Financing a $32,000 car for 36 months at 6.50% APR costs $16,747.65 once an assumed $18,560 resale value at payoff is subtracted from the $35,307.65 paid, while leasing the same car for 36 months under a 0.00125 money factor and 58% residual costs $15,715.20 with no equity retained -- a $1,032.45 gap that depends entirely on the assumed resale value and lease terms used.
lease vs buy a car total cost: the measured relationship
Buying finances the full purchase price and, once the loan is paid off, leaves the borrower owning an asset with some resale value; leasing finances only the vehicle's projected depreciation over the lease term plus a rent charge, and the leased vehicle is returned with no ownership stake at the end. A fair cost comparison between the two must net the buy side's ending asset value against its total payments, because a lease payment and a loan payment are not pricing the same thing: the loan payment retires the entire principal, while the lease payment retires only the portion of the vehicle's value expected to be consumed during the lease term.
| Vehicle price | $32,000 |
|---|---|
| Term | 36 months |
| Lease: payment / total paid | $436.53 / $15,715.20 |
| Loan: payment / total paid | $980.77 / $35,307.65 |
| Net cost, buy vs. lease (assumed $18,560 resale) | $16,747.65 vs. $15,715.20 |
lease vs buy a car total cost: a worked dollar case
A $32,000 vehicle leased for 36 months with a 58% residual value has a projected residual of $18,560. Under a money factor of 0.00125, the depreciation portion of the payment is (32,000 minus 18,560) divided by 36, or $373.3333, and the rent-charge portion is 0.00125 times (32,000 plus 18,560), or $63.20, for a monthly lease payment of $436.5333, rounded to $436.53. Over 36 months, total lease payments are $15,715.20. Financing the same $32,000 with no down payment at a 6.50% APR over 36 months gives a monthly rate of 0.065 divided by 12, a payment of $980.7681, rounded to $980.77, and total payments of $35,307.65, of which $3,307.65 is interest. If the owned vehicle is assumed to be worth the same $18,560 at month 36 that the lease projected as its residual, the buyer's net cost is $35,307.65 minus $18,560, or $16,747.65 -- $1,032.45 more than the lease's $15,715.20 under these specific assumptions.
lease vs buy a car total cost: calculation method
Monthly lease payment equals the depreciation portion, capitalized cost minus residual value divided by the term, plus the rent-charge portion, the money factor times the sum of capitalized cost and residual value. Monthly loan payment equals principal times the monthly rate divided by one minus one plus the monthly rate raised to the negative term. To compare the two options' total cost fairly, subtract an assumed ending resale value from the buy side's total payments before comparing it with the lease side's total payments, since the lease side already excludes any ending value.
leasevsbuyacarto related calculations: auto loan calculator; loan payment calculator; loan payoff acceleration guide.
A second lease quote: a weaker money factor and a lower residual
Not every lease on the same $32,000 vehicle uses the first quote's terms. A second offer with a 0.00200 money factor, an approximate 4.80% APR-equivalent, and a 55% residual instead of 58% projects a residual of $17,600. The depreciation portion becomes (32,000 minus 17,600) divided by 36, or $400.00, and the rent-charge portion becomes 0.00200 times (32,000 plus 17,600), or $99.20, for a monthly payment of $499.20 and total lease payments of $17,971.20 over 36 months. That total is $2,256.00 more than the first lease quote's $15,715.20, and it is now $1,223.55 more than the $16,747.65 net buy cost calculated earlier -- the ranking between leasing and buying reverses entirely once the money factor and residual assumption change, which is why a single lease quote cannot stand in for every lease offer on the same vehicle.
Both lease quotes and the loan, side by side
| Option | Key terms | Monthly payment | Total over 36 months |
|---|---|---|---|
| Lease A | 0.00125 money factor, 58% residual | $436.53 | $15,715.20 |
| Lease B | 0.00200 money factor, 55% residual | $499.20 | $17,971.20 |
| Loan | 6.50% APR, 36 months, $0 down | $980.77 | $35,307.65 ($16,747.65 net of assumed resale) |
The loan's raw total, $35,307.65, looks far larger than either lease total only because it finances the entire $32,000 price rather than the projected depreciation portion; once the assumed $18,560 resale value is subtracted, the loan's net cost, $16,747.65, sits between the two lease quotes rather than above both of them.
Checking the first lease payment by rebuilding it from its two parts
The $436.5333 lease payment is not a single formula result to take on faith; it is the sum of two figures that can be checked separately. The depreciation portion, $373.3333, times 36 months equals $13,440.00, which should equal the capitalized cost minus the residual, $32,000 minus $18,560, or $13,440.00 -- it does. The rent-charge portion, $63.20, times 36 months equals $2,275.20, and adding that to the $13,440.00 depreciation total gives $15,715.20, matching the total lease payments figure calculated directly. A lease worksheet that fails either check, the depreciation sum not matching capitalized cost minus residual, or the two parts not summing to the stated total, has a transcription error somewhere in the capitalized cost, residual, money factor, or term entered.
What changes if the term is 24 months instead of 36
Shortening the term changes both sides of the comparison, but not by the same mechanism. On the loan side, a shorter term raises the monthly payment because the same $32,000 amortizes faster, while it lowers total interest because the balance is outstanding for fewer months. On the lease side, a shorter term raises the depreciation portion of the payment, since the same dollar amount of projected depreciation, capitalized cost minus residual, is spread over fewer months, while the rent-charge portion changes only through whatever new residual value the lessor projects for a 24-month-old vehicle instead of a 36-month-old one. Because both the loan and the lease payment rise when the term shortens, but the lease's ending position, no equity, stays fixed while the loan's ending equity, the resale value, is retained after fewer months of depreciation, a shorter term generally favors buying more than the 36-month comparison already does, though the exact size of that shift depends on the same money-factor and resale-value assumptions used above.
Common mistakes in Lease vs. buy a car: comparing total cost over the same 36-month term
Do not compare the raw monthly lease payment with the raw monthly loan payment as if they price the same thing, since the loan payment retires the full price while the lease payment retires only the projected depreciation; do not treat the money-factor-times-2400 approximate APR as a precise, disclosed annual rate, since the Federal Reserve's own consumer guide states a money factor is not a lease rate and cannot be converted to one by moving the decimal point; and do not assume the buy side's ending resale value will match whatever residual percentage the lessor used, since the two are independent estimates that can diverge.
Where this calculation stops
This comparison excludes acquisition and disposition fees, mileage-overage and excess-wear charges that apply only to a lease, sales-tax treatment that differs by state and can tax the full price on a purchase but only the payment stream on a lease, insurance-coverage requirements, and any down payment or capitalized-cost reduction. It also assumes the buyer's car is actually worth the assumed resale figure at month 36, which is an estimate, not a guaranteed number, and it does not extend past the first 36 months, where an owned, paid-off car with no further payments changes the total-cost comparison further in favor of buying.
lease vs buy a car total cost: source check
The Federal Reserve Board's consumer leasing guide explains that a lease's monthly rent charge is calculated from the money factor applied to the sum of the adjusted capitalized cost and the residual value, and states that a money factor is not a lease rate and cannot be converted to one simply by moving the decimal point. Read the named source. The leasevsbuyacarto record should be reconciled to the disclosure, statement, tax bill, or agreement that governs that exact transaction.
lease vs buy a car total cost: using the output
The leasevsbuyacarto output keeps each input's named unit and date adjacent to the result. Update the leasevsbuyacarto scenario when its rate, balance, payment, or property value changes.