Lease vs Buy Car Calculator

The best choice depends on your personal situation, driving habits, and financial goals: BUYING IS BETTER IF YOU: • Drive over 15,000 miles per year • Want to customize or modify your vehicle • Plan to keep the car 5+ years • Value ownership and building equity • Want no restrictions on how you use the car • Don't want continuous payments LEASING IS BETTER IF YOU: • Drive under 12,000-15,000 miles per year • Want lower monthly payments • Like driving a new car every 2-3 years • Want warranty coverage throughout • Use the car for business (tax benefits) • Don't want to deal with reselling GENERAL RULE: Short-term (under 4 years): Leasing often wins Long-term (6+ years): Buying almost always wins Medium-term (4-6 years): Do the math - it depends on specifics

Leasing offers several compelling benefits: 1. LOWER MONTHLY PAYMENTS • Typically 30-60% less than buying • $350/mo lease vs $550/mo loan for same car • Better cash flow for other investments 2. ALWAYS DRIVE A NEW CAR • New car every 2-3 years • Latest technology and safety features • Always under warranty 3. NO RESALE HASSLE • Return the car at lease end • No negotiating, advertising, or waiting • Predictable end-of-term process 4. LOWER REPAIR COSTS • Warranty covers most repairs • Newer cars = fewer mechanical issues • Gap insurance often included 5. TAX BENEFITS FOR BUSINESS • Lease payments often fully deductible • Simpler accounting than depreciation • May deduct sales tax on payments 6. FLEXIBILITY • Different car every few years • Adjust to changing needs (family, commute) • Walk away at lease end

Buying a car provides these key advantages: 1. BUILD EQUITY & OWNERSHIP • Own an asset outright after loan payoff • Can sell anytime for cash • No payments once paid off 2. NO MILEAGE RESTRICTIONS • Drive unlimited miles • No per-mile penalties • Great for long commutes or road trips 3. FREEDOM TO CUSTOMIZE • Modify however you want • Aftermarket parts, upgrades, personal touches • No restrictions on use 4. LOWER LONG-TERM COST • 5+ years: Buying almost always cheaper • No continuous payments • Keep car 10 years = significant savings 5. NO WEAR-AND-TEAR PENALTIES • Don't pay for normal use • Pet hair, kid stains, minor scratches - no penalty • Your car, your rules 6. TRADE OR SELL FLEXIBILITY • Trade in any time for new car • Sell privately for more money • Control timing of next purchase

Lease payments are typically 30-60% lower than loan payments for the same car: EXAMPLE: $35,000 VEHICLE BUYING (60-month loan @ 5.5%): • Down payment: $5,000 • Monthly payment: ~$575 • After 60 months: Own the car (value ~$12,000) LEASING (36-month lease): • Down payment: $2,000 • Monthly payment: ~$350 • After 36 months: Return car (value = $0) MONTHLY SAVINGS: $225/month (39% less) WHY LEASING IS CHEAPER: • You only pay for depreciation during lease term • Typical depreciation: 40-50% in first 3 years • Buying: Pay full price minus down payment • Leasing: Pay (Price - Residual Value) + interest IMPORTANT CAVEAT: If you lease continuously, you ALWAYS have a payment. If you buy and keep 8+ years, you have 3-5 years with NO payment.

Both options have costs beyond the monthly payment: BUYING HIDDEN COSTS: • Higher insurance (full coverage required while financing) • Major repairs after warranty (transmission, engine: $3,000-$8,000) • Depreciation ($5,000-$10,000 in year 1 alone) • Registration and property taxes (varies by state) • Loan interest ($3,000-$8,000 over loan term) • Negative equity risk if you sell early LEASING HIDDEN COSTS: • Acquisition fee: $500-$1,000 upfront • Disposition fee: $300-$500 at lease end • Excess mileage: $0.15-$0.30 per mile over limit • Wear and tear charges: $500-$2,000 common • Excess wear inspection fee: $100-$200 • Early termination penalty: Extremely expensive (remaining payments + fees) • Gap insurance (required by some lessors) • Higher insurance requirements COST COMPARISON TIP: Add ALL costs over the comparison period, not just monthly payments.

The break-even point where buying beats leasing is typically 5-6 years: DEPRECIATION CURVE: Year 1: Car loses ~20% of value Year 3: Total depreciation ~45-50% Year 5: Total depreciation ~55-65% Year 7+: Depreciation slows significantly WHEN BUYING WINS: • 3 years: Leasing usually cheaper • 5 years: Roughly equal (depends on car) • 6+ years: Buying wins significantly • 8+ years: Buying wins by $10,000+ THE "SWEET SPOT": Keep a bought car 8-10 years to maximize value: • 5-year loan = 5 years of payments • Years 6-10 = NO payments (just maintenance) • Maintenance increases, but still cheaper than new payments EXAMPLE: $35,000 car kept 10 years: Total cost: ~$55,000 (including everything) Cost per year: $5,500 $35,000 car leased for 10 years (3 leases): Total cost: ~$70,000 Cost per year: $7,000 Buying saves $15,000 over 10 years.

Yes! Most people don't realize lease terms are negotiable: WHAT YOU CAN NEGOTIATE: 1. CAPITALIZED COST (Sale Price) • This is the vehicle price used for the lease • Negotiate just like buying • Every $1,000 off = ~$28 less per month (36-mo lease) 2. MONEY FACTOR (Interest Rate) • Expressed as a decimal (0.0020 = 4.8% APR) • Multiply by 2400 to get approximate APR • Lower = better; negotiate down 3. ACQUISITION FEE • Sometimes waived in competitive markets • Can be rolled into capitalized cost • Ask for reduction or elimination 4. DISPOSITION FEE • Get waived if you lease another car from same brand • Some dealers waive as incentive • Negotiate upfront 5. MILEAGE ALLOWANCE • Standard is 10,000-12,000/year • Negotiate higher if needed • Pre-paid extra miles are cheaper than overages NEGOTIATION TIPS: • Get multiple quotes from different dealers • Shop at end of month/quarter/year • Know the current money factor for the brand • Focus on TOTAL cost, not just payment

Exceeding mileage limits triggers per-mile charges at lease end: TYPICAL OVERAGE RATES: • Economy cars: $0.15-$0.20 per mile • Mid-range cars: $0.20-$0.25 per mile • Luxury cars: $0.25-$0.35 per mile COST EXAMPLE: 36-month lease with 12,000 miles/year = 36,000 total Actual driving: 45,000 miles (9,000 over) Overage at $0.25/mile: $2,250 due at lease end HOW TO AVOID/REDUCE OVERAGES: 1. NEGOTIATE MORE MILES UPFRONT • Pre-paid miles are 30-50% cheaper • $0.15/mile vs $0.25/mile for overage • Know your actual driving before signing 2. BUY THE CAR AT LEASE END • Mileage doesn't matter if you keep it • May make sense if car still has value 3. TRADE EARLY (with same dealer) • Some dealers waive overages on trade-in • Get new lease and skip inspection 4. TRANSFER THE LEASE • Sites like Swapalease, LeaseTrader • Someone else finishes your lease • Transfer fees apply TRACK YOUR MILEAGE: Check quarterly to see if you're on pace.

The money factor is the interest rate on a lease, expressed as a small decimal: UNDERSTANDING MONEY FACTOR: • Expressed as: 0.0020, 0.0025, 0.0030, etc. • To convert to APR: Money Factor × 2400 • Example: 0.0020 × 2400 = 4.8% APR TYPICAL MONEY FACTORS: | Credit Score | Money Factor | Equiv. APR | |--------------|--------------|------------| | 720+ | 0.0015-0.0020 | 3.6-4.8% | | 680-719 | 0.0025-0.0035 | 6.0-8.4% | | 640-679 | 0.0040-0.0050 | 9.6-12.0% | | Below 640 | 0.0055+ | 13.2%+ | HOW IT AFFECTS YOUR PAYMENT: $35,000 car, $14,000 residual, 36 months: • MF 0.0015: $367/month • MF 0.0025: $402/month • MF 0.0035: $437/month Difference of $70/month = $2,520 over lease term HOW TO GET BEST MONEY FACTOR: 1. Check current manufacturer rates (Edmunds forums) 2. Compare to what dealer offers 3. Negotiate down if they're marking up 4. Excellent credit = best rates 5. Manufacturer incentives may lower MF

Generally, minimize your down payment on a lease. Here's why: THE RISK OF LEASE DOWN PAYMENTS: If your car is totaled or stolen: • Insurance pays the LENDER, not you • Your down payment is GONE • You may still owe money EXAMPLE: $3,000 down payment Car totaled in month 6 Insurance pays off lease balance You lose $3,000 with nothing to show BETTER APPROACH: • Put $0-$2,000 maximum down • Keep cash in savings as backup • Higher monthly payment, but safer WHAT TO PAY AT SIGNING: Unavoidable (and acceptable): • First month's payment • Registration fees • Acquisition fee (sometimes rolled in) • Security deposit (refundable) TRY TO AVOID: • Large "cap cost reduction" payments • Dealer-marked-up packages • Extended warranties at signing EXCEPTION: If dealer offers special incentives for down payment, run the numbers. Sometimes manufacturer rebates apply only as cap cost reduction.

Both leasing and financing affect credit similarly: CREDIT IMPACT (BOTH OPTIONS): • Hard inquiry when applying (-5-10 points, temporary) • New account opened (slight impact) • Payment history reported monthly • Credit utilization affected (loans) KEY DIFFERENCES: AUTO LOAN (Buying): • Reported as installment loan • Principal decreases over time • Full loan amount on credit report • Positive impact once paid off • Paid-off loan = good credit history LEASE: • Also reported as installment account • Treated similar to loan • Lower "principal" amount shown • New account every 2-3 years • No "paid off" status (just ends) CREDIT BUILDING COMPARISON: • Both build credit if paid on time • Both hurt credit if payments missed • Multiple leases = more inquiries over time • One loan held long-term = fewer inquiries WHICH IS BETTER FOR CREDIT? Roughly the same. On-time payments matter most. Buying ONE car and paying it off may look slightly better than multiple leases long-term.

Residual value is the predicted value of the car at lease end - it's crucial for lease costs: HOW RESIDUAL VALUE WORKS: • Set by the leasing company at start • Based on expected depreciation • Expressed as percentage of MSRP EXAMPLE: $40,000 MSRP car 55% residual (36 months) Residual value: $22,000 WHY IT MATTERS: Your lease payment covers the depreciation: • Car price - Residual = Depreciation paid • $40,000 - $22,000 = $18,000 over 36 months • $18,000 ÷ 36 = $500/mo (before interest, fees) HIGH RESIDUAL = LOWER PAYMENTS: • 55% residual: Pay 45% depreciation • 45% residual: Pay 55% depreciation • Difference on $40K car: $4,000 over lease term BRANDS WITH HIGH RESIDUALS: 1. Toyota/Lexus: 55-62% 2. Honda/Acura: 52-58% 3. Subaru: 52-56% 4. Porsche: 55-60% BRANDS WITH LOWER RESIDUALS: 1. Most American brands: 40-48% 2. Some luxury brands: 45-52% 3. High depreciation = higher lease costs TIP: Lease cars with high residual values for lowest payments.