Lease vs Buy Calculator

Lease if you prioritize lower monthly payments, warranty coverage, and driving a new car every 2-3 years - and your annual mileage is under the cap (typically 10,000-15,000). Buy if you drive a lot, plan to keep the car 5+ years, want to modify it, or want to build equity. Long-term, buying is almost always cheaper in total dollars but ties up capital in a depreciating asset.

The money factor is the lease equivalent of an interest rate. Multiply by 2400 to convert to APR: a 0.00250 money factor = 6.0% APR. Money factors vary by credit tier, manufacturer subsidies, and dealer markup. Always negotiate the money factor - dealers add markup of 0.0005-0.0015 (1.2%-3.6% APR) when you don't ask.

Residual value is the predicted worth of the car at lease-end, set by the leasing company. A high residual (60%+ of MSRP after 36 months) means low monthly payments because you're only paying for the depreciation between purchase and lease-end. Vehicles with strong resale history (Toyota Tacoma, Honda CR-V, Lexus) get the best residuals.

Compare the residual buyout price to current market value. If the car is worth more than residual (common in low-supply markets), buying out and reselling captures the spread. If market value is lower, walk away and lease/buy elsewhere. Recent years have favored lease buyouts because used car prices spiked above residual estimates.

A lease sets an annual mileage cap, usually between 10,000 and 15,000 miles. If you exceed it, the overage charge runs $0.15 to $0.30 per mile, which can add thousands of dollars to the total cost at turn-in. If you drive more than 15,000 miles a year, buying is usually the more economical option.

Gap insurance (GAP) covers the difference between what you still owe on the lease and what your auto insurer pays out if the car is totaled or stolen. Many lease contracts include it automatically, but check your agreement. On a loan with little money down, it is also worth buying GAP separately.

The most important thing you can negotiate is the sale price (capitalized cost), exactly as you would on a purchase. Also check the manufacturer's base money factor and make sure the dealer has not marked it up. Don't waste energy negotiating the residual or the mileage cap beyond what the manufacturer already offers.