Is it cheaper to lease or buy a car?

Leasing is typically cheaper month-to-month but more expensive long-term. On a $35,000 vehicle with a 36-month lease at 0.00146 money factor, monthly payments run about $450–$500 — lower than buying at 6.9% APR ($690/mo). However, buying builds equity and has no mileage limits. After 5 years of ownership, the net buy cost (total paid minus resale value) often beats leasing because you retain the asset. Leasing wins if you want the lowest monthly payment and plan to swap cars every 2–3 years.

What is a money factor in a lease?

A money factor is the lease equivalent of an interest rate, expressed as a small decimal (e.g., 0.00146). Multiply it by 2400 to convert to approximate APR: 0.00146 × 2400 = 3.5% APR. A lower money factor means cheaper lease financing. Dealers sometimes quote money factor without disclosing the APR equivalent — always convert it to APR to compare fairly with loan rates. A "good" money factor in 2026 is roughly 0.0015–0.0020 (3.6–4.8% APR equivalent).

What is residual value and how does it affect my lease payment?

Residual value is the estimated value of the vehicle at the end of the lease term, set by the leasing company as a percentage of MSRP. A higher residual = lower depreciation = lower monthly payment. For a $35,000 vehicle with a 55% residual ($19,250) on a 36-month lease, you are only financing the $15,750 depreciation portion — not the full price. Vehicles that hold their value well (Hondas, Toyotas) tend to have higher residuals and thus lower lease payments.

What happens if I go over my lease mileage limit?

Exceeding your lease mileage allowance triggers a per-mile overage fee at lease return, typically $0.10–$0.25 per mile. On a 36-month lease with 12,000 miles/year (36,000 total), if you drive 15,000/year (45,000 total), you owe for 9,000 excess miles. At $0.15/mile, that is $1,350 at return. Always negotiate a higher mileage allowance upfront — it is cheaper per mile than overage fees. If you expect to exceed mileage, buying is almost always better than leasing.

Should I put a down payment on a lease?

A large down payment on a lease (called a cap cost reduction) reduces monthly payments but is generally not recommended. If the vehicle is totalled in the first month, insurance pays out the car's value — your down payment is gone and you get nothing back. Spread that money in a savings account instead to offset monthly payments. Keep lease down payments at $0–$1,000 unless you need to qualify or hit a payment target. On a purchase (buy), a larger down payment makes more sense since it reduces principal and total interest paid.

What is the lease payment formula?

Lease monthly payment = Depreciation fee + Finance charge + Tax. Depreciation fee = (Adjusted Cap Cost − Residual Value) ÷ lease months. Finance charge = (Adjusted Cap Cost + Residual Value) × Money Factor. Adjusted cap cost = selling price − down payment − trade-in. Example: $35,000 vehicle, $18,000 residual, 36 months, money factor 0.00146, no down: Depreciation = ($35,000 − $18,000) ÷ 36 = $472.22. Finance = ($35,000 + $18,000) × 0.00146 = $77.38. Base payment = $549.60 before tax.

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Lease vs Buy Calculator

Lease payment = (Depreciation + Finance charge) × (1 + tax rate). Depreciation = (Cap cost − Residual) ÷ months. Finance charge = (Cap cost + Residual) × Money Factor. Money Factor × 2400 = APR equivalent. A 36-month lease on a $35,000 vehicle with a $18,000 residual and 0.00146 MF yields roughly $472 depreciation + $77 finance + tax/month. Buying builds equity; leasing offers lower monthly payments but no ownership.

Compare leasing vs buying a car side by side. Enter vehicle price, down payment, loan rate, lease money factor, and mileage allowance to see monthly payments, total costs, mileage overage, and net cost after resale. Includes HST/sales tax. Ideal for Canadian and US car shoppers.

Vehicle

Vehicle Price ($)

Down Payment / Cap Reduction ($)

Trade-In Value ($)

Buy (Loan)

Loan Interest Rate (% APR)

Loan Term (months)

Estimated Resale Value ($)

Lease

Lease Term (months)

Residual Value ($)

Money Factor (e.g. 0.00146)

APR ÷ 2400 = Money Factor. 3.50% APR equivalent

Annual Miles Allowed

Expected Annual Miles

Overage Cost ($/mile)

Comparison

Buy

Monthly payment$592.62

Total interest$5,557

Total out-of-pocket$45,107

Net cost (after resale)$27,107

Lease (36mo)Better deal

Monthly payment$455.86

Total lease cost$21,411

Total with overage$21,411

Leasing saves $5,696 over the comparison period

Note: Lease payment = Depreciation + Finance charge + Tax. Money Factor × 2400 = APR equivalent. Net buy cost subtracts estimated resale value. Results are estimates — actual lease terms vary by dealer.

How to Use

1
Enter vehicle price and down payment
Input the full vehicle price (MSRP or negotiated price) and any down payment or cap cost reduction. Include trade-in value if applicable.
2
Set buy (loan) parameters
Enter the loan interest rate (APR) and term in months. Enter the estimated resale value you expect at the end of your ownership period (check Kelley Blue Book or Canadian Black Book).
3
Set lease parameters
Enter the lease term, residual value (from the dealer quote), money factor (also on the quote), and annual mileage allowance. Enter your expected annual mileage to calculate overage.
4
Compare the results
The calculator shows monthly payment, total cost, and net cost for both options. The green highlight indicates the better deal. Copy the summary to save or share.

Frequently Asked Questions

Is it cheaper to lease or buy a car?: Leasing is typically cheaper month-to-month but more expensive long-term. On a $35,000 vehicle with a 36-month lease at 0.00146 money factor, monthly payments run about $450–$500 — lower than buying at 6.9% APR ($690/mo). However, buying builds equity and has no mileage limits. After 5 years of ownership, the net buy cost (total paid minus resale value) often beats leasing because you retain the asset. Leasing wins if you want the lowest monthly payment and plan to swap cars every 2–3 years.
What is a money factor in a lease?: A money factor is the lease equivalent of an interest rate, expressed as a small decimal (e.g., 0.00146). Multiply it by 2400 to convert to approximate APR: 0.00146 × 2400 = 3.5% APR. A lower money factor means cheaper lease financing. Dealers sometimes quote money factor without disclosing the APR equivalent — always convert it to APR to compare fairly with loan rates. A "good" money factor in 2026 is roughly 0.0015–0.0020 (3.6–4.8% APR equivalent).
What is residual value and how does it affect my lease payment?: Residual value is the estimated value of the vehicle at the end of the lease term, set by the leasing company as a percentage of MSRP. A higher residual = lower depreciation = lower monthly payment. For a $35,000 vehicle with a 55% residual ($19,250) on a 36-month lease, you are only financing the $15,750 depreciation portion — not the full price. Vehicles that hold their value well (Hondas, Toyotas) tend to have higher residuals and thus lower lease payments.
What happens if I go over my lease mileage limit?: Exceeding your lease mileage allowance triggers a per-mile overage fee at lease return, typically $0.10–$0.25 per mile. On a 36-month lease with 12,000 miles/year (36,000 total), if you drive 15,000/year (45,000 total), you owe for 9,000 excess miles. At $0.15/mile, that is $1,350 at return. Always negotiate a higher mileage allowance upfront — it is cheaper per mile than overage fees. If you expect to exceed mileage, buying is almost always better than leasing.
Should I put a down payment on a lease?: A large down payment on a lease (called a cap cost reduction) reduces monthly payments but is generally not recommended. If the vehicle is totalled in the first month, insurance pays out the car's value — your down payment is gone and you get nothing back. Spread that money in a savings account instead to offset monthly payments. Keep lease down payments at $0–$1,000 unless you need to qualify or hit a payment target. On a purchase (buy), a larger down payment makes more sense since it reduces principal and total interest paid.
What is the lease payment formula?: Lease monthly payment = Depreciation fee + Finance charge + Tax. Depreciation fee = (Adjusted Cap Cost − Residual Value) ÷ lease months. Finance charge = (Adjusted Cap Cost + Residual Value) × Money Factor. Adjusted cap cost = selling price − down payment − trade-in. Example: $35,000 vehicle, $18,000 residual, 36 months, money factor 0.00146, no down: Depreciation = ($35,000 − $18,000) ÷ 36 = $472.22. Finance = ($35,000 + $18,000) × 0.00146 = $77.38. Base payment = $549.60 before tax.