Lease vs buy — 3-year cost calculator
Compare 3 years of leasing the same car vs buying it: monthly payments, depreciation, residual equity, and end-of-term cash position. Includes sales tax structure differences.
The honest answer: it depends on what you do at year 3
Almost every "lease vs buy" calculator gives you a number and stops there. That's misleading. The real comparison depends on what you'd do at year 3 — and what you'd actually do with a fully-paid car at year 5.
This calculator runs three scenarios:
- Lease (3 yrs) — pay monthly + acquisition + disposition fees, return the car at year 3, walk away with nothing.
- Buy + keep (3 yrs, still on loan) — monthly payments per your loan term, vehicle worth residual value at year 3, but you may still owe a balance.
- Buy + sell at year 3 — same buy scenario, but liquidate at year 3 (subtract residual from your remaining loan balance).
Sales tax structure varies dramatically
In most states, when you buy, you pay sales tax on the full purchase price upfront (rolled into the loan). When you lease, you pay sales tax monthly on just the depreciation portion of each payment. This means leasing has lower lifetime sales tax — sometimes significantly, in high-tax states like California (7.25%+) and Tennessee (9.55%).
Some states (Texas, Illinois, Maryland, Georgia, Virginia) treat leasing differently — Texas charges full sales tax upfront on the lease price. Check our used car sales tax calculator for your state's structure and use the appropriate figure.
When leasing usually wins
- You want a new car every 2-3 years and would never keep one past warranty
- The lease has factory subvention (subsidized money factor + inflated residual)
- You drive under 12,000 miles/year
- Business use ≥ 50% (lease payments are 100% deductible against business income — see our Section 179 calculator for the buy comparison)
When buying usually wins
- You'd keep the car 6-10+ years (you eventually get out of the loan and drive years cost-free)
- You drive over 15,000 miles/year (lease excess-mileage fees are punishing)
- You have a long commute or kid-mileage — wear and tear hits resale either way, but lease turn-in inspections charge per dent
- You can comfortably afford a 20% down payment with 48-month financing — see our affordability calculator
Frequently asked questions
Is it cheaper to lease or buy?
It depends on what you do at year 3. Leasing 3 years and walking is usually more expensive than buying and selling 3 years out (you keep the residual equity). Leasing 3 years and walking is usually cheaper than buying with a 6-year loan if you'd never keep the car past 3 years anyway.
How does sales tax differ on lease vs buy?
In most states, buyers pay sales tax on the full purchase price upfront (rolled into the loan). Lessees pay sales tax monthly on just the depreciation portion. This means leasing has lower lifetime sales tax — significantly so in 7%+ tax states. Texas, Illinois, Maryland, Georgia, and Virginia have special lease tax rules.
What is a residual value?
The vehicle's projected worth at lease-end, set by the bank at lease signing. It's based on industry depreciation tables and brand-specific resale data. If you'd lease 36 months at $450/mo with a $22,000 residual, the bank is betting the car will be worth $22,000 in 3 years.
When should I lease instead of buy?
Lease if you want a new car every 2-3 years and would never keep one past warranty, you drive under 12,000 miles/year, you have business use ≥50% (lease payments are 100% deductible), or the lease has heavy factory subvention (subsidized money factor + inflated residual).
When should I buy instead of lease?
Buy if you'd keep the car 6-10+ years (eventually exit the loan and drive payment-free), you drive over 15,000 miles/year (lease excess-mileage fees punishing), you have a long commute and your driving wears the car heavily, or you can afford 20% down with 48-month financing.