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Should I Lease or Purchase a Car?

A classic car question is whether one should lease or purchase a new vehicle.

Lease ads often look alluring, offering luxury cars at compact car prices. But while the payments may seem attractive, leasing may not always be the best financial decision, versus purchasing the vehicle outright and financing it with a low interest loan.

Autobytel now offers a car cost calculator that can help solve the lease or purchase conundrum.

Using the Lease or Purchase Calculator

The calculator takes you through common assumptions, such as the down payment you'd make on a loan (called 'capital reduction' on a lease), the number of months, and the rebate amount. (This should remind you to negotiate the price of the car, whether you lease or get a loan, and research all applicable rebates.)

The second section is specific lease information, such as the monthly payment amount and the security deposit/leasing fee. The final section of the calculator covers purchase information, such as the purchase price and sales tax and other upfront costs (those pesky license and registration fees.) The calculator also asks you to plug in the annual percentage rate on your loan or lease, and your estimate of the vehicle’s market value at loan or lease end.

It’s often a close call. On a $38,350 luxury car with a 33 month lease, at $349 a month plus tax (9%) vs. purchasing at 4%, the yearly cost was $6305 to lease, $6413 to purchase. This assumes the car will be worth $27,000 after 33 months. But if you assume the car is worth $29,000 instead, buying is a better bet. Your average yearly cost to purchase is just $5,686, while the lease cost is still $6305 per year. Total costs over 33 months: $17,340 to lease, $15,636 to buy.

On the other hand, take a subcompact selling for $18,700, or leasing for 24 months at $249. Leasing will cost only $5976 over 24 months, vs. $7,283 in loan payments, assuming the car is worth $14,000 after two years.

Of course, the calculator won't tell you everything. Only you can know if your business and tax situation makes leasing or purchasing more advantageous. You should also be aware of costs the calculator doesn't cover, like excess mileage on leases, which can be up to 25 cents per mile over the allowed mileage. Finally the longer you keep your car, the lower the cost, especially on that day when you pay off your loan and have no more car payments.

Common Assumptions

Lease Information

Purchase Information