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MasterMath

Lease vs Buy Calculator

Leasing against buying with finance. The honest comparison is not payment against payment: at the end of the term the car you bought is yours and worth something, and the leased one is not.

Currency and number format for

Better option

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Better option—
Total cost of leasing—
Real cost of buying—
Cash outlay if you buy—
Loan payment—
Difference—

How this was worked out

    The formula

    Cost of buying = outlay − what the car is worth at the end

    Where it comes from

    With a lease you pay to use and hand it back at the end. Buying, you pay to own, and at the end you hold an asset you can sell. So comparing payments alone is always biased towards leasing: a lease payment includes depreciation, insurance and servicing, and a loan payment only the car. Here the residual value is deducted from the cost of buying, which is what puts the two on the same footing.

    How to work it out by hand

    1. Add the deposit and every lease payment: that is the leasing cost
    2. Work out the loan payment on the financed amount over the term
    3. Add deposit, payments and buying costs
    4. Subtract what the car will be worth at the end: that is the real cost of buying

    What is worth knowing

    One important piece is missing on both sides and is worth handling manually: a lease usually includes fully comprehensive insurance, servicing and road tax, and buying does not. If the lease bundles three thousand a year of those, add them to the buying side for a fair comparison. And the residual value is an estimate: an electric car and a diesel do not depreciate alike, and a good deal of the answer rides on that.

    Frequently asked questions

    Why is the lease payment lower?

    Because you only pay for the depreciation over the term, not the whole car. At the end you hand it back and own nothing.

    What residual value should I use?

    Whatever you think the car will fetch at the end. As a reference, many models hold 40 to 50 % after four years.

    Does it include insurance and servicing?

    No. Leases usually bundle them and buying does not: add them to the buying side by hand for a fair comparison.

    What about tax relief for businesses?

    Not covered here, because it depends on the country and the use. It can shift the answer considerably, so check it.

    Does it work for other assets?

    Yes: machinery, IT equipment or anything that can be bought or leased over a long term.