When a High APR and a Soft Resale Value Make Leasing Cheaper

Two inputs, pulling in the same direction

The parent calculator's own defaults land on buying, and so do most sets of inputs a reader types in, because buying ends with an asset and leasing ends with a handshake. This page exists because that is a tendency and not a law, and because the two inputs that overturn it are the two people most often accept without negotiating.

The first is the financing rate. An 11.5% APR is not exotic; it is what a thin credit file or a long term on a used car can produce, and it is applied to the whole financed balance for the whole of the loan. Interest is the part of a car payment that buys nothing. It does not become equity, it does not come back at resale, and unlike depreciation it is not shared with the leasing side of the comparison in any form the quote makes visible. Raise the APR far enough and the buying column simply stops being cheap, no matter how sound the rest of the plan is.

The second is what the car is worth when the horizon ends. Buying is only cheaper because of the value still parked in your driveway, and $15,000 left from a $48,000 car after five years is a real outcome for plenty of vehicles rather than a pessimistic one. The equity row is doing all of the work in the buying column, and when that row shrinks, the column has nothing else holding it up. Move the value at the horizon down and watch the verdict; it is the single most sensitive input on the page, which is why it is an input at all instead of a number the calculator picks for you.

Put those two together and the comparison flips. The lease side of this scenario is also unusually lean — a small amount due at signing and a monthly payment well under what the financed car costs each month — so the gap is not marginal. What the page prints is not a claim that leasing is better; it is the arithmetic for these ten numbers, and the arithmetic is entirely a consequence of the ten numbers you can change one at a time.

Change any of them and the answer is allowed to change with it. That is the point of entering your own quote rather than reading a rule of thumb: the rule of thumb is a summary of the average case, and nobody signs the average case.

Cheaper is not the same as better, and the page will not pretend otherwise

The verdict here is a cost verdict over one stated horizon, and it comes with two conditions attached that the numbers cannot argue you out of.

The first is that the lease term is shorter than the horizon, so the calculation assumes a second lease at the same monthly payment and the same amount due at signing once the first one ends. That is the ordinary simplifying assumption, and it is a genuine assumption rather than a footnote. Lease pricing is set at signing against conditions in force at signing, and nothing in this repository can tell you what a comparable quote will look like years from now. If you think the second quote will be worse, raise the monthly lease payment and read the answer again — the calculator is built to be argued with on exactly this point.

The second is the thing the winning column does not contain. At the end of this horizon the leasing path leaves you with no car, and the comparison table states that as an equity of zero rather than hiding it. The saving is real and so is the empty driveway; whether that trade is worth making is not an arithmetic question, and a calculator that answered it would be overreaching. What the calculator can tell you is the price of the alternative, which is precisely the gap it prints.

There is also a horizon effect worth naming, because it is where readers most often mislead themselves. This comparison stops at the month you entered. A financed car that is paid off and kept for several more years afterwards costs almost nothing per month beyond running costs, while the leasing path keeps producing payments for as long as you keep leasing. If your honest answer to "how long do I keep a car" is longer than the horizon on this page, lengthen the horizon before you trust the verdict. The input is there for that reason, and the answer is allowed to move.

The costs that never appear on the quote

The monthly payment is the number the dealership wants you to compare, and it is the number that leaves the most out. The costs people are surprised by later are almost all on the leasing side, and they share a family resemblance: none of them are charged while you are driving, and all of them arrive at once when you hand the car back.

Mileage is the first. A lease sets an annual allowance, and every mile beyond it carries a per-mile charge that is agreed at signing and collected at the end. The rate looks trivial written down. It stops looking trivial when it is multiplied by a few thousand miles across a three-year term, and it is charged whether or not the extra driving affected what the car is actually worth. Before you sign anything, look up how far you genuinely drove last year rather than how far you think you drive. If you are close to the limit, buying the extra miles in advance is normally cheaper than paying the overage, and if you are far above it, the real comparison is not the one on the quote.

Wear and tear is the second, and it is more subjective. Returned cars are inspected against a standard for what counts as normal, and kerbed alloys, a windscreen chip, a scuff on a bumper or a stain on a seat can each become a line item. None of these would cost you anything on a car you own, because you would simply live with them or fix them when convenient. On a lease they are converted into cash at the moment of return, alongside the disposition fee that is charged for the privilege of taking the car back at all. This calculator includes the disposition fee explicitly, once for each lease you actually complete within the horizon, so a horizon that spans two leases carries two of them.

There is one more asymmetry worth naming, which is what happens when your circumstances change. Getting out of a lease early is generally expensive and awkward, because the contract is written around a fixed term. Selling a car you own is neither: you list it, you take the price, you pay off whatever remains on the loan. Neither this nor the wear-and-tear risk is modelled in the numbers above — they cannot be, without inventing figures. They belong on the leasing side of the ledger anyway, and you should weigh them there.

The answer mostly depends on how long you keep cars

Strip away the fees and the jargon and one variable does most of the work: how long you keep a car before you replace it.

If you replace your car every three years without fail, leasing and buying converge, and leasing can genuinely come out ahead. You are paying for the steepest part of the depreciation curve either way, and the lease at least spares you the trouble and uncertainty of selling. If you keep cars for eight or ten years, buying wins and it is not close. The loan ends, the payments stop entirely, and every year after that you drive a car that costs you nothing but fuel, insurance and maintenance while a leaseholder is still writing a cheque every month, forever. Push the horizon on this page out past your loan term and you will watch that effect appear in the numbers.

So set the horizon to the truth about yourself rather than to the term of the quote in front of you. Be honest about it. Someone who has traded every car at three years is unlikely to hold the next one for a decade, and someone who drives cars into the ground should not be modelling a five-year comparison. That single input moves the verdict more than any fee discussed on this page.

And when the numbers come out close, take that seriously as an answer in itself. Two figures within a few hundred dollars of each other, built on a resale value that is a guess, are not distinguishable. At that point decide on the things the arithmetic cannot hold: whether you want to own something at the end, whether an unpredictable repair bill would be a problem, whether you drive far enough to make a mileage cap a constant irritation, and whether you would rather have a newer car more often or no payment at all in year six.