Lease vs Buy Calculator
Should you lease or buy your next car? Compare both side by side with current rates, real lease math, and the long-term cost over 6 years that Consumer Reports calls "thousands more" for back-to-back leases.
Last updated: October 2026 · Sources: Bankrate, Edmunds, KBB, Consumer Reports
The vehicle
Lease terms
Buy terms
How car leases actually work
A lease is not a rental. You are paying for the depreciation of the car during your lease term, plus interest on the entire value of the car (not just the depreciation portion). Your monthly lease payment has three components: a depreciation charge, a finance charge, and sales tax. Knowing this is the difference between getting a fair deal and getting fleeced.
Monthly finance = (Cap cost + Residual value) × Money factor
Monthly tax = (Depreciation + Finance) × Sales tax rate
Lease payment = Depreciation + Finance + Tax
Worked example. A $40,000 MSRP vehicle, negotiated sales price $38,000. Money factor 0.00271 (about 6.5% APR). Residual value 55% of MSRP = $22,000. 36-month lease. $2,000 drive-off.
- Cap cost = $38,000 - $2,000 = $36,000
- Monthly depreciation = ($36,000 - $22,000) / 36 = $389
- Monthly finance = ($36,000 + $22,000) × 0.00271 = $157
- Pre-tax payment = $389 + $157 = $546
- Add 6.5% sales tax: $546 × 1.065 = $582/month
The same car, financed at 7% over 60 months with $5,000 down: about $654/month. The lease looks $72/month cheaper. But at the end of the lease, you walk away with nothing. The buyer keeps making payments for 24 more months, then owns a car worth roughly $20,000 — meaning the buyer comes out tens of thousands ahead by year 6.
When leasing actually makes sense
Lease wins for
- People who want a new car every 2-3 years no matter what
- Drivers under 12,000-15,000 miles per year
- EV buyers who find strong manufacturer lease incentives (the federal EV credit ended September 30, 2025)
- Self-employed who write off business mileage
- Anyone leasing a car with elite residual (Honda, Toyota, Lexus)
- Cars with manufacturer-subsidized lease promotions
Buy wins for
- Anyone planning to keep a car 5+ years
- High-mileage drivers (15,000+ miles/year)
- People who want to modify or customize the vehicle
- Anyone who wants no monthly payment after the loan ends
- Buyers in markets where lease deals are not subsidized
- Used car buyers (used leases are rare and often a bad deal)
Three real-world lease vs buy scenarios
1. The Honda Civic commuter (lease loses)
Sarah commutes 25 miles each way and is buying a $28,000 Honda Civic. Honda has a 65% residual and a strong 5.9% lease APR equivalent. Her 36-month lease comes to $345/month with $2,000 down. Her 60-month loan at 6.5% comes to $487/month with $4,000 down. Lease wins by $142/month — but she drives 13,000 miles a year and the lease only allows 12,000, so she will pay about $1,500 in mileage overage at lease-end. Worse: she keeps the same car for 8 years on average. Buying and driving the Civic to year 8 costs her about $34,000 total. Two and a half back-to-back leases over 8 years would cost about $42,000. Buy wins.
2. The $50,000 electric SUV (lease can win on incentives)
Marcus wants a $50,000 electric SUV. The federal $7,500 EV credits (30D for buyers, 45W for leases) ended for vehicles acquired after September 30, 2025, so neither buying nor leasing gets a federal credit. What can still tip the comparison is a manufacturer lease incentive, a subsidized lease rate or a strong residual value. If an offer like that lowers the 36-month lease payment well below the payment on a 60-month purchase, and he plans to upgrade to the next model anyway, leasing can win. Enter the actual offers in the calculator above to see the real numbers.
3. The luxury cycle (lease wins for the right buyer)
Elena is a partner at a law firm earning $400,000. She wants a new BMW or Audi every 3 years and writes off 60% of vehicle expenses as business use. Buying makes no sense for her — she would lose tens of thousands in depreciation in the first 2 years alone, and trading in every 3 years would mean rolling negative equity into the next purchase. She leases. The fixed cost, predictable payment, and ability to upgrade every 3 years aligns perfectly with her actual life. The math says buy. Her actual life says lease.
Common lease vs buy mistakes
1. Comparing only the monthly payment
The lease payment will almost always be lower for the same car. That does not mean the lease is cheaper. Compare total cost over the time you actually plan to keep the car, including the equity the buyer has at the end.
2. Putting a big down payment on a lease
If the leased car gets totaled in month 3, you lose the entire down payment. Lease down payments build no equity. Put down only the bare minimum drive-off fees.
3. Ignoring the mileage cap
$0.15-$0.30 per mile over the limit adds up fast. Be honest about how much you drive before signing a 12,000-mile lease.
4. Not negotiating the cap cost
The cap cost (selling price for the lease) is just as negotiable as a purchase price. Many lessees do not realize this and accept whatever the dealer puts on the paperwork.
5. Forgetting that lease payments never end
If you lease forever, you will have a car payment forever. The buyer who keeps a car 8-10 years has 4-5 years of zero payments banking up serious savings.
Frequently asked questions
Is it cheaper to lease or buy a car in 2026?
Over a single 3-year period, leasing usually has a lower monthly payment because you are only paying for the depreciation portion of the car, not the full price. Over 6+ years, buying almost always wins on total cost. Consumer Reports puts it bluntly: two back-to-back 3-year leases will cost thousands more than buying a car (with a loan or with cash) and owning it over the same six years. The exception is if you genuinely want a new car every 3 years and value that more than the savings.
What is a money factor and how do I convert it to APR?
The money factor is just an interest rate expressed differently for car leases. To convert: multiply the money factor by 2,400 to get APR. So a money factor of 0.00125 = 3% APR, and 0.0025 = 6% APR. To go the other way, divide APR by 2,400. A money factor of 0.00271 (about 6.5% APR) is roughly the average for a borrower with good credit in April 2026. Always ask the dealer for the money factor in writing — they sometimes try to hide it.
What is residual value and why does it matter?
Residual value is what the leasing company estimates your car will be worth at the end of the lease, expressed as a percentage of MSRP. Higher residual = lower lease payment, because you are only paying for the depreciation between the cap cost and the residual. Most cars have a 36-month residual between 45% and 60% of MSRP. Top brands like Honda, Toyota, Lexus, and Subaru often hit 65%+. A car with a high residual is much cheaper to lease even if the sticker price is the same.
When should I lease instead of buy?
Leasing makes sense if: (1) you genuinely want a new car every 2-3 years, (2) you drive under 12,000-15,000 miles per year, (3) you take care of vehicles and will not get hit with wear-and-tear charges, (4) you can write off the lease as a business expense, or (5) you want a luxury or EV that is too expensive to buy outright. It does not make sense if you plan to drive the same car for 6+ years, drive a lot of miles, or want to build equity in something.
When should I buy instead of lease?
Buy if: you plan to keep the car 6+ years, you drive over 15,000 miles per year, you want to modify the car, you want zero monthly payment after the loan is paid off, or you want to build equity in something. The math heavily favors buying for long-term owners — every month you keep a paid-off car is essentially a free monthly payment compared to perpetual leasing.
Are EV leases a better deal than EV purchases in 2026?
Not because of a tax credit. The federal $7,500 EV credits (30D for buyers and 45W for leases and commercial buyers) ended for vehicles acquired after September 30, 2025, so leases no longer pass a credit through as a cap cost reduction. Compare EV lease and purchase offers on price, manufacturer incentives and residual value. The trade-off: you do not own the car at the end and EV resale values have been volatile.
How do I tell if a lease deal is good?
Use Kelley Blue Book's rule of thumb: divide the monthly payment by the MSRP. If the result is below 1%, it is a good deal. At or near 1% is fair. Above 1% is overpriced. Example: $400/month on a $40,000 MSRP = exactly 1%. $350/month on a $40,000 MSRP = 0.875%, a good deal. $500/month on a $40,000 MSRP = 1.25%, too expensive. The calculator above shows your KBB score automatically.
How much should I put down on a lease?
As little as possible. Unlike a car loan where the down payment builds equity, lease down payments do not. If your leased car is totaled in the first month, you lose the entire down payment. Put down only the bare minimum drive-off fees (typically $0-$2,000) and use any extra cash to lower the cap cost in other ways or just keep it in savings. This is the opposite of how you should approach a loan.
What is "gap" insurance and do I need it on a lease?
Gap insurance covers the difference between what you owe and what your car is actually worth if it gets totaled or stolen. Most leases include gap coverage in the contract automatically — check yours. If you are buying with a small down payment, gap insurance becomes more important because new cars depreciate fastest in the first 1-2 years and you can easily owe more than the car is worth.
What happens if I exceed my lease mileage allowance?
You pay $0.15-$0.30 per mile over the limit when you turn the car in. Most leases allow 10,000, 12,000, or 15,000 miles per year. If you drive 18,000 miles per year on a 12,000-mile lease, you will be 18,000 miles over by the end of a 3-year lease. At $0.25/mile, that is $4,500 in penalties. Either negotiate a higher mileage allowance upfront (it costs less than paying overage at the end) or buy out the lease at the end if your equity allows it.
Can I get out of a car lease early?
Yes, but it is usually expensive. Options include: (1) lease transfer through services like Swapalease, (2) early termination by paying remaining payments plus a fee, (3) lease buyout where you purchase the car at residual plus any remaining interest, then sell it. Lease transfer is usually cheapest. Early termination is usually the worst option financially. Check your lease contract for the specific fees.
Is the car lease tax deductible for self-employed people?
The business-use portion of a car lease is deductible for self-employed individuals and small business owners. If you use the car 70% for business, you can deduct 70% of the lease payments. The IRS also adds a "lease inclusion amount" for higher-value leased vehicles to prevent excessive deductions on luxury cars. Talk to a tax professional and keep detailed mileage logs.
Data sources: Bankrate auto loan and lease vs buy guides (Feb-Apr 2026); Edmunds lease calculator; Kelley Blue Book lease guide and rule-of-thumb scoring; Consumer Reports 2026 leasing vs buying analysis; Experian Q2 2026 finance market data.
Last updated: October 2026. Lease money factors and residuals vary by lender, region, vehicle, and credit tier.
Disclaimer: This calculator provides estimates for educational purposes only and is not financial or legal advice. Always read the lease contract carefully before signing.