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Last updated: December 14, 2023

Lease or Purchase Car Calculator

Find out whether it makes more financial sense to buy or lease with our calculator.

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Leasing allows you to drive a new car with lower monthly payments than buying, though buying can be a better financial decision in the long term. Enter your estimated lease payments, loan or lease term, purchase price, down payment, and other factors into our calculator to see the financial impact of buying versus leasing a particular vehicle.

What is leasing and how is it different from buying?

When you lease a car, you’re essentially renting it from the dealership for a set period of time, usually two to four years. Both leasing and buying involve making monthly payments. Unlike leasing, when you buy a car you eventually own the vehicle.

When you lease a car, you agree to an annual mileage limit with the dealer — typically 10,000, 12,000, or 15,000 miles (though some dealers have higher mileage options). You also agree to maintain the vehicle. If you go over the mileage limit or return the car with excess wear and tear, you’ll incur additional charges.

When you lease a car, the leasing company may require you hold auto insurance coverage for the leased car above the state minimum. Similarly, if you finance a new car, your lender may also require higher coverage. For example, you may have to purchase collision, comprehensive, and gap coverage.

TIP:

If you’re not sure how much the vehicle will be worth at the end of the loan period, check out our Vehicle Depreciation Calculator. Additionally, our Car Affordability Calculator will tell you the price of a vehicle that fits in your budget.

Pros of leasing

Lower monthly payments

One of the main advantages of leasing is lower monthly payments than you’d pay if you took out a loan to buy a car. Additionally, depending on where you live, you might pay sales tax only on the portion of the car’s value you use during the lease term.

New car every few years

When you lease, you get to drive a new car every few years without putting down a big down payment each time. You’ll also likely be able to drive a more expensive car than you would if you bought.

Less hassle

Because the car is new, you’ll pay less for repairs, and the warranty will cover any major issues. And at the end of the lease term, you can return the car and get a new one without the hassle of selling it.

Cons of leasing

Continuous payments

The main con of leasing is that you don’t build equity and you will never own the vehicle. When you buy a car, you eventually finish paying it off (usually in two to seven years), but lease payments are ongoing. That’s why buying can make more sense over the long run.

STATS:

According to the U.S. Department of Transportation, about 16 percent of new vehicles in 2022 were leased, down from 22 percent in 2021 and 24 percent in 2020.1

Mileage limits

If you exceed the lease’s mileage limits, you’ll pay extra — usually around 30 cents per mile. If you have a long daily commute, these costs can add up.

Less flexible to end

If your vehicle needs change (for example, if you have children), it will be expensive to terminate your lease early. If your contract allows lease transfers, you can try to find someone to take over your lease.

Pros of buying

Ownership

The primary benefit of buying a car is ownership. As you pay off a car loan, you build equity. Once it’s paid, you have an asset and a period of time without car payments, which can be financially liberating compared to the continuous payments of leasing.

Ability to sell or trade in

When you own a car, you can trade it in or sell it if your needs change or you want a different vehicle for another reason. If you have payments remaining on the loan, you can use the money from the sale to pay the loan off, and put the remainder toward a new car.

Less restrictions on use

You can drive a car you own as much as you want, with no restrictions on mileage. Additionally, while dings, scrapes, and wear and tear may lower the value of the car at trade-in, you won’t pay penalties for them as you would with a lease.

Cons of buying

Higher monthly payments

In the short term, buying is less affordable than leasing because monthly loan payments are usually higher than lease payments.

TIP:

Use our Auto Loan Calculator to estimate your monthly loan payments for a car purchase.

Long-term commitment

Buying a car makes more financial sense if you keep the same car in the long-term. If you like to drive a new car every few years, you likely won’t see the benefits of ownership.

More upfront costs

Buying a car usually involves more upfront costs than leasing, including a higher down payment, taxes, and fees.

How to decide whether to buy or lease

The decision to buy or lease a car comes down to your financial situation, preferences, and lifestyle. Generally, buying a car and maintaining it for as long as you can is a better financial decision in the long term than leasing.

Consider buying if you:

  • Eventually want to be free from monthly payments

  • Are saving up for another big purchase, like a home

  • Drive more than 12,000 miles a year

  • Don’t mind driving the same car for many years

Consider leasing if you:

  • Are looking for lower monthly costs

  • Prioritize owning a new car every few years

  • Don’t want to worry about selling your car

  • Want a vehicle that is out of your budget to own

Before you head to the dealership, do some research on the best car loans, leasing, and financing options — that way, you’re not obligated to accept the dealer’s financing terms.

It’s also a good idea to get a quote for insuring a new car before you purchase it. Having a quote in hand speeds things up at the dealership and gives you a sense of insurance costs for a particular vehicle before you buy or lease it.

Lease vs. Buy FAQ

What happens at the end of a lease?

At the end of a lease, you typically have three choices:

  1. Return the vehicle.
  2. Buy the vehicle for its predetermined residual value (how much you and the dealership agreed it would be worth at the end of the lease).
  3. Extend the lease for a few more months while you look for another car.

Until recently, it usually made most sense to return the vehicle. However, if you leased your car before or during the pandemic — before the car shortage — you may benefit from buying your vehicle at the end of the lease. Because the price of new and used cars has risen sharply, it’s possible that the buyout cost is lower than what you would pay for a comparable vehicle on the market today. Shop around and crunch the numbers to see whether your car’s residual value is more or less than its market value today. If it’s less, consider buying it.

What is the downside to buying out a lease?

The downside to buying out a lease is that you might pay too much if the buyout price is more than the car’s market value. When deciding whether to buy out a lease, in addition to the buyout price, consider whether your vehicle needs have changed, the cost of any repairs your vehicle needs, and fees or taxes you’ll have to pay.

How long is best to lease a car?

In most cases it’s best to lease a car for around two to three years (24 to 36 months), in part because manufacturer warranties typically last three years. If you plan to lease a car for longer, it’s probably best to buy it instead.

Can you negotiate the price on a lease?

Yes, you can negotiate a lease. Research leasing deals ahead of time. That way, you can use them as leverage when negotiating at the dealership. Typically, you can negotiate these parts of a lease:

  • Gross capitalized cost (the sales price of the vehicle)
  • Mileage allowance
  • Interest rate and monthly payments
  • Buyout price

You usually can’t negotiate the following:

  • Acquisition and disposition fees
  • Residual value

Citations

  1. New and Used Passenger Car and Light Truck Sales and Leases. Bureau of Transportation Statistics. (2023).
    https://www.bts.gov/content/new-and-used-passenger-car-sales-and-leases-thousands-vehicles