Should I lease or buy my next car?
Over 36 months, leasing costs $20,407 and the car goes back. Buying costs $25,811, but leaves $6,148 of car that's yours. Counting that, buying costs $744 less to drive.
Example: a $35,000 car with $3,000 up front.
Use your own numbersWhat should I ask before signing a lease?
A lease is a long-term rental: lower payments, and the car goes back at the end. The payment comes from three numbers, the price, what the car will be worth at the end, and an interest (definition, opens in a new tab) rate called the money factor (definition, opens in a new tab). Ask for all three, plus the limits on miles and wear.
What's the money factor, and what APR is that?
The money factor is the lease's interest rate, written as a small decimal. Multiply it by 2,400 to get the APR (definition, opens in a new tab) (annual percentage rate) and compare it with a car loan.
How many miles will I really drive?
Leases set a yearly mileage limit and charge for each mile over it when the car goes back. A loan has no mileage limit.
What will I owe when I hand it back?
Ask about the disposition fee (a charge for returning the car), what counts as extra wear, and what it costs to end the lease early.
Quick guess
A lease has a money factor of 0.0025. What APR is that?
What does leasing really cost compared with buying?
Enter the price, the lease offer and a loan rate. You'll see each monthly payment, everything paid over the lease, and what you'd own at the end. Buying usually means bigger payments, but the car is yours. The fair comparison is what driving the car costs once the value you keep is counted.
Over the 36-month lease
Lease
$0
to drive it
- Monthly
- $0
- Total paid
- $0
- Yours at the end
- $0
Buy
$0
to drive it
- Monthly
- $0
- Total paid
- $0
- Yours at the end
- $0
"Yours at the end" is the car's value minus what's still owed on the loan. "To drive it" is total paid minus that.
See how the lease payment is built
| Price | $0 |
|---|---|
| Minus cash up front = cap cost | $0 |
| Residual (value at the end) | $0 |
| Depreciation fee: (cap cost − residual) ÷ months | $0 |
| Finance fee: (cap cost + residual) × money factor | $0 |
| Monthly payment | $0 |
Show the math
- Lease payment: the standard method above, before sales tax. Money factor × 2,400 ≈ APR. If you enter a quoted payment, the money factor is worked backward from it.
- Loan payment: monthly rate = APR ÷ 12, payment = amount borrowed × rate ÷ (1 − (1 + rate)−months).
- The car loses value at the same pace either way, set by the residual: value after m months = price × residualm ÷ lease months. That keeps the comparison like for like.
- Past one lease, it assumes a new lease on the same terms, with its cash up front and fees counted when it starts.
- Not included: sales tax, insurance, maintenance, extra-mile or wear charges, and what the cash could have earned elsewhere.
What does each choice cost after 1 year and 5 years?
Early on, a lease can look cheaper because its payments are lower. Over time, a car loan gets paid off while lease payments keep going, and cars lose value fastest in their first years. The tables show what each choice has cost after one year and after five, counting the value you'd own.
After 1 year
| Choice | Paid | Yours | Cost to drive |
|---|---|---|---|
| Lease | $0 | ||
| Buy |
After 5 years
| Choice | Paid | Yours | Cost to drive |
|---|---|---|---|
| Lease | $0 | ||
| Buy |
Lease payments and loan interest are the third bucket: money that compounds against you. The value of a car you own shrinks too, but it's still yours.
What can I say to the dealer instead?
Lease offers are often presented as one monthly payment, which hides the parts that set it. Below are lines you're likely to hear and a short reply to each. Every reply asks for the price, the residual and the money factor, so you can check the payment with the calculator above.
Before you go: get a car loan offer from your bank or a credit union. It gives you a rate to compare with the lease's money factor.
You might hear
“This one leases for only $___ a month.”
You can say
“What are the cap cost (definition, opens in a new tab), the residual and the money factor? I'd like to check the math.”
Cap cost is the price the lease is figured from. With those three numbers, the payment can be checked line by line.
You might hear
“What payment works for you?”
You can say
“Let's agree on the price of the car first. The lease is figured from it.”
A lower price lowers both the lease payment and the loan payment, so it is worth settling first.
You might hear
“The money factor is 0.00250.”
You can say
“What APR is that? And is that the lowest rate the lender offers for my credit?”
Multiply the money factor by 2,400 to get the APR. A rate quoted as a tiny decimal is easy to skip past.
You might hear
“This lease comes with 10,000 miles a year.”
You can say
“What does each extra mile cost, and what would more miles cost if I add them now?”
Extra miles are charged when the car goes back. Comparing both prices up front shows which costs less.
You might hear
“Put more money down and the payment drops.”
You can say
“I'd like to see the offer with little or nothing down first.”
Money paid up front on a lease goes into payments you would otherwise make monthly. If the car is totaled early, it may not come back.
Sources
- Consumer Financial Protection Bureau,Auto loans: comparing and negotiating car financing.
Educational only, not financial advice. The numbers are illustrations based on what you enter. Real lease and loan offers depend on your credit, the lender, the car and local taxes.