How this calculator works
Comparing a $450 lease payment to a $700 loan payment is comparing nothing to nothing, because at the end of the loan you own a car worth thousands and at the end of the lease you own air. This calculator compares the true cost of each path over the same number of years and counts three things the simple tools ignore: the interest you pay, the resale value you keep, and the opportunity cost of the money you tie up.
Every dollar handed over early — a cash purchase, a down payment, a lease drive-off — is a dollar that could have been invested. So each outflow is grown forward to the end of your horizon at your expected investment return, which economists call opportunity cost. A dollar spent today is more expensive than the same dollar spent in year four, because it had longer to compound. For cash and finance you still own the car at the end, so its resale value is subtracted; for a lease, you hand back the keys and recover nothing.
The formulas
Let r be your annual return and rₘ = (1 + r)^(1/12) − 1 the monthly equivalent. Over a horizon of M months, an outflow in month t is carried to the end as:
The monthly loan payment uses standard amortization, where L is the amount borrowed (price − down payment), i the monthly loan rate (APR ÷ 12), and n the term in months:
Each path's true cost is the sum of its outflows carried to the horizon, minus the resale value of any car still owned. Lowest number wins.
- Cash: paying up front and counting the return you'd give up, minus resale ≈
$33,000true cost. - Finance ($4,000 down, 7% APR, 60 mo): payment ≈ $713/mo; carrying the down payment and installments forward, minus resale ≈
$35,400. - Lease ($3,000 due, $450/mo, re-leased to 5 years): no resale to recover ≈
$37,700.
Acronyms used on this page
- APR
- Annual Percentage Rate
When each option actually wins
Cash wins when your money would otherwise sit idle at a modest return — you skip all interest and lease premiums, paying only the hidden opportunity cost this tool makes visible. Financing wins when the loan rate is below what your money earns elsewhere, which is why manufacturer 0–3% promo financing is often the smartest play: borrow cheap, keep your cash invested. Leasing rarely wins on cost over a long horizon since you build no equity, but it fits if you always want a new car every few years, can deduct payments as a business expense, or the maker is subsidising the lease.
Frequently asked questions
Is it cheaper to lease, finance, or pay cash?
Over a fixed horizon, cash is often lowest because you pay no interest and no lease premium — but it ties up capital you could invest. Financing costs more when your loan rate is above your investment return, and less when below. Leasing is usually priciest long term because you build no equity. Your loan rate, expected return, and how long you keep the car decide it.
What is the opportunity cost of paying cash?
It's the return you give up by spending instead of investing. Pay $40,000 cash when you could earn 5% a year, and the foregone growth is a real cost of the cash option even with zero interest. This tool counts it so the comparison is fair.
Why does the loan term matter if I keep the car longer?
Once the loan is paid off you stop paying but keep driving, so a shorter loan within your horizon means less total interest. If your horizon is shorter than the loan, you'd still owe a balance at sale — this tool subtracts any remaining balance from your resale.
Does this include insurance, fuel, and maintenance?
No — those are broadly similar across all three options for the same car, so leaving them out keeps the focus on the financing decision. If your lease bundles maintenance, lower the lease payment you enter to match.