What is the hidden cost of leasing?

The hidden cost of leasing is often the 'Money Factor' (interest) combined with the fact that lease payments are non-refundable. You are paying for the car's depreciation plus a finance charge without gaining equity.

Why does depreciation matter more when buying a car?

When you finance (buy) a car, you own the asset, which means you also own the loss of value. If a car has high immediate depreciation (e.g., 20%), that is a direct loss to your net worth that might make leasing a safer short-term option.

What is the 1% rule for car leases?

The 1% rule is a common 'napkin math' guideline: If the monthly lease payment (with $0 down) is effectively less than 1% of the car's total MSRP, it is generally considered a good lease deal.

Calculator: Finance vs Lease

Input Variables

Car Price (P)

The final negotiated price of the vehicle (Capitalized Cost) including all packages and options, before taxes and dealer fees are applied.

Ownership Duration (Years)

The number of years you plan to own the car before trading it in or selling. This is different from the lease or loan contract term - it represents your actual ownership period.

Immediate Depreciation (%)

The estimated drop in value the moment the car is driven off the lot. For most new cars, this is typically between 10% and 20%.

Annual Depreciation (%)

The percentage of value the car loses each subsequent year. This rate determines the car's future resale value (or Residual Value).

Financing Rate (%)

The Annual Percentage Rate (APR) charged by the lender for a car loan. This is determined by your credit score and current market rates.

Lease Rate / Money Factor (%)

The finance charge for a lease. If you have a 'Money Factor' (e.g., 0.0025), multiply it by 2400 to get the approximate APR %.

Financial Results

Future Value (Resale) ---

Net Cost: Financing ---

Net Cost: Lease ---

Difference (Savings) ---

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Cumulative Cost Curve

How We Calculate Your Savings

1. The "Hidden" Cost of Leasing

Many buyers focus only on the monthly payment. Our calculator exposes the Net Cost, which includes the Money Factor (interest) plus the non-refundable portion of your payments.

2. Why Depreciation Matters More for Buying

When you finance a car, you own the asset—but you also own the depreciation. If a car loses 20% of its value in Year 1 (Immediate Depreciation), that is a direct loss to your net worth that leasing avoids.

3. The 1% Rule of Thumb

A common "napkin math" trick: If the monthly lease payment is significantly less than 1% of the total car price, it is often considered a good lease deal.