Why use this calculator
The usual comparison is rigged by its own arithmetic. A five year loan total placed next to a three year lease total makes the lease look cheap, when all it shows is that three years of anything costs less than five. The honest comparison divides each arrangement by the months it actually covers and subtracts the asset you still hold at the end, because the person who financed a car owns something worth real money on the final payment and the person who leased one owns nothing and hands back the keys.
This calculator does both corrections. It also handles the balloon payment that dominates Australian dealer finance, where a low advertised repayment conceals a five figure sum owing in the final month, and the lease upfront cost that quotes routinely leave out of the monthly figure.
How to use it
- Enter the drive-away price including registration, stamp duty and dealer delivery, not the advertised list price, because the extras add thousands.
- Enter the deposit you are putting in, counting any trade-in at the value the dealer is actually allowing.
- Use the interest rate on the finance contract itself rather than the headline advertised rate, and set the loan term in months so it lines up with the lease.
- If the finance quote has a balloon or residual owing at the end, enter it, because it changes the repayment dramatically.
- Take the lease payment and term straight from the written quote, and add the first payment, establishment fee and any capitalised cost reduction as the lease upfront.
- Finally, look up what the same model with the mileage you expect is selling for privately today and use that as the resale value.
What each result means
- Monthly loan repayment
- What the finance contract charges each month. A balloon lowers this figure without lowering what the car costs you.
- Total paid on the loan
- Every dollar leaving your account across the loan: the deposit, all repayments and any balloon at the end.
- Interest and charges on the loan
- The premium you pay for borrowing rather than paying cash. It is the gap between total outlay and the price.
- Car value when the loan ends
- The asset you still hold after the final payment. Subtracting it is what makes the comparison with leasing honest.
- Net cost of owning
- Total outlay less the resale value. This is the true cost of having driven the car for the loan term.
- Owning cost a month
- Net cost of owning divided by the months covered, which is directly comparable with the leasing figure below.
- Total paid on the lease
- Upfront payment plus every monthly lease payment. At the end you hand the car back and retain nothing.
- Leasing cost a month
- Total lease outlay spread across the lease term, including the upfront cost most quotes leave out of the monthly figure.
- Cheaper per month
- The gap between the two monthly figures. This is the fair comparison because it normalises the different term lengths.
- Monthly lease payment that matches buying
- The monthly lease payment, with your upfront payment unchanged, at which leasing would cost exactly the same per month as buying with the loan. A quote below this makes the lease the cheaper option.
- Resale value where both cost the same
- The value the car would need at the end of the loan for buying and leasing to cost the same per month. Resale is the least certain input, so compare this with prices for similar used cars.
- What you own at the end
- The structural difference between the two products. One leaves you an asset, the other leaves you a set of keys to return.
The formula
Financed amount = drive-away price minus the deposit
The present value of the balloon = balloon divided by (1 plus the monthly rate) to the power of the term in months, and the repayment uses the standard amortisation formula on the financed amount less that present value
Total loan outlay = deposit plus (repayment multiplied by months) plus the balloon
Net cost of owning = total loan outlay minus the resale value
Owning cost a month = net cost of owning divided by the loan term
Total lease outlay = lease upfront plus (monthly lease payment multiplied by the lease term)
Leasing cost a month = total lease outlay divided by the lease term
The comparison is the difference between the two monthly figures.
How this number is used in practice
Balloon payments are where dealer finance does its most persuasive work. Putting a 15,000 dollar balloon on a five year loan cuts the monthly repayment by well over a hundred dollars and makes an unaffordable car feel affordable, but the balloon does not disappear. It arrives in one lump in the final month, usually when the car is worth about what you owe, and the standard response is to refinance it or roll it into the next car.
That is how a borrower ends up perpetually owing money on a depreciating asset. If you use a balloon, put the difference between the lower repayment and the true repayment into a savings account every month so the lump sum is covered when it lands.
Leasing wins on different grounds than cost. It fixes your monthly outgoing, removes resale risk entirely, usually covers the car while it is under warranty, and suits anyone who values a new vehicle every three years over accumulating equity. For businesses and for Australians with access to a novated lease through salary packaging, the tax treatment can shift the comparison substantially, because lease payments may come from pre-tax income and GST treatment differs.
Neither effect is modelled here, so a novated lease quote should be compared on its after-tax cost rather than the figures this tool produces.
The single biggest variable in the whole calculation is the resale value, and it is the one people guess at. Depreciation is not linear: most cars lose the steepest share of their value in the first two or three years, which is exactly the period a lease covers and exactly why leasing looks expensive per month.
Before relying on the answer, check a valuation guide for the same model at the age and mileage you expect, and run the numbers again with a value ten per cent lower to see how much of your conclusion depended on an optimistic guess.
Worked examples
A 45,000 dollar car with 5,000 dollars down at 8.5 per cent over 60 months, worth 24,000 dollars at the end, against a 749 dollar lease for 36 months
Owning costs 355.72 dollars a month against 818.39 dollars a month to lease
The same car financed with a 15,000 dollar balloon to cut the repayment
The repayment falls to 617.19 dollars but the net cost rises to 361.06 dollars a month
A 45,000 dollar car held only three years with 30,000 dollars of resale value left
Owning costs 470.98 dollars a month over the same three years the lease covers
When people use it
- Deciding between dealer finance and a lease on the same vehicle
- Testing how much a balloon payment really saves once the lump sum is counted
- Finding the loan term where the monthly cost of owning drops below the lease
- Checking whether a low advertised lease payment survives the upfront cost being included
- Working out what resale value the car needs to achieve for buying to win
Tips
- Compare cost per month, never the totals. A five year loan against a three year lease is not a comparison, it is a longer period.
- Always use the drive-away price. Registration, stamp duty and delivery commonly add three to five thousand dollars to a list price.
- If a quote includes a balloon, save the difference between the low repayment and the true repayment every month so the lump sum does not force a refinance.
- Ask the leasing company for the excess mileage rate in writing and estimate your real annual distance honestly before signing.
- Check a valuation guide for the actual resale value rather than guessing. It is the input with the largest effect on the answer.
- Get finance pre-approved from a bank or credit union before visiting the dealer. Dealer finance margins are widest when you have no alternative quote.
What it assumes, and where it stops being accurate
- Assumes a fixed rate amortising loan with level monthly repayments and no early repayment penalty.
- Excludes running costs entirely. Insurance, registration, fuel, tyres and servicing apply to both options and can differ, particularly where a lease bundles maintenance.
- Excludes lease excess mileage and wear-and-tear charges, which are assessed at the end and are frequently the largest unpleasant surprise in leasing.
- Assumes the resale value you enter is achieved. Actual depreciation depends on the model, condition, mileage and the used market at the time.
- Excludes all tax treatment. Business use, novated leases and salary packaging can change the answer substantially and are not modelled.
- Assumes the balloon is repaid in cash at the end rather than refinanced. Refinancing it adds further interest that is not counted here.
Terms used on this page
- Balloon payment
- A lump sum of principal deliberately left owing at the end of a finance term to reduce the monthly repayment.
- Residual value
- The value a leasing company assigns to the vehicle at the end of the lease, which sets the payment.
- Drive-away price
- The full cost on the road including registration, stamp duty and dealer delivery charges.
- Negative equity
- Owing more on a vehicle than it is worth, common early in long finance terms.
- Novated lease
- An Australian arrangement where an employer makes lease payments from an employee's salary, changing the tax treatment.
Questions people ask
- Is leasing ever cheaper than buying?
- On pure cost per month it usually is not, because a lease covers the steepest years of depreciation and builds no equity. It can win where the vehicle is used for business and the payments are deductible, where a novated lease is available through salary packaging, or where you would otherwise replace the car every three years anyway.
- What happens at the end of a lease?
- You return the car and it is inspected for excess wear and mileage, with charges billed for anything beyond the agreed limits. Some contracts offer a purchase option at a set residual value, and many leasing companies will roll you straight into a new lease, which restarts the whole cycle.
- Should I take a balloon payment on a car loan?
- Only if you deliberately save for it. A balloon lowers the repayment by deferring principal, so you pay more interest overall and face a large sum in the final month. Borrowers who have not saved for it typically refinance, which extends the debt on a car that keeps depreciating.
- Should I put a large deposit on a lease?
- Generally no. A large upfront payment on a lease buys you nothing you can recover, and if the car is written off or stolen early the insurer settles with the leasing company rather than refunding you. Negotiate a lower monthly payment instead of handing over cash at the start.
- How long should a car loan run?
- Ideally no longer than you intend to keep the car, and preferably short enough that you are never in negative equity. Seven year terms are widely offered and are rarely wise, because most cars are worth less than the outstanding balance for the first several years of such a loan.
- Does this include running costs?
- No. Fuel, insurance, registration, servicing and tyres are excluded because they apply to both choices. They do matter when a lease bundles maintenance and registration into the payment, so check what a lease quote includes before comparing it with a bare loan repayment.
Use this with
Car Loan vs Lease Calculator answers one part of the question. These pick up where it stops: Car Loan Calculator, Car Running Cost Calculator, EV vs Petrol Cost Calculator and Loan Repayment Calculator.
Where these figures come from
This calculation is jurisdiction-neutral arithmetic. No country-specific rules are applied.
- MoneySmart - Car loans. Australian guidance on car finance, balloon payments and leasing
- Consumer Financial Protection Bureau. US guidance on auto loans, leases and finance disclosures
- GOV.UK - Vehicle tax and registration. UK vehicle running cost and registration information
Car Loan vs Lease Calculator produces an estimate for general information. It is not financial, tax, medical, legal or engineering advice. read the full disclaimer. Spotted a wrong number? Report it and it gets fixed. The form picks up this calculator and the inputs you used.