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Lease vs. Cash Calculator

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Use this calculator to compare purchasing an automobile with cash vs. leasing. For those fortunate enough to be able to purchase a vehicle with all cash an no loan, it isn’t always clear whether this is the best financial option. This calculator compares the costs and the loss of investment income to help you decide which option works better for your finances.

Lease vs. Cash Calculator Definitions

Purchase price
Total purchase price. Price should be after any manufacturer's rebate. This price is used for both the lease and the buy options.
Sales tax rate
Percentage sales tax to be charged on this purchase. Sales tax is included in each lease payment. Sales tax for buying is charged on the total sale amount.
Investment rate of return
Rate of return on investments. This is the return that you would make if you were to invest your down payment or security deposit instead of using it in your auto purchase or lease.

The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor's 500® (S&P 500®) for the 10 years ending December 31st 2021, had an annual compounded rate of return of 13.6%, including reinvestment of dividends. From January 1, 1970 to December 31st 2021, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 11.3% (source: www.spglobal.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.

It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that investment funds and/or investment companies may charge.

Transaction fees
Any fee required to be paid at the time of purchase. This may include license, title transfer fees, etc. These fees are not included in the amount subject to sales tax.
Annual depreciation
The rate of depreciation gauges how fast your new automobile will lose its market value. A high depreciation rate is about 20% per year, medium is 15% per year and low is 10% per year.
Down payment
Amount paid as a down payment to reduce your monthly lease payment. For a lease this can also be called a capital reduction.
Market value of vehicle
Value of your auto after the lease term is over.
Net cost of buying
This is the total cost of buying your vehicle. This is calculated as:
  1. + Total up front costs (total purchase price + other fees)
  2. + Lost investment earnings
  3. - Market value of vehicle at time lease expires
  4. = Net cost of buying

The lost investment earnings on your purchase includes any interest you would have earned at your investment rate of return on the buy option's purchase price and other fees.

Lease term in months
Term in months for your auto lease.
Lease interest rate
Annual interest rate for your lease.
Other fees
Any fee, other than a capital reduction or down payment, required to be paid at the close of the lease. This may include license, title transfer fees, etc.
Residual percent
For leases, this is remaining value after the lease term expires. The higher this amount, the lower your lease payment will be.
Security deposit
Refundable security deposit required at time of lease. We assume that the security deposit is fully refunded at the time the lease ends.
Net cost of lease
This is the total cost of leasing your vehicle. This is calculated as:
  1. + Total up front costs (downpayment + other fees)
  2. + Total lease payments
  3. + Lost investment earnings on lease
  4. = Net cost of lease

The lost investment earnings on your lease includes any interest you would have earned at your investment rate of return on the lease option's down payment, security deposit and other fees.