Lease vs Buy Car Calculator

How to Calculate Lease vs Buy Car Costs

Calculating the costs of leasing versus buying a car involves several factors and formulas. This calculator helps you compare the two options based on your inputs. Here's a detailed explanation of the calculations involved:

Lease Payment Formula

The monthly lease payment is calculated using the following formulas:

1. Capitalized Cost = Vehicle Price - Trade-in - Down Payment - Reductions + Fees
2. Monthly Depreciation = (Capitalized Cost - Residual Value) / Lease Term
3. Monthly Finance Fee = (Capitalized Cost + Residual Value) × Money Factor
4. Monthly Lease Payment Before Tax = Monthly Depreciation + Monthly Finance Fee
5. Monthly Lease Payment = Monthly Lease Payment Before Tax + (Monthly Lease Payment Before Tax × Tax Rate)

Loan Payment Formula

The monthly loan payment for buying a car is calculated using the following formula:

Monthly Payment = (P × r × (1 + r)^n) / ((1 + r)^n - 1)

Where:

• P = Principal loan amount
• r = Monthly interest rate (annual rate divided by 12)
• n = Total number of months in the loan term

Calculation Steps

1. Calculate the capitalized cost for the lease option.
2. Determine the monthly depreciation and finance fee for the lease.
3. Calculate the monthly lease payment, including taxes.
4. Calculate the loan amount for the buy option.
5. Determine the monthly loan payment using the loan formula.
6. Compare the monthly payments and total costs for both options.

Example Calculation

Let's calculate the lease vs buy costs for a car with the following details:

• Vehicle Price: $25,000
• Residual Value: $12,500
• Trade-in: $3,000
• Down Payment: $1,500
• Lease Term: 36 months
• Money Factor: 0.002 (equivalent to 4.8% APR)
• Loan Term: 60 months
• Interest Rate: 5.0% APR
• Sales Tax Rate: 6%

Lease Calculation:

1. Capitalized Cost = $25,000 - $3,000 - $1,500 = $20,500
2. Monthly Depreciation = ($20,500 - $12,500) / 36 = $222.22
3. Monthly Finance Fee = ($20,500 + $12,500) × 0.002 = $66.00
4. Monthly Lease Payment Before Tax = $222.22 + $66.00 = $288.22
5. Monthly Lease Payment = $288.22 + ($288.22 × 0.06) = $305.51

Buy Calculation:

1. Loan Amount = $25,000 - $3,000 - $1,500 = $20,500
2. Monthly Interest Rate = 5.0% / 12 = 0.4167%
3. Monthly Loan Payment = ($20,500 × 0.004167 × (1 + 0.004167)^60) / ((1 + 0.004167)^60 - 1) = $386.66

Final Results:

• Monthly Lease Payment: $305.51
• Total Lease Payments: $305.51 × 36 = $10,998.36
• Monthly Loan Payment: $386.66
• Total Loan Payments: $386.66 × 60 = $23,199.60

Lease vs Buy Comparison Diagram