Lease vs Buy a Car

Both paths begin with the same pot of cash, so whichever option needs less upfront invests the difference. The buyer pays the down payment, finances the rest with a loan and pays the EMI each month. The lessee pays the due-at-signing amount and then a monthly lease, and owns nothing at the end. Each month the lessee also invests the gap between the buyer's EMI and the lease payment — or draws from that portfolio if the lease is the higher of the two.

At the end of your time horizon the tool compares net worth. The buyer's is the car's depreciated resale value — the price reduced by the annual depreciation rate for each year you hold it — minus any loan still owed. The lessee's is simply the investment portfolio. If you keep the car longer than the loan runs, the buyer's payments stop while the lessee's keep going, which is why holding period matters so much here.

The defaults describe a $12,480 car, 20% down ($2,496), a 9% loan over 5 years (an EMI of about $207), against a $187 monthly lease with $1,040 due at signing. Depreciation is 15% a year, invested money earns 10%, and the horizon is 5 years.

After 5 years the car is worth about $5,537 — 44% of its price — and the loan is cleared, so the buyer is ahead with about $5,537 of net worth against about $3,964 in the lessee's portfolio: a lead of roughly $1,574 for buying. The reason is that this lease is only about $20 a month cheaper than the EMI, so the lessee has very little to invest, while the buyer keeps most of the car's value.

These tipping points come from moving one input at a time while everything else stays at its default.

A lease quote has more moving parts than a monthly figure and a signing amount. Here is what isn't modelled:

• Mileage limits and excess-wear charges at lease end, which reduce leasing's appeal if you drive a lot.
• Lease-end fees, and any option to buy the car at a fixed price.
• Differences in insurance, registration and servicing — some leases bundle maintenance, which the tool doesn't credit.
• The shape of real depreciation. Cars often lose the most value in the first year, while the tool applies one smooth annual rate, so a real resale price can come in below the modelled one.
• The flexibility of swapping into a newer car every few years, which has real value to some drivers that no net-worth figure captures.

Turn a lease quote into one honest monthly number: the monthly payment plus the due-at-signing amount and any fees spread across the months. Compare that against the roughly $166 tipping point for a car like this one. For depreciation, don't guess — look up what a five-year-old example of the same model sells for and work back to a yearly rate.

If buying wins narrowly — anything the tool marks as a close call — the deciding factors are how long you'll really keep the car, how far you'll drive it, and whether you'd rather own an asset at the end or keep the option to change. If the result is clear, check that it still holds at a slightly higher depreciation rate and a slightly lower lease price before treating it as settled.

• Time Value of Money — why comparing money at different points in time needs more than a monthly figure
• Compound Interest — the mechanic behind the invested savings on the leasing side
• EMI Calculator — the loan payment for any price, rate and tenure
• Rent vs Buy a home — the same rent-and-invest logic applied to housing
• SIP Calculator — the lease-and-invest side — see what the monthly saving grows to at the return you assume