Auto Loan vs Lease Comparison
Enter the vehicle price, down payment, interest rate, and term to compare the monthly payment and total cost of buying with an auto loan versus leasing, side by side.
Buying with a loan against leasing
A car loan and a car lease are the two arrangements people most often weigh against each other. **With a loan the car ends up belonging to you**, whereas **a lease rents you the right to use it for the term**, and at the end you either hand it back or buy it outright. That difference is what drives the monthly figure.
Lease payments often undercut loan payments because **the residual value — what the vehicle is assumed to still be worth at the end of the term — is deducted before the charge is worked out.** In effect you pay only for the value the car loses while you have it, rather than for the whole price. The catch is that the higher the residual assumed, the lower the monthly payment but the greater the exposure if the car turns out to be worth less than assumed at the end. Enter the price, deposit, interest rate and term, and this tool sets the monthly burden and total outlay of both side by side.
How to compare the two
- Enter the vehicle price Whether to include fees is a matter for the quotation you are actually considering.
- Enter the deposit and any trade-in A trade-in applies to the purchase only and has no bearing on the lease calculation.
- Set the residual value rate The share of the price the car is assumed to retain at the end of the lease, typically forty to sixty per cent for a mainstream model.
- Enter the rate and the term The comparison runs to a maximum of seven years, matching the usual ceiling on lease contracts.
- Compare monthly and total figures Weigh them in the knowledge that a purchase also leaves you holding an asset at the end.
Tips for getting more out of it
- Looking only at the monthly payment can make leasing look cheaper, but remember you won't own the car once the lease ends.
- Residual value rates vary widely by make and model, so a real quote from a leasing company may turn out more favorable than this estimate.
- The down payment reduces the financed amount for both buying and leasing, but the trade-in value only affects buying and the residual rate only affects leasing.
- If you plan to keep the car for many years, buying tends to win on total cost; if you like switching cars every few years, leasing is often more convenient.
- For finer-grained scenarios, the companion auto loan calculator and car lease calculator pages let you adjust each set of inputs independently.
Where this helps
Getting your first car
Whether you want to keep the upfront cost down or the lifetime total down points to different arrangements.
When you expect to change cars in a few years
Over a short cycle, the lease advantage of never having to arrange a sale starts to tell.
Considering company vehicles
Because the accounting treatment differs, the monthly comparison is the starting point for the decision.
Comparing against a balloon loan
A balloon loan rests on the same idea of setting a residual, so this gives you a like-for-like basis.
Purchase and lease terms explained
- Residual value
- What the vehicle is assumed to still be worth at the end of the term. **Deducting it is what brings the lease payment down.**
- Residual value rate
- The residual as a share of the vehicle price. Setting it high lowers the payment but raises the settlement risk.
- Car lease
- An arrangement renting the right to use the vehicle for a term. Tax and compulsory insurance are often folded into the monthly charge.
- Car loan
- Borrowing the price of the vehicle and repaying by instalments. **Once repaid, the car is yours.**
- Deposit
- The money you put in at the outset. It reduces the sum borrowed and with it the total interest.
- Trade-in
- Handing your current car to the dealer and setting its value against the price of the new one.
Frequently Asked Questions
Side Note — Buy vs Lease: Whether an Asset Remains in Your Hands
Financing a car purchase with an auto loan and leasing a car both let you drive the same vehicle, yet the money flows in fundamentally different ways. With a loan, you borrow the full vehicle price and repay it over time, so once it's paid off, the car is entirely yours. With a lease, you only pay off the portion of the price left after subtracting the vehicle's expected residual value at the end of the term, which lowers your monthly payment but means no asset remains in your hands when the contract ends.
This difference shows up clearly as a trade-off between total cost and monthly payment. Comparing the same vehicle price and interest rate, leasing skips paying for the residual portion so the monthly payment is lighter than buying, but because the car must be returned, the real cost can't be judged from the raw numbers alone. That's why leasing tends to suit people who like switching to a new car every few years, while buying suits those who plan to keep the same car for a long time.
Residual value rates are set by automakers and leasing companies based on historical used-car market data, and popular models with strong resale value tend to get higher residual rates, which lowers the monthly payment. Conversely, if the residual rate turns out to have been set higher than the vehicle's actual market value, you may owe an additional settlement at the end of the lease, so it's worth asking about the basis for the residual rate when you get a quote.