How to use the Lease vs Buy
- Enter the vehicle price and the comparison period in months.
- For the lease, enter the monthly payment, initial payment and any end-of-term fees.
- For the purchase, enter the deposit, loan payment and the estimated resale value at the end.
- Compare net cost — total paid minus the value you still own.
How the calculation works
A lease pays for depreciation plus a finance charge across the term, so it is priced from the difference between the price and the residual value. Buying pays for the whole car, but leaves an asset. The fair comparison over the same period is total cash out minus what you still own: purchase net cost is deposit plus payments minus resale value, while lease net cost is the initial payment plus payments plus end-of-term charges, with no residual equity.
Leases carry constraints that carry real cost: mileage limits with per-mile excess charges, wear-and-condition standards assessed on return, and early-termination penalties that are usually severe. Buying carries the depreciation risk instead — and the reward if the car holds value better than expected. Over a long horizon buying almost always wins, because a paid-off car costs only running expenses while a lease payment never ends.
Lease net = initial + (payment × months) + end fees ; Buy net = deposit + (payment × months) − resale valueSource: Standard lease and finance cost comparison. Tax treatment differs for business use — take professional advice on deductibility.
Worked example
A 34,000 car over 36 months: lease at 389/month with 2,000 initial, versus buying with 5,000 down, 712/month at 6.9%, resale 20,400.
- Lease total = 2,000 + (389 × 36) = 16,004, plus roughly 350 return fees = 16,354.
- Buy payments = 712 × 36 = 25,632, plus 5,000 deposit = 30,632.
- Remaining loan balance after 36 months ≈ 7,100, so equity = 20,400 − 7,100 = 13,300.
- Buy net = 30,632 − 20,400 + 7,100 owed settled at sale ≈ 17,332 net cost.
About 16,350 to lease against roughly 17,330 net to buy — close over three years, but buying pulls ahead decisively if you keep the car beyond the loan.
Frequently asked questions
Is leasing cheaper than buying?+
Over a short term with predictable mileage it can be, because you only pay for depreciation. Over a longer horizon buying wins, since a paid-off car costs only running expenses.
What happens if I exceed the mileage limit?+
You pay a per-mile excess charge on return, which adds up quickly. If your mileage is uncertain or high, buying avoids that risk entirely.
Why does resale value matter in the comparison?+
Because it is value you still own. Comparing monthly payments alone ignores the asset a purchase leaves you with, and makes leasing look better than the net figures show.
Can I get out of a lease early?+
Usually only at significant cost — early termination charges are typically severe. Treat the lease term as a firm commitment when comparing.
Last reviewed August 31, 2026. We review this page whenever the underlying formula, tax year, published rate or standard changes.