$7,658 of equity against $6,862 invested
Leasing and buying are two ways to have the same car for the same number of years: leasing means lower payments, no equity, and handing the car back at the end; buying with a loan means higher payments but an asset you own. Ending wealth is what makes them comparable — the equity you’d have from buying, against what leasing’s lower payments could grow into if invested instead. On the default inputs those are the two numbers in the heading above, and the whole decision reduces to which one is larger.
A $35,000 vehicle: a 36-month lease at 5% APR (money factor ≈ 0.00208) with a 55% residual value and $2,000 down comes to $491/month. Buying the same vehicle with $3,500 down on a 5-year loan at 6.5% APR costs $616/month. Over the 3-year lease term, at 15%/year depreciation the car is worth about $21,494, with $13,836 still owed on the loan — $7,658 of equity. Leasing’s smaller down payment and lower monthly cost, invested at a 7% return, grow to about $6,862. Buying wins here by $797 — close, which is typical: the two paths often land within a few percent of each other, so small changes to your assumptions can flip the result.
That gap is what the headline states: which path leaves you wealthier over the lease term you entered, and by how much. The table underneath breaks it down — the monthly payment for each (usually lower for leasing), the ending wealth (car equity for buying, an investment portfolio for leasing), and what’s left owed on the loan if the term extends past your comparison horizon. A lower lease payment can look attractive on its own, but the tool is also tracking what buying’s equity is worth and what leasing’s freed-up cash could grow into if invested, so a cheaper monthly payment does not automatically mean the better financial outcome. Buying can win on wealth while still meaning a higher monthly outlay the whole time — which is the reason to read the payment column and the wealth column together, against your actual monthly budget rather than just the top line.
Four inputs move that gap, and each moves it in a direction you can predict before you type it. Raise the assumed investment return and leasing gains, because the entire lease side is a portfolio built out of the payment difference. Raise the residual value and leasing gains again, since a higher residual charges you less depreciation every month. Lengthen the loan term and buying loses ground, because more of the balance is still outstanding at the horizon and gets subtracted from the car’s value. Raise the annual depreciation rate and buying loses ground too, since equity is that depreciated value minus the balance. Move two of them together and a $797 verdict does not survive.
Three framing choices sit behind those figures. The comparison horizon is the lease term itself — the natural framing of “over these years, lease or buy?” — rather than an independently chosen number of years. Buying’s ending wealth is the car’s depreciated value minus whatever loan balance is still owed at that point. Leasing’s ending wealth assumes the smaller upfront cash requirement and the monthly payment gap versus buying are both invested at your assumed return, since you hand the car back with no equity at all. Everything reported is an estimate from the values you enter — not a lease quote or loan offer.
Which way it lands for you depends on your mileage, how long you keep vehicles, and what the freed-up cash from leasing’s lower payment would actually do if invested rather than spent. High-mileage, long-term owners usually come out ahead buying; frequent upgraders with disciplined investing habits can come out ahead leasing. The calculator runs your own rates and assumptions instead of offering a one-size-fits-all answer.
Depreciation plus rent: the two halves of a lease payment
A lease payment is not a loan payment with a smaller number on it, and the difference is why the two sides of this page need separate formulas. The calculator uses the standard money-factor construction: depreciation — the adjusted capitalized cost minus the residual, spread evenly over the term — plus a finance charge levied on the sum of cap cost and residual. Change an input and you can see which half it moved.
The money factor is how lease interest gets quoted, usually as a small decimal like 0.00208. Multiply it by 2400 for the equivalent APR — 0.00208 × 2400 ≈ 5% — which is why this tool asks for a lease APR and converts for you. It is then applied to the sum of the adjusted capitalized cost and the residual value to produce the finance portion of your monthly payment, so a lower money factor means a lower payment and it moves only that half.
The residual value is the leasing company’s estimate of what the car will be worth at lease-end, usually shown as a percentage of MSRP. A higher residual means less of the car’s value is charged to you as depreciation during the lease, which lowers the monthly payment — and it also sets the price if you choose to buy the car when the lease ends. It is the input that moves the lease side hardest, so it is the one worth confirming on the quote.
Shoppers often screen a quote with the 1.5 rule instead: a payment at or below roughly 1% of the vehicle’s MSRP is considered a strong deal, up to about 1.5% still reasonable, and above that the terms are likely unfavorable. If the $35,000 price here is close to MSRP, that band runs about $350 to $525 a month, and the modeled $491 payment sits inside it. The rule is a quick sanity check, not a formula; the breakdown above shows the actual math behind your specific quote.
Lease, loan, or cash on the same $35,000 car
The calculator weighs two paths; a cash buyer is the third. Carrying every outflow forward to month 36 at the same 7% return the tool assumes, then netting what you hold against what you still owe, puts all three on one scale.
Lease, loan and cash compared on the $35,000 example over 36 months.| How you pay | Cash out | Car held | Still owed | Cost in month-36 dollars |
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| Lease, 36 months | $19,668.80 | — | — | $22,063.54 |
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| Loan, 5 years | $25,687.88 | $21,494.37 | $13,835.97 | $21,266.96 |
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| Cash, paid in full | $35,000.00 | $21,494.37 | — | $21,658.03 |
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Financing is cheapest here only because the 6.5% loan rate sits below the 7% return; raise the loan rate above the return and the cash row moves to the top. The lease row exceeds the loan row by $796.58 — the same wealth gap the calculator reports.
What each mile over the allowance costs at lease-end
A mileage charge lands once, at hand-back, and comes straight off the lease side. Against a 12,000-mile yearly allowance at 25¢ per excess mile:
Excess-mileage charges over a 36-month lease and the effect on the lease side of the comparison.| Miles driven a year | Excess over the term | Charge at hand-back | Lease ending wealth | Buying ahead by |
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| 10,000 | — | $0 | $6,861.82 | $796.58 |
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| 12,000 | — | $0 | $6,861.82 | $796.58 |
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| 15,000 | 9,000 | $2,250 | $4,611.82 | $3,046.58 |
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| 18,000 | 18,000 | $4,500 | $2,361.82 | $5,296.58 |
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| 20,000 | 24,000 | $6,000 | $861.82 | $6,796.58 |
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Every 1,000 miles a year above the allowance costs $750 across a 36-month lease at this rate; contracts commonly run 15–30¢, so check yours. The buy side carries no equivalent charge — this model depreciates the car 15% a year whatever the odometer says, which flatters a high-mileage buyer's resale value.
None of this is inside the calculator’s own math. It does not model mileage limits or excess-wear charges: it assumes a lease that fits within whatever allowance your quote already includes, so the table above is the correction you apply by hand before trusting the headline. High-mileage drivers should read the lease side skeptically for exactly that reason — going over the allowance adds real cost the tool does not show, and buying carries no mileage limit at all.
Three leases in a row against one car kept nine years
Leasing repeats its cost every term; buying front-loads it and then stops. Same car and same terms each cycle, on a pure cash basis with no investment credit on either side.
Cash paid and equity held after three, six and nine years on the lease and loan paths.| After | Leasing: cash paid | Buying: cash paid | Buying: equity held | Net cost, leasing | Net cost, buying |
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| 3 years | $19,668.80 | $25,687.88 | $7,658.40 | $19,668.80 | $18,029.48 |
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| 6 years | $39,337.60 | $40,479.80 | $13,200.23 | $39,337.60 | $27,279.57 |
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| 9 years | $59,006.40 | $40,479.80 | $8,106.59 | $59,006.40 | $32,373.21 |
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The loan ends at month 60, so years six to nine add nothing to the buyer's cash column while the leaser signs a third contract. On this cash basis buying is $1,639.32 ahead at three years rather than the $796.58 the headline shows; the $842.74 difference is the growth the calculator credits leasing for investing its $6,019.08 of payment savings.
The table is the trade-off in its plainest form. Leasing buys lower monthly payments, a newer car more often, and factory-warranty coverage for most of the term; it costs strict mileage limits, wear-and-tear charges, and zero equity — every payment goes to depreciation and a finance charge, and you return the car at the end with nothing to show for it unless you buy it at the residual value. Buying costs more per month and more upfront; it pays back equity, no mileage limit, and eventually a car owned outright with no payment at all. Building zero equity is leasing’s biggest single downside, and the nine-year column is what makes it impossible to ignore. Mileage limits and excess-wear charges are the other major one: going over your allowance can cost thousands by lease-end, which is why the section above prices them out separately rather than folding them into the headline.
Where the loan term falls relative to the lease term decides how the shorter comparison reads. If the loan runs longer than the lease term being compared, the buyer still owes money at the horizon and the tool subtracts that balance from the car’s value; if it runs shorter, the buyer owns the car outright before the horizon and keeps making no payments for the remainder — which is exactly what years six to nine show here.
The omitted costs that can outweigh a $797 verdict
A gap that narrow is easy to overturn, and several real costs sit outside the model entirely. Sales tax is the largest of them: this comparison does not include it on either the lease or the purchase, and it is calculated differently by state, so it can meaningfully change both monthly payments and not by the same amount on each side. The tool does not include lease acquisition or disposition fees, or loan origination fees, either — those land on one path only, and they land whatever the rates do.
Insurance is assumed to cost the same whether you lease or buy, which is not always true: leases sometimes require higher coverage minimums, and that difference runs every month of the term rather than landing once. The decision rule is the same for all of these limitations — price the omitted item, add it to the side it falls on, and re-read the headline. If it is larger than the gap the calculator reports, the comparison has already flipped, and on the default inputs that takes very little.
Tax treatment is the one place the two paths genuinely diverge, and only for business use: a portion of lease payments can sometimes be deducted as a business expense, much as depreciation deductions apply to a purchased business vehicle, subject to IRS rules and limits. For personal use there is generally no meaningful tax advantage either way. That is why this page reports a comparison rather than a recommendation — confirm the current rules with a tax professional for your situation, and confirm every quoted number with the dealer or lender before you sign anything.