When an 84-Month Loan Still Owes Money at the Four-Year Mark

Neither column reaches a natural ending, so the horizon has to do the work

Comparing a long loan against a short lease is the situation the horizon input was built for, because there is no month at which both paths are simultaneously at rest. Line them up over their own terms and you are not comparing anything: one column would cover seven years of ownership and the other two years of driving.

This page fixes the window at four years and carries both sides to it. On the buying side, that means a substantial balance is still outstanding when the comparison closes, and it is subtracted from the car's value before anything is counted as equity. An 84-month term at 8.75% on a $55,000 car spends a long time paying interest before it makes real progress on principal, which is precisely why the monthly payment is as approachable as it is. The payment is low because the debt lasts, and the debt lasting is what shows up in the equity row four years in.

On the leasing side, the horizon outlives the lease, so a second contract is assumed at the same monthly payment and the same cash due at signing. That has consequences the monthly quote does not display. The amount due at signing is paid twice rather than once, and the disposition fee is charged each time a leased car goes back, so both of those items appear in the total at a multiple of what the reader saw on the first quote. The comparison table lists cash up front and disposition fees as their own rows because they behave differently from the monthly payment: they scale with the number of contracts, not with the number of months.

So the honest summary of this scenario is that both columns are being measured mid-flight, and both are more expensive than their headline monthly figures imply. The page's job is to make the two mid-flight positions comparable, which is what one shared horizon and one net-cost row accomplish. It is a harder comparison than the tidy case where everything ends on the same day, and it is also the more common one.

If four years is not really your window, change it. The whole calculation moves with that input, and it is the input most worth being honest about.

Two contracts on one side, one long debt on the other

The renewal assumption is worth pulling apart, because it is the largest piece of guesswork this page contains and readers are entitled to know exactly where it sits.

The calculator assumes the second lease costs what the first one cost: same monthly payment, same cash due at signing, same term. That is a modelling choice made for a good reason — there is no defensible way to forecast a quote that has not been written — but it is not a prediction, and it should not be read as one. If you have reason to think the second contract lands somewhere else, the page gives you a direct way to say so. Raise the monthly lease payment, or the lease down payment, until the leasing column reflects the renewal you actually expect, and read the verdict again. That is a better use of this calculator than accepting the default and treating it as a forecast.

Meanwhile the buying column carries a different kind of exposure. Nothing about the loan is uncertain — the rate, the term and the payment are contractual — but the position it leaves you in at the horizon depends entirely on the car's value on that day. A long term and a shorter horizon is the combination that maximises how much that single estimate matters, because the outstanding balance is large and the value is what has to cover it. Try lowering the value at the horizon by a few thousand and watch how much further the net cost moves than the same change would move it on a shorter loan.

Put plainly: the leasing side of this scenario is uncertain about a future price, and the buying side is uncertain about a future value, and the calculator refuses to pretend either uncertainty away. What it does instead is put both on one horizon, name each assumption where it is made, and leave every one of the ten inputs open so you can test how much any of them is actually deciding.

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.