Lease vs buy a car: which is cheaper?

People type this into search every day: lease vs buy car.

The usual answer is “lease if you want a lower payment.” That payment is easy to shop. It is not the comparison. The lease pile is rent plus the check at signing. The buy pile is the value the car loses, plus the interest you pay while you hold it.

This page is a labeled example. It is not a dealer quote, and it is not personalized financial advice.

Two piles, same months

The lease vs buy calculator holds operating costs out of both sides. Insurance, fuel, and maintenance are treated as equal and left out. Mileage fees and wear charges are left out too. The tool says both of those things in its assumptions.

Lease cost is cash you do not get back:

monthly payment × months + due at signing

Buy cost after resale is the net cost of using the car for that stretch:

purchase price − estimated resale + loan interest over the period

The published result is whichever pile is smaller, and by how much.

The CFPB page on leasing versus buying puts the same split in plain language. Buying builds equity. A lease is an agreement to use the car for a set number of months and miles. Payments go toward depreciation during the term plus a rent charge. You return the car unless you exercise a purchase option.

The FTC’s financing or leasing note says the monthly payment on a lease is usually lower because you are paying for expected depreciation, a rent charge, taxes, and fees, not the whole car. It also says to look at the total cost, not only the monthly number.

The published $22,220 versus $16,600 case

Here are the calculator defaults:

• lease monthly payment: $520
• lease due at signing: $3,500
• purchase price: $38,000
• estimated resale value: $25,000
• loan interest over the period: $3,600
• comparison period: 36 months

Lease payments: 520 × 36 = $18,720.00

Lease cost: 18720 + 3500 = $22,220.00

Price drop: 38000 − 25000 = $13,000.00

Buy cost after resale: 13000 + 3600 = $16,600.00

Difference: 22220 − 16600 = $5,620.00

The published result is Buying, by $5,620.00.

This is a labeled example, not a forecast for one lot. Change the residual, the interest, or the months, and the gap moves.

Where $22,220 and $16,600 come from

The lease pile is two cash lines.

Set due-at-signing to $0 and keep the $520. Lease cost falls to $18,720.00. Buying still wins, by $2,120.00. The signing check is a big slice. It is not the whole gap.

The buy pile is the $13,000 drop plus $3,600 of typed interest. Set interest to $0, as if you paid cash, and buy cost is $13,000.00. The gap grows to $9,220.00.

That $3,600 is an input, not a computed APR. The car loan payment calculator is the place that amortizes a real rate.

The payment is a different calculator

The car-loan tool uses the same $38,000 sticker as the lease default:

• vehicle price: $38,000
• down payment / trade-in: $7,000
• tax and fees: 9%
• loan APR: 7.2%
• term: 60 months

Amount financed: 38000 × 1.09 − 7000 = $34,420.00

Monthly loan payment: $684.81

Total interest: $6,668.59

Total paid including the $7,000 down: $48,088.59

$684.81 is higher than the $520 lease payment. That is the CFPB and FTC point about the monthly number. On the 36-month window, the lease still costs $22,220. Buying and selling at $25,000 costs $16,600 in the default model.

The $6,668.59 of interest is a 60-month figure. Drop that whole 60-month interest into the lease-vs-buy interest box and buy cost becomes 13000 + 6668.59 = $19,668.59. Buying still wins, by $2,551.41. You are charging a five-year loan against a three-year hold, so that version is harsh on buying.

Match the term instead. Same $34,420 at 7.2% for 36 months:

Monthly payment: $1,065.94

Total interest: $3,953.84

Total paid including down: $45,373.84

Put $3,953.84 in the interest box. Buy cost is 13000 + 3953.84 = $16,953.84. Lease stays $22,220.00. Buying wins by $5,266.16.

The default $3,600 sits close to that 36-month interest. It is still a typed stand-in. Your Loan Estimate will print a different APR.

The CFPB compare-offers page tells you to look at APR, the amount financed, the term, and the total you pay. A longer term can shrink the monthly number and raise the interest. Same $34,420 at 7.2%:

• 48 months: payment $827.43, interest $5,296.51
• 72 months: payment $590.14, interest $8,069.93

Stretching 36 months to 72 months drops the payment by 1065.94 − 590.14 = $475.80. Interest rises by 8069.93 − 3953.84 = $4,116.09.

If you are measuring a payment against income, use the debt-to-income post. Lenders look at the payment. Your budget feels the rest.

Residual value does most of the work

The CFPB leasing page says the residual is what the company thinks the car will be worth at the end. It is also the number you pay if a purchase option is included. Question how accurate that estimate is, because it sets both the lease payment and the buyout.

The FTC page adds the usual mileage cap: 15,000 miles a year or less on most standard leases. Drive more and the monthly payment rises, or you pay a per-mile fee when you return the car. The Federal Reserve leasing FAQ gives the same reason. Residual value is based on expected mileage. Extra miles often cut the value, so the lessor recovers that drop with an excess-mileage charge.

Keep the $38,000 price, the $3,600 interest, and 36 months. Change only resale.

• resale $22,000: buy cost $19,600.00. Buying still wins, by $2,620.00.
• resale $25,000: buy cost $16,600.00. Gap $5,620.00.
• resale $28,000: buy cost $13,600.00. Gap $8,620.00.

The lease number does not move because the $520 and the $3,500 are typed. In a real quote, a lower residual usually raises the lease payment. Run both sides again when the dealer changes that estimate.

The car depreciation estimate is a separate path: 18% in year 1, then 12% a year. Start it at the $38,000 purchase price.

• year 2: $27,420.80 left, $10,579.20 lost
• year 3: $24,130.30 left, $13,869.70 lost
• year 4: $21,234.67 left, $16,765.33 lost

Put the year-3 figure in as resale, and put the 36-month loan interest of $3,953.84 next to it.

Buy cost: 38000 − 24130.30 + 3953.84 = $17,823.54

Lease cost stays $22,220.00

Buying wins by $4,396.46

The default $25,000 residual was a bit kinder to buying than this 18% / 12% curve. Buying still wins on both paths. I am not going to invent a national residual table. Type the number on the lease worksheet.

Months change the lease pile faster than the buy pile

The CFPB says a typical lease is two to four years. Its auto-loan guide, Take control of your auto loan, repeats that a lease is an agreement for a set number of months or miles, and that you should compare the two costs before you sign.

Keep every default except the months. The $25,000 residual stays put, which is a shortcut.

24 months. Lease: 520 × 24 + 3500 = $15,980.00. Buy cost stays $16,600.00. The tool prints Leasing, by $620.00.

36 months. Lease $22,220.00. Buying by $5,620.00.

48 months. Lease: 520 × 48 + 3500 = $28,460.00. Buy cost still $16,600.00. Buying by $11,860.00.

Holding residual at $25,000 for a two-year sale is optimistic for buying, and holding it for a four-year sale is optimistic for leasing. Pair the months with a residual from the same clock.

Two years at the 18% / 12% path: resale $27,420.80. Keep the default $3,600 interest. Buy cost: $14,179.20. Lease: $15,980.00. Buying wins by $1,800.80. The 24-month flip goes away once the residual rises.

Four years on that path: resale $21,234.67. Use the 48-month loan interest of $5,296.51. Buy cost: $22,061.84. Lease: $28,460.00. Buying wins by $6,398.16.

A short lease can look cheaper when you reuse a three-year residual. Match the sale date and the gap usually stays on the buy side in these labeled runs.

Insurance and fuel sit on both sides

The true cost of owning a car post adds the lines this comparison skips: depreciation, interest, insurance, fuel, and upkeep. Its defaults are a $12,500.00 year, or $1,041.67 a month.

Over 36 months that yearly pile is 12500 × 3 = $37,500.00. Most of it would land on a lease too. Insurance does not care which name is on the title. Fuel follows the odometer.

The lease-vs-buy tool leaves those lines out on purpose so you can see the ownership difference. If a lease requires extra insurance, add that gap to the lease pile by hand. The FTC page says the leasing company sets the insurance it wants.

The commute cost post is the miles you drive for work. A 15,000-mile lease cap is tight if the commute already eats most of it. Excess-mileage fees are excluded here. Read them on the worksheet before you treat $520 as the whole lease.

If you buy the car at the residual after the lease, stack the two. Default lease plus a $25,000 buyout is 22220 + 25000 = $47,220.00. The default buy path at $3,600 of interest is 38000 + 3600 = $41,600.00 before you count the down payment timing. That stack is a labeled check, not a closing sheet.

Open the lease vs buy calculator with the payment, the check at signing, and the residual on the worksheet. Use the car loan payment calculator for the interest that belongs in the buy box. Use the total cost of car ownership calculator when you want the insurance and fuel back in the year.