 total, return the car.
Frequently Asked Questions
When should I lease instead of buy?
Lease if you: want a new car every 3 years, drive under mileage limits, prefer no maintenance costs, and avoid long-term ownership ties.
What is the mileage penalty?
Most leases allow 10,000–15,000 miles/year. Excess mileage typically costs $0.15–$0.25 per mile — significant over time.
Can I end a lease early?
Yes, but there are typically large termination fees. Breaking a lease costs nearly as much as completing it.
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