Lease vs. Buy Car Calculator

How a lease payment is calculated

A standard lease monthly payment has two components:

• Depreciation fee: (Capitalized cost − Residual value) ÷ Lease term
• Finance fee: (Capitalized cost + Residual value) × Money factor

These two are added together, then multiplied by (1 + sales tax rate). The capitalized cost is the negotiated vehicle price minus any cap cost reduction (lease down payment).

Understanding money factor

Money factor is the lease equivalent of an interest rate. To convert it to an approximate APR, multiply by 2,400. For example, a money factor of 0.00125 equals 3.0% APR. Dealers sometimes call it the "lease rate" or "rent charge." Always ask for the money factor: dealers are not required to disclose it unless asked.

What is residual value?

Residual value is the estimated worth of the vehicle at lease end, set by the lender as a percentage of MSRP. A higher residual means less depreciation to pay and a lower monthly payment. Models with strong residuals (e.g., some luxury or limited-supply vehicles) are generally cheaper to lease relative to their price.

When is leasing smarter?

Leasing tends to be financially advantageous when you want a new car every 2–3 years, drive under the mileage limit, don't want to deal with repairs, or can deduct lease payments as a business expense. Buying wins financially over longer hold periods because you stop making payments once the loan is paid off and retain a saleable asset.

Mileage overage costs

Most lease contracts include an annual mileage allowance (commonly 10,000–15,000 miles/year). Each mile driven over the limit is charged at a per-mile rate stated in the contract - typically $0.15–$0.30 per mile. For example, 3,000 excess miles at $0.25/mile = $750 due at lease return. If you consistently exceed your limit, either negotiate a higher-mileage lease upfront (which raises the payment slightly) or consider buying instead.

End-of-lease options

• Return the vehicle: hand the keys back, pay any disposition fee (~$300–$500) and excess-mileage or wear-and-tear charges, then start fresh with a new lease or purchase.
• Buy at residual value: exercise the purchase option stated in your lease. This makes financial sense if the car's market value exceeds the residual - you're buying below market - or if you simply want to keep a vehicle you love.
• Transfer the lease: many manufacturers allow you to transfer the remaining lease to another qualified buyer via services like Swapalease or LeaseTrader. Useful if your needs change mid-lease.