Leasing vs. Buying a Car: How to Compare the Real Cost

By the Calculon Team · Updated October 7, 2026

A lease payment is almost always lower than a loan payment on the same car, and that comparison tells you very little. The Federal Reserve's leasing guide explains why: with a lease "you are paying for only the vehicle's depreciation during the lease term, plus rent charges (like interest) and other fees," while a loan pays for the whole car. To compare them fairly, you need the total cost over the same period, and you need to count what a buyer owns at the end.

The lease vs. buy calculator runs this comparison for your numbers.

The four numbers that make a lease

Capitalized cost

The price of the car in the lease, plus any fees or products added to it. Subtract your down payment, rebates and trade-in (the "cap cost reduction") to get the adjusted capitalized cost. It is negotiable exactly like a purchase price.

Residual value

What the leasing company says the car will be worth at the end, set when you sign. The Fed notes lessors set it in different ways, "some lessors use residual value guidebooks; others may develop estimates based on area market conditions and their own experience."

Money factor

The number that sets the rent charge, the lease's equivalent of interest. Multiplying it by 2,400 gives a rough APR. The Fed says it "typically is not disclosed to you," so ask for it.

Term and mileage

The number of months and the miles allowed per year. Going over the allowance is charged per mile when you return the car.

The payment follows from those numbers: the depreciation (adjusted cap cost minus residual) spread over the term, plus a rent charge equal to the money factor times the sum of the adjusted cap cost and the residual, plus tax. The Fed's guide gives this example of the rent charge: a money factor of .00354 with an adjusted capitalized cost of $18,800 and a residual of $12,350 gives an average monthly rent charge of $110.27.

Why the residual matters more than it looks

A higher residual means less depreciation for you to pay, so the payment drops. The Fed points out a catch when people try to turn a lease into a rate: "because reducing the residual value can lower a lease rate, the residual value could be used by less-scrupulous lessors to manipulate the lease rate to make it look more attractive." When comparing lease offers, compare the residual, the money factor and the capitalized cost separately, not just the payment.

The residual also tells you something useful if you are thinking of buying: it is the leasing company's own estimate of what the car will be worth. The calculator uses it as the default value for a bought car at the end of the term.

How to compare leasing and buying

1. Pick the same period. Use the lease term, for example 36 months.
2. Total the lease. Everything due at signing, every monthly payment, the disposition fee at return, and expected mileage charges.
3. Total the purchase over the same period. Down payment, upfront taxes and fees if not financed, and the loan payments made during those months.
4. Subtract what the buyer keeps. The car's value at the end minus the loan balance still owed is equity, and it belongs to the buyer.
5. Compare the two totals. That is the real difference, before considering how long you keep the car afterward.

When leasing tends to make sense

• You drive predictably and comfortably under the mileage allowance.
• You want a new car every few years anyway, so you would be selling or trading after the same period.
• You do not want the risk of the car being worth less than expected. In a closed-end lease, the Fed notes, the lessor bears the risk of the future market value.
• The manufacturer is subsidizing the lease with a high residual or a low money factor. The calculator will show this as leasing coming out ahead.

When buying tends to make sense

• You drive a lot. Mileage charges add up fast.
• You keep cars for many years. After the loan is paid off you have no payment at all, while a lessee starts a new lease.
• You want freedom to modify, sell or trade the car whenever you like without lease-end inspections or early termination costs.

Questions to ask before signing a lease

• What are the capitalized cost, residual value and money factor?
• What is due at signing, and what does it cover?
• What are the mileage allowance and the charge per extra mile?
• What is the disposition fee, and what counts as excess wear?
• What does it cost to end the lease early?

The FTC's guide to financing or leasing a car advises asking about terms before you sign, getting answers in writing, and leaving with a signed copy of the completed lease.

Sources

• Federal Reserve Board, Keys to Vehicle Leasing: Monthly Payments, Future Value, Rate Disclosure, More Information about the Rent Charge (last updated 2003; accessed October 2026)
• FTC, Financing or Leasing a Car (accessed October 2026)

This article is general information, not financial advice.