A lease is not just a lower payment. Compare the full cost of driving the same car both ways.
A lease almost always shows a lower monthly payment than a loan on the same car, because a lease only charges you for the part of the car you use up — its depreciation — plus a finance charge. Buying costs more cash during the loan, but you end up owning an asset. The honest comparison is the lease's total cash outlay versus the buyer's total cash outlay minus the car's resale value. This tool runs both sides with the same vehicle price so you can see the real gap.
The buy side amortizes a standard auto loan: it finances the price minus your down payment at the loan APR over the buy term, then adds the down payment back to get total cash paid. The lease side builds the monthly payment from two parts — a depreciation charge (price minus residual, spread over the lease term) and a rent charge (the finance cost, set by the money factor) — then multiplies by the lease term and adds any cash down. Taxes, acquisition and disposition fees, and mileage charges vary by contract and are not auto-added; add them yourself if you know them.
Price — negotiated (capitalized) cost of the vehicleResidual — projected value at lease end (price × residual %)Term — lease length in monthsMF — money factor (APR ÷ 2400); the lease finance rateMultiply the money factor by 2400 to get the equivalent APR. The default 0.0028 money factor is about a 6.72% APR. Dealers quote the small decimal because it looks less alarming — always convert it before deciding the rate is fair.
The lease's lower cash outlay is not free money: at the end of the lease you own nothing, while the buyer still holds a car worth roughly its residual value. Plug your own numbers in above to see how the gap moves.
| Lever | Effect on lease payment | Why |
|---|---|---|
| Higher residual % | Lower | Less depreciation for you to pay during the term |
| Higher money factor | Higher | It is the lease's interest rate (MF × 2400 = APR) |
| Lower negotiated price | Lower | Price is the cap cost — always negotiable before MF/residual |
| Shorter lease term | Higher monthly, often lower total | Same depreciation spread over fewer months |
| Larger cash down | Lower monthly, no equity | At-risk if car is totaled early; builds nothing |
| Negotiate price first, then ask for the money factor and residual in writing. | ||
Over a single lease term, the lease usually has a lower total cash outlay because you only pay for the depreciation you use plus a rent charge, not the whole car. Buying costs more during the loan but leaves you owning an asset, so the honest comparison is lease total versus buy total minus the car's resale value. With this calculator's defaults, the lease totals about $28,329 and the financed purchase about $49,362 over the same period — but the buyer still has a car worth roughly its residual.
Multiply the money factor by 2400. A money factor of 0.0028 is equivalent to about a 6.72% APR (0.0028 × 2400). To go the other way, divide an APR by 2400. The money factor is just the lease world's way of quoting the same interest cost a loan would call an APR.
Residual value is the lender's estimate of what the car will be worth at lease end, set as a percentage of the original price. A higher residual means less depreciation for you to pay during the lease, so the monthly payment is lower. It also sets the buyout price if you decide to keep the car at the end.
Leases set an annual mileage cap (commonly 10,000 to 15,000 miles). Every mile over the contract limit is billed at an overage rate, typically 15 to 30 cents per mile, due at lease end. Driving 5,000 miles over a 36-month lease at 25 cents per mile is an extra $1,250 you should add to the lease cost.
Many leases include gap coverage in the contract, but not all. Gap insurance pays the difference between what you owe and what the car is worth if it is totaled or stolen early in the term, when that gap is largest. Confirm in writing whether your lease includes it before buying a separate policy.
You can return the car and walk away (paying any disposition fee plus excess wear and mileage charges), buy it for the contractual residual value, or lease or finance a new vehicle. Buying it out makes sense only if the residual is below the car's actual market value at that time.
An acquisition fee is an upfront charge from the leasing company to set up the lease, often $500 to $1,000. A disposition fee is charged at lease end if you return the car rather than buy it, typically $300 to $500. Both are sometimes negotiable and should be added to the lease's total cost.
Leasing tends to fit drivers who want a new car every two to four years, drive predictable low-to-moderate mileage, and value a lower payment over building equity. Buying tends to win for people who keep cars many years, drive high mileage, or want no payment once the loan is paid off.
A lease down payment (called a capitalized cost reduction) lowers the monthly payment, but if the car is totaled or stolen early you can lose that money. Many advisers recommend a small or zero down payment on a lease and keeping the cash, since you never build equity in a leased car anyway.
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Lease payment built from the standard depreciation-plus-rent-charge model (depreciation = (cap cost − residual) ÷ term; rent charge = (cap cost + residual) × money factor). Buy side uses a standard simple-interest auto-loan amortization. Lease taxes, acquisition fees, disposition fees, and mileage charges vary by contract and should be added if known.
Educational only, not financial advice. Your actual lease terms, fees, taxes, and approval depend on the dealer, lender, state, and your credit. Read the lease contract and verify the money factor, residual, and fees in writing before signing.