Buy vs Lease Car Calculator

Buying and leasing look incomparable because one is a large payment now and the other is a small payment repeated. They become comparable once the purchase is measured by what the period actually consumed rather than by the cash handed over on day one.

At the defaults: a 25,000 car kept three years and sold for 15,000 costs 10,000 across 36 months, which is 277.78 a month. A lease at 300 a month for the same 36 months costs 10,800. Buying comes out 800 cheaper, and the car has lost 40% of its value in three years to produce that figure.

The gap is thin enough to be fragile, which is the useful thing to notice about it. Eight hundred across three years is 22 a month, less than the difference a slightly better or worse resale price would make.

A worked example

With the defaults, a buy price of 25,000, a resale value of 15,000, a lease at 300 a month and a 36-month period, the tool returns 800.00 in favour of buying. Buy net cost is 10,000, lease total 10,800, and the buy path works out at 277.78 a month.

The resale figure carries almost all of the uncertainty in that result. It is a guess made three years early, and it enters the calculation at full weight: every unit of resale value is a unit off the cost of buying. A car fetching 13,000 instead of 15,000 turns the 800 advantage into a 1,200 disadvantage, which is a swing of 2,000 from one revised estimate.

What moves the number most

Lease monthly and period multiply together, so a 10 a month difference over 36 months is 360, and the same 10 over 48 months is 480. Buy price moves the result unit for unit alongside resale, so the calculation turns on the depreciation between them rather than on either number by itself: a 40,000 car resold at 30,000 produces exactly the same buy net cost as this 25,000 one.

One cost sits outside the calculation and is large enough to reverse it. Buying puts 25,000 to work in a car; leasing leaves that money available. Over three years at a 4% return, 25,000 would have grown by 3,121.60, which is almost four times the 800 the tool reports as buying's advantage. Add it back and the buy path costs 13,121.60 against a lease at 10,800, and leasing wins by 2,321.60.

The threshold is low. The 800 gap is wiped out by any return above about 1.06% a year on the purchase price. At 2% the lease is 730 ahead, at 5% it is 3,141 ahead. Anyone financing the purchase rather than paying cash faces the same arithmetic in a more visible form, as interest on the loan.

This does not make leasing the better option, and the reverse case is easy to construct: hold the car for six years instead of three and the purchase price spreads across twice the period while the lease payments simply continue.

The formula behind this

Buy net cost is the purchase price minus the expected resale value. Lease total is the monthly payment multiplied by the number of months. The result is the difference between the two, labelled with whichever comes out lower, and a buy cost per month is shown alongside for comparison against the lease payment.

The comparison is deliberately narrow. Costs common to both paths, such as insurance, fuel, tax and tyres, are left out because they largely cancel. Nothing is discounted, and no cost of capital is applied to the money committed to the purchase, which is the omission with the most power to change the answer.

Using this to think, not predict

Projections of this kind are for thinking with rather than predicting. The resale value three years out is unknowable, the mileage will not match the plan exactly, and the intention to keep the car for three years may not survive contact with the fourth. What the calculation does is show which assumptions the decision actually rests on, so that a shift in one of them is recognisable when it happens rather than discovered at the point of sale.

Putting both options on the same window

Comparing a purchase against a lease only works when both cover the same window. The calculator nets the resale value off the purchase price so buying is measured by what the period actually consumed, not by the cash paid on day one. At the defaults, a 25,000 car resold for 15,000 after three years costs 10,000 across 36 months, against 10,800 for a lease at 300 a month.

Matching the windows also matters for a subtler reason. A three-year lease ends with nothing and a decision to make; a three-year purchase ends with a car worth 15,000 and the same decision deferred. Extending the period input past the lease term compares a purchase that keeps working against a lease that would have to be renewed, which is a different question and usually a different answer.

Costs that sit outside the comparison

Costs common to both paths, such as insurance, fuel and routine consumables, are left out because they largely cancel. Costs specific to one path do not cancel, and several of them are substantial.

On the lease side, an initial payment of several months' rental is standard and is not modelled here, nor are arrangement fees. Leases cap annual distance and charge for exceeding it, and they are inspected at the end against a wear standard, with charges for damage and missing equipment. The United States Federal Trade Commission's consumer guidance on financing or leasing a car sets out those mechanics, and while the specific limits differ by market and contract, the structure is common to vehicle leases generally.

On the purchase side, the capital committed earns nothing while it sits in the car, and where the purchase is financed the interest is a real cost the model does not see. Maintenance beyond any warranty falls to the owner, and it tends to rise with age, which is precisely the period a longer hold is meant to exploit. The International Energy Agency's analysis of cars and vans tracks how vehicle markets and costs are shifting across regions.