Lease vs Buy Calculator
↻ Updated 2026Should you lease or buy? Compare the total cash cost of each option over the lease term, accounting for payments, sales tax on both sides, the loan you'd still owe, and the car's resale value if you buy.
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How to read the lease-versus-buy verdict
At the defaults the lease costs $16,900 over three years and buying nets out at $22,483.15, so leasing wins by $5,583.15. The margin is wide, but it isn't unconditional: it rests on the car being worth $20,000 at month 36. Buying only wins once that figure clears $25,583.15 — 73% of the original price retained after three years, which is a strong outcome rather than a typical one.
How leasing and buying are put on the same footing
Leasing and buying aren't naturally comparable — one ends with nothing and the other ends with a car. This model fixes that by liquidating the car: it assumes you sell at the end of the lease term, so both paths end with no car and a bank balance. Then it compares the bank balances.
The lease side is nearly trivial: everything you hand over, and nothing comes back. The buy side has four terms, and the two that aren't payments are the ones that decide the answer. You still owe the lender a balance, and you still hold an asset — the difference between them is your equity, and it's all you have to show for three years of larger payments.
horizon = lease term (the common comparison window) lease cost = due at signing + (lease payment × horizon) (the quoted payment already includes tax) sales tax = price × tax rate (charged at signing) buy loan = price + sales tax − down buy payment = loanPayment(buy loan, APR, buy term) remaining = loan balance after `horizon` months cash out = down + buy payment × min(horizon, buy term) buy cost = cash out + remaining − car value verdict = whichever cost is lower
- lease payment
- The monthly lease payment you've been quoted — in most states this figure already has sales tax inside it, because leases are taxed on the payment — so this model adds none
- due at signing
- Cash the lease demands upfront — capitalized cost reduction, first payment, acquisition fee — none of it is refundable
- horizon
- The lease term, used as the comparison window — 24, 36 or 48 months — the buy side is measured over the same span, not over its own term
- sales tax
- Tax on the purchase, charged once at signing — the full price is the base; there's no trade-in field here, so nothing reduces it
- buy loan
- What you finance to buy the car — price plus sales tax minus down payment — the tax is financed along with the car, as it usually is in practice
- remaining
- The loan balance still outstanding at the horizon — counted as a cost because you must clear it to sell the car
- car value
- What the car is worth when the lease would have ended — the most influential input and the only pure guess; it defaults to the depreciation model and re-derives if you change the price or lease term
Both sides now carry tax, but they carry it in different shapes, and that's the substance of the comparison rather than a rounding detail. A purchase is taxed once, on the entire $35,000, and the $2,450 is financed with the car — so it also accrues interest for five years. A lease in most states is taxed on each monthly payment, which is why the quoted $400 is tax-inclusive and why leasing a car you only keep three years means you only ever pay tax on the three years of value you used. That asymmetry is real, not a modelling artifact, and it's one of the genuine economic advantages of leasing.
The other structural point: the buy term and the lease term are independent, and stretching the loan doesn't help as much as the payment suggests. Financing over 84 months instead of 60 cuts the monthly payment from $642.55 to $489.76, but at month 36 you still owe $20,452.37 instead of $14,351.39. The net cost moves the wrong way — $23,083.64 against $22,483.15 — because every dollar the payment saves reappears in the balance, plus a little more in interest.
Worked examples
Example: leasing at $400/month versus buying a $35,000 car
The calculator's defaults, so you can follow along on the page. Lease: $400 a month for 36 months, $2,500 due at signing. Buy: 7% sales tax, $5,000 down, 7% APR over 60 months, car worth $20,000 at month 36.
| Lease — due at signinggone, whatever happens | $2,500.00 |
| Lease — 36 payments$400 × 36, tax included in the quote | $14,400.00 |
| Net cost to leaseyou own nothing at the end | $16,900.00 |
| Buy — sales tax7% of $35,000, due at signing | + $2,450.00 |
| Buy — amount financed$35,000 + $2,450 − $5,000 down | $32,450.00 |
| Buy — 36 payments$642.55 × 36 | $23,131.76 |
| Buy — loan still owedat month 36 of a 60-month loan | + $14,351.39 |
| Buy — car resale valueyour estimate, not a quote | − $20,000.00 |
| Net cost to buycash out + owed − worth | $22,483.15 |
Leasing wins by $5,583.15 over three years. Look at what buying's number is made of: $28,131.76 of real cash left your account, and the model hands back only $5,648.61 of it as equity — and that's equity you can only realise by actually selling the car for exactly $20,000. Three years in, on a five-year loan, you've paid for the whole car's tax and most of its interest while owning about a fifth of it.
Example: what the car-value slider does to the verdict
Everything else at the defaults. Only the estimated three-year value moves. Each step is reachable on the $500 slider; dragging it overrides the depreciation-model default until you change the price or lease term.
| $15,000 valuelease wins by $10,583.15 — 43% retained | Buy costs $27,483.15 |
| $20,000 valuelease wins by $5,583.15 — the default, 57% retained | Buy costs $22,483.15 |
| $22,500 valuelease wins by $3,083.15 — 64% retained | Buy costs $19,983.15 |
| $25,500 valuelease wins by $83.15 — 73% retained, a near-tie | Buy costs $16,983.15 |
| $26,000 valuebuy wins by $416.85 — 74% retained | Buy costs $16,483.15 |
The verdict flips at $25,583.15, between the $25,500 and $26,000 slider stops. That's 73% of the purchase price still intact after three years — possible for a genuinely strong-residual car, but well above what the depreciation model predicts (58%) and above what most cars manage. Every dollar of resale is a dollar off the cost of buying, one for one, so the sensitivity is easy to read: buying needs roughly $5,600 more resale than the model expects before it takes the lead.
Frequently asked questions
Is it better to lease or buy a car?
Over a single lease term, leasing wins more often than people expect, and this page shows why: at the defaults it's cheaper by $5,583.15 over three years, and buying only catches up if the car holds 73% of its value. The CFPB's framing is the standard one — leasing generally means lower monthly payments but no ownership, while buying costs more per month and leaves you an asset.
The durable point is the one this calculator can't show you, because its window is the lease term. A bought car keeps producing value after the loan ends; a lease produces a new payment. Consumer Reports' position is that if you'll keep a car six years or more, buying almost always wins — and this page, which stops at month 36, structurally cannot see that. It's answering 'which is cheaper for three years', not 'which is cheaper'.
What happens at the end of a car lease?
Three main paths. Return the car, pay a disposition fee, and walk — the default, and what this calculator assumes. Buy it for the residual value written into your contract. Or, if the car is worth more than the residual, sell it and keep the difference.
That third option is why this model is a simplification. It treats leasing as ending with nothing, which is true of the standard path but not all of them — if market value exceeds the contractual residual, a lease contains a genuine option worth real money. Watch the charges on the way out either way: excess mileage, typically 10,000–15,000 miles a year with per-mile overage beyond it, plus wear and tear. None of those are in the $16,900.
What is residual value on a lease?
The car's contractually predicted value at lease end, set by the leasing company when you sign. It's the hinge the whole lease turns on: your payment is essentially the depreciation between the capitalized cost and the residual, spread across the term, plus a finance charge on the money tied up.
This is why residual value and this page's car-value slider are the same concept viewed from opposite sides. A high residual means the lessor thinks the car holds value, so you're financing a smaller drop and your payment is lower. It also means the buyout price at the end is high. When you set the car-value slider, you're guessing at exactly the number the lessor already committed to — and if your guess is far above their residual, that's information about which side of the deal is priced better.
Is leasing a car a waste of money?
The common version of the claim — that lease payments buy nothing — doesn't survive the arithmetic on this page. Both paths pay for depreciation; leasing just makes it explicit and, over a short horizon, cheaper. At the defaults, leasing costs $16,900 over three years and buying nets to $22,483.15, so the 'wasteful' option is the cheaper one by $5,583.15 under these assumptions.
What's true is narrower. Leasing forecloses the phase where buying pays off — the years after the loan clears when the car still runs and you owe nothing. Lease continuously and you never reach it, and you re-pay sales tax on every new car you cycle through. That's a real cost, and it's invisible in a 36-month window. It's a claim about what happens after this calculator stops looking, not a claim that the payments buy nothing.
Do you pay sales tax on a leased car?
In most states, yes — but on the payments, not the price. That's the crucial structural difference. Lease tax is spread across the term and you only pay it on the value you actually consume; a purchase is taxed on the whole car at signing, and if you finance the tax you pay interest on it too. In a handful of states (Texas and Illinois among them) the full capitalized cost is taxed upfront even on a lease, and in a few — New Hampshire, Oregon, Delaware, Montana, Alaska — there's no state sales tax on either path.
This calculator uses the mainstream treatment on both sides. The buy side adds tax to the price and finances it: on a $35,000 car at 7%, that's $2,450, giving a $32,450 loan — the same basis the auto loan calculator uses. The lease side adds nothing, because the payment you were quoted almost certainly already includes it. Set the tax slider to 0% and you can see exactly what the tax is doing: buying's net cost falls from $22,483.15 to $19,653.15, and leasing's margin narrows from $5,583.15 to $2,753.15. If your state taxes leases upfront, or your lease quote is pre-tax, the lease side here is understated and you should treat the margin as smaller than shown.
Where this lease-versus-buy comparison breaks down
The cash arithmetic is sound and both sides are now taxed on the same footing. The inputs and the window are still weaker than a single-number verdict implies.
- Lease tax treatment varies by state — This page assumes the mainstream rule — leases taxed monthly, so the quoted payment is tax-inclusive — and adds no lease tax of its own. Texas, Illinois and a few others tax the full capitalized cost upfront instead, which would add thousands to the lease column that this model never shows. If your quote is pre-tax, or you're in an upfront-tax state, the lease side is understated. There's no lease-tax field to correct it with; approximate by raising the monthly lease payment or the due-at-signing figure.
- The window ends when the lease does — Comparing over 36 months is what makes the two paths comparable, and it also removes the strongest argument for buying. Ownership pays off in years six through twelve, when there's no payment at all — a horizon this model cannot reach. It also means the buyer's sales tax lands entirely inside the window while the benefit it buys extends well past it. Read the verdict as 'cheaper over the lease term', never as 'cheaper'.
- The car's future value is still a guess — It enters the buy side one-for-one, so a $5,000 error is a $5,000 error in the answer. The default now comes from this site's depreciation model (20% in year one, 15% a year after) and re-derives when you change the price or the lease term, so the label and the number always agree — but the model itself is a convention, not a forecast. Real depreciation varies enormously by make and model, and the whole verdict moves with it.
- Mileage caps and lease-end charges — None of it is modelled. Leases restrict you to roughly 10,000–15,000 miles a year and charge per mile beyond; there are disposition fees on return and wear-and-tear assessments. A high-mileage driver's real lease cost can exceed the $16,900 shown by thousands, and the buy side has no equivalent penalty — it just shows up as a lower resale.
- Title, registration and dealer fees — Sales tax is modelled; the rest of the paperwork isn't. Title, registration and documentation fees apply to both paths in different amounts, and registration recurs annually. They're smaller than the tax, but they're not nothing, and they're missing from both columns.
- No insurance, maintenance, or time value of money — Leased cars usually stay under warranty for the whole term while a bought car may not, and insurers often price the two differently — leases typically require higher liability limits. Neither is here. Nothing is discounted either — $2,500 due at signing is treated as identical to $2,500 paid in month 35, and the larger down payment on the buy side is assumed to earn nothing while it sits in the car.
- ·Standard auto-loan amortization; depreciation & running costs are estimates
Rates, brackets and limits here are checked against primary sources. If a number still looks off, email support@realmoneyiq.com and we'll review and fix it.
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