Lease vs. buy: which is cheaper?

Start with the written quotes

Ask for the total monthly lease payment, the signing breakdown, the payment schedule and return terms. For buying, get the purchase out-the-door price, including tax and fees, before comparing financing. The FTC financing and leasing guide explains why the total price and contract terms deserve attention alongside the monthly payment.

The Lease vs. Buy Calculator accepts the quoted lease payment directly. Choose the lease term, then estimate the purchased car's resale value at that same date. The worksheet assumes a scheduled closed-end lease return and comparable cash-only signing/down-payment quotes.

Count the first lease payment once

Cash due at signing can contain the first monthly payment and a refundable deposit. If you add the full payment schedule again, you count that first payment twice. The CFPB lease disclosure rule, sections 4(b)–(e), separates signing items, scheduled payments and other charges, and removes prepaid periodic payments and refundable amounts from the total of payments.

• Lease cash paid: signing cash + payments still due + entered return fee + modeled excess-mileage charge.
• Lease economic subtotal: cash paid − assumed refundable deposit returned.
• Payments still due: for 36 monthly payments with the first paid at signing, use 35 remaining payments.

If you do not know the return fee, leave it blank in the calculator. It stays an unknown addition to the known subtotal. Enter zero only when the quote confirms no fee. The model assumes the entered deposit is refunded in full; damage or other contract deductions could reduce that refund.

Separate purchase cash from ending equity

A loan payment contains principal and interest. The CFPB explanation of auto loan amortization describes how those shares change during repayment. Our model uses fixed monthly amortization at the annual interest rate you enter and stops payments when the loan is paid off.

• Buy cash paid: cash down payment + loan payments through the comparison date.
• Ending equity: estimated resale value − remaining loan balance.
• Buy economic subtotal: cash paid − ending equity, equivalent to cash paid + ending loan balance − resale value.

Positive equity lowers the economic subtotal. Negative equity increases it. If you keep the car, its estimated equity is not cash in your bank account. If you sell, the actual proceeds, payoff and transaction charges determine what you receive or still owe.

A worked 36-month example

These are invented round numbers to explain the arithmetic, not market quotes. The lease payment is $400, cash due at signing is $3,000 including the first payment and a $500 refundable deposit, and the return fee is $350. Expected driving exceeds the allowance by 3,000 miles per year at $0.25 per mile.

Lease item	Calculation
Signing cash	$3,000
Remaining payments	35 × $400 = $14,000
Excess-mileage charge	9,000 miles × $0.25 = $2,250
Return fee	$350
Cash paid before refund	$19,600
Assumed deposit refund	−$500
Lease economic subtotal	$19,100

For the purchase, assume a $30,000 out-the-door price, $6,000 cash down, a 60-month loan at 0% interest, and a $18,000 resale value at month 36.

Buy item	Calculation
Cash down payment	$6,000
Monthly loan payment	$24,000 ÷ 60 = $400
Payments through month 36	36 × $400 = $14,400
Cash paid	$20,400
Ending loan balance	$9,600
Resale estimate	$18,000
Ending equity	$18,000 − $9,600 = $8,400
Buy economic subtotal	$20,400 − $8,400 = $12,000

Buying has $800 more cash paid in this example and a $7,100 lower economic subtotal after estimated equity. Those are different comparisons. The resale value is an assumption, and the cost difference excludes the items below.

Check what could change your result

• Lease terms: confirm applicable tax in the monthly payment, the exact signing breakdown, mileage rate, return fee, deposit refund conditions and excess-wear terms.
• Loan terms: use the annual contract interest rate. APR can include credit fees. Ask the lender for the payment schedule and payoff; actual daily interest and payment timing can differ from the monthly model.
• Future value: try a lower resale estimate. Each $1,000 reduction increases the buy economic subtotal by $1,000, with the other inputs held constant.
• Running costs: compare insurance, fuel or charging, maintenance, repairs and ongoing taxes/registration separately unless included in the entered quotes.
• Different exit plans: this comparison does not model early termination, lease buyout, an open-end residual obligation, trade-in equity, rolled-in debt, sale fees or business tax treatment.

Bring the numbers back to the provider

Use the Lease vs. Buy Calculator to save a fillable worksheet with your entered assumptions, the cash-and-equity reconciliation and blank spaces for actual quotes, sources and dates. For a broader running-cost budget, use the 5-Year TCO Calculator. Keep the signed contract and lender figures as the source for your decision.