Key takeaways
- Lease payment = depreciation (price − residual, spread over the term) + rent charge, plus sales tax
- Money factor = lease rate ÷ 2,400
- Buying is compared over the same months, minus the car’s value at the end
- Driving more than the allowance can wipe out a lease’s advantage
How the calculator compares lease and buy
Lease
- Depreciation part: (price + fees − down payment − residual value) ÷ months.
- Rent charge: (price + fees − down payment + residual value) × money factor. The money factor is the lease rate ÷ 2,400.
- Tax: your province’s sales tax is added to each payment.
- Extra kilometres: (kilometres driven − allowance) × charge per kilometre.
Buy
- Sales tax on the full price, financed with the loan.
- We add the loan payments you make during the lease term and the balance still owed, then subtract the car’s value at that time. We assume it equals the lease residual value.
Worked example
A $40,000 car in Ontario with $3,000 down. Lease: 48 months, 55% residual ($22,000), 5.99% (money factor 0.0025), 20,000 km a year allowed and driven. Loan: 6.99% for 72 months.
- Lease payment with HST: about $520 a month; total lease cost about $27,937.
- Loan payment: about $719 a month. After 48 months you have paid $34,525 and still owe $16,066. The car is worth about $22,000. Net cost of buying: about $31,591.
In this example leasing costs about $3,650 less over 4 years, partly because you never pay tax on the residual value. If you drove 30,000 km a year, the extra 40,000 km at $0.12 would add $4,800 and buying would win. Keeping the car for 8 to 10 years usually favours buying.
Lease words explained
- Capitalized cost: the price of the car in the lease, plus fees, minus any down payment or trade-in.
- Residual value: what the car should be worth at the end, set in the contract as a percentage of the price.
- Money factor: the lease interest rate as a decimal. Lease rate ÷ 2,400 = money factor.
- Kilometre allowance: how far you can drive each year without extra charges.
- Excess wear: damage beyond normal use, charged when you return the car.
- Buyout: the price to buy the car at the end, usually the residual value plus tax.
Questions to ask before you lease
- What is the residual value and the lease rate? Ask for both, not just the payment.
- How many kilometres are included, and what does each extra one cost?
- What counts as normal wear, and what are the lease-end fees?
- What does it cost to end the lease early or transfer it?
- What insurance coverage is required?
Limits of this comparison
The calculator compares the cost over the lease term only. It does not count insurance differences, lease-end fees, or repairs you may pay after the warranty if you buy. It also assumes the car you buy is worth the residual value, which may be generous if you drive a lot.
Next steps
Read new vs used vs lease for the bigger picture, run a plain loan in the car loan calculator, and check the full monthly budget with the affordability calculator.