A lease and a loan measure different things

Published 2026-09-17 · Last reviewed 2026-09-23

Put a lease payment next to a loan payment and both look like "what a car costs each month", so comparing them feels fair. It is the mistake a dealership is built on. The lease mostly pays for the depreciation the car will suffer over the term, plus a finance charge; the loan pays for the whole vehicle and leaves an asset at the end. This page prices both for the same car and the same 36 months, and shows which figure actually decides the answer - the resale value, not the monthly payment.

The same car, both routes

Take a $40,000 car with a 55 percent residual, leased over 36 months at a money factor of 0.00125 - about 3 percent - with 6 percent tax on each payment. The purchase side is a 60-month loan at 6.5 percent with a $4,000 down payment, sales tax on the whole price, and the car worth 55 percent of its price at the end. The lease totals $22,037 over those 36 months. The purchase totals $25,570, and in this case the lease is cheaper by $3,533: buying pays sales tax on the full price and finances the whole vehicle, and the equity the resale leaves is real but does not close that gap within 36 months.

That result depends entirely on what the car is worth in 36 months. The engine restates that as the question actually worth asking: the lease and the purchase cost the same when the car holds 63.8%of its price. Hold more than that and buying wins; hold less and leasing wins. If this particular model holds its value unusually well at 65 percent, buying widens its lead; if it depreciates fast to 45 percent, the lease quietly becomes the cheaper route. That one assumption, not the monthly figures on either contract, is the answer.

Why the monthly payment hides it

The lease payment is depreciation plus rent charge plus tax - none of which builds equity. The purchase payment is loan amortization, and at the end of the compared period the balance still owed against what the car is worth is captured in the totals above rather than ignored. That is the part a showroom comparison leaves out: it shows the two monthly numbers and lets you believe the difference is the only difference.

Two cautions apply when you carry this reasoning to a real purchase. First, depreciation is worst in the first years and worst on cars bought at full price, so the break-even percentage moves sharply between a model that holds value and one that does not. Second, a lease carries costs that only appear at the end and are outside any monthly quote: excess mileage, wear beyond ordinary use and a disposition fee. None of them are in the comparison above, which is exactly why a lease that looks attractive on paper can cost more in practice if your mileage is unpredictable.

Where these numbers come from

• Both the lease and the purchase are valued by the same calculation the calculator uses, so the totals and the break-even percentage on this page are exactly what the tool would print for the same inputs.
• The money factor converts by 2,400. That is the lease-contract convention that turns 0.00125 into about 3 percent, and it is what makes a money factor comparable with a loan rate at all.
• What was deliberately left out. Sales-tax treatment varies by state - a few tax the full price on a lease, which changes the arithmetic completely - and insurance, fuel, registration and post-warranty upkeep are assumed similar over the compared period.

What this guide does not cover

It is not a recommendation for a specific car, and it cannot know what your model will actually resell for in three years - the number this page is built around. It also does not model business use, where lease payments can be a deductible expense; excess-mileage and wear charges at the end of a lease, which fall outside every monthly quote; or the cash-flow reality that the purchase route sometimes needs a larger sum at the desk. Run the two routes against your own quote, and treat the resale percentage as the honest thing to disagree about.

Compare your own quote in the Lease vs Buy Calculator, price the loan side in the Auto Loan Calculator, or check the annual figure the lease implies against a Return on Investment view of the same cash.

Estimates only - not financial, tax or legal advice. Read the full disclaimer.