Car Purchase vs. Lease Calculator

Estimating the resale value requires considering factors such as the car's make and model, mileage, condition, and market demand. Vehicles from brands with strong reputations for reliability and low depreciation rates tend to retain more value. Additionally, external factors like economic conditions, fuel prices, and the popularity of certain vehicle types (e.g., SUVs vs. sedans) can influence resale value. To get a more accurate estimate, consult resources like Kelley Blue Book or Edmunds, or look at comparable used car listings in your area.

Mileage limits are a critical component of most lease agreements, typically ranging from 10,000 to 15,000 miles per year. Exceeding this limit incurs overage fees, which are charged per mile and can add up quickly—often between $0.15 and $0.30 per mile. For instance, driving 5,000 miles over the limit at $0.20 per mile would add $1,000 to your total lease cost. If you anticipate driving more than the allowed mileage, consider negotiating a higher mileage limit upfront or evaluate whether purchasing might be a better option.

In addition to monthly payments, leases often include hidden costs such as acquisition fees, disposition fees, and potential penalties for excessive wear and tear. Acquisition fees are charged at the start of the lease, while disposition fees are due at the end if you return the car. Additionally, if you terminate the lease early, you may face significant penalties. It's essential to read the lease agreement carefully and factor these costs into your decision-making process.

The term length plays a significant role in cost comparisons. Shorter lease terms often result in lower total costs but higher monthly payments, while longer terms may reduce monthly payments but increase the risk of exceeding mileage limits or incurring wear-and-tear fees. For purchases, shorter loan terms generally mean higher monthly payments but lower total interest paid. Additionally, the longer you own a car, the more its depreciation slows, which can make purchasing more cost-effective in the long run.

Maintenance costs can vary significantly depending on whether you lease or buy. Many leases include routine maintenance as part of the agreement, which can save you money during the lease term. However, if you purchase a car, you are responsible for all maintenance and repair costs once the warranty expires. Over time, these costs can add up, especially for older vehicles. Buyers should budget for these expenses, while lessees should confirm what maintenance is covered in their lease agreement.

Depreciation is a key factor in the buy vs. lease decision. When you purchase a car, you bear the full brunt of its depreciation, which is steepest in the first few years of ownership. Leasing, on the other hand, allows you to pay only for the depreciation that occurs during the lease term, along with interest and fees. For cars with high depreciation rates, leasing may be more cost-effective. Conversely, for vehicles that hold their value well, purchasing might yield better long-term financial results.

Rolling over leases—continuously leasing new cars—often results in higher long-term costs compared to owning a car for an extended period. Each new lease involves upfront fees, and you never build equity in the vehicle. By contrast, owning a car long-term allows you to spread the cost over many years, and once the loan is paid off, you only incur maintenance and insurance expenses. However, for those who prioritise driving new models and avoiding repair risks, leasing may still be worth the premium.

Your driving habits are crucial in determining the most cost-effective option. If you drive significantly more than the average mileage (e.g., 15,000 miles per year), leasing may become expensive due to overage fees. Conversely, if you drive much less, you might not fully utilize the mileage allowance, making leasing less advantageous. Additionally, frequent long-distance driving can accelerate wear and tear, which could lead to penalties at the end of a lease. Buyers have more flexibility in these scenarios, as they aren’t subject to mileage restrictions or wear-and-tear penalties.