Lease or buy?
The same car, priced both ways over the same months. Buying gets credit for what you own at the end; leasing gets the correct tax treatment for your state. What is left out is what nobody can know: repairs past the warranty, insurance differences, how much you value walking away.
The car and the lease
Same price for both paths
The loan
Decimal, e.g. 0.0725. Purchases are taxed on the full price.
Blank uses the lease residual
Over 36 months
Lease by $2,433
Leasing costs $21,467.92; buying costs $23,900.81 after crediting $7,450 of equity at the end.
Lease
Monthly payment$596.33
Due at signing$596.33
Total cost$21,467.92
Effective per month$596.33
Buy
Amount financed$44,508.75
Monthly payment$870.86
Cash at purchase$0.00
Payments over 36 months$31,351.13
Loan balance at end$19,549.68
Vehicle value at end$27,000.00
Equity at end$7,450.32
Net cost$23,900.81
Effective per month$663.91
Vehicle value at the end of the horizon is taken from the lease residual, which is the lessor's own forecast. Replace it with a market estimate if you have one.
The loan runs 24 months past the lease term; the remaining balance is netted against the vehicle's value at that point.
How to read it
- Is it cheaper to lease or buy a car?
- It depends on how much the car is expected to be worth at the end of the term and what the financing costs. Over the same period, buying costs the payments and cash out minus the equity you hold at the end; leasing costs everything you pay with nothing left over. When the lease residual is set generously, leasing often wins over three years; when the car holds its value and the loan rate is low, buying does.
- Why compare over the lease term rather than the loan term?
- Because that is the only period both paths share. A five-year loan compared to a three-year lease has to account for the two extra years somehow. Cutting the comparison at the lease end and crediting the buyer with equity, vehicle value minus remaining loan balance, is the honest way to do it.