How to Use the Lease vs Buy Calculator
Our lease vs buy calculator helps businesses and individuals make optimal capital allocation decisions. Whether you're considering a new company vehicle, manufacturing equipment, or office space, this tool compares the total cost of ownership under each scenario. The calculator accounts for upfront costs, ongoing payments, tax deductions, maintenance, residual value, and the opportunity cost of capital to show which option truly costs less over your intended holding period. All calculations happen locally in your browser—no sensitive financial data ever leaves your device.
Enter Purchase Price
Input the full purchase price of the asset if you were to buy it outright. This includes all dealer fees, delivery charges, and installation costs—everything required to put the asset into service. For vehicles, this is the "out the door" price; for equipment, include setup and initial training costs. This becomes the baseline for calculating financing costs if you finance rather than pay cash outright.
Set Financing Terms (Buy)
If financing the purchase, enter your down payment amount, loan interest rate, and loan term in months. Typical rates range from 4-10% depending on creditworthiness, lender, and the asset type. Equipment loans are often 5-7 years; vehicle loans 3-6 years. The calculator computes your monthly payment and total interest paid over the loan life, which factors into the total cost of buying.
Enter Lease Terms
Input the monthly lease payment, lease term (typically 24-60 months), required security deposit or upfront fees, and any end-of-lease options like buyout price. For vehicles, include the money factor (interest equivalent) if known. For equipment, note whether maintenance is included in the lease or separate. These figures determine your total lease cost for comparison.
Add Ownership Costs
Estimate annual maintenance, insurance, and operating costs under both scenarios. Ownership typically means you pay all maintenance, while some leases include maintenance packages. Property tax applies to owned assets in most jurisdictions. Don't forget fuel/energy costs if relevant. These ongoing costs can significantly shift which option is cheaper over the holding period.
Set Residual Value & Tax Rate
Estimate what the asset will be worth at the end of your analysis period (residual value). For vehicles, use guides like Kelley Blue Book; for equipment, estimate based on useful life and depreciation curves. Enter your marginal tax rate to calculate the value of depreciation and interest deductions for purchased assets. The tax benefit of ownership can be substantial for businesses.
After entering your data, the calculator shows a comprehensive total cost comparison. You'll see the total cash outflow for each option, the net after-tax cost (accounting for depreciation and interest deductions), the monthly equivalent cost, and the break-even point where one option becomes cheaper than the other. The results include a visual timeline showing cash flows under each scenario, making it easy to see how costs accumulate differently between leasing and buying over time.
Use sensitivity analysis to test different assumptions. What if the asset depreciates faster than expected? What if you need the asset for 2 years instead of 5? What if interest rates change? The calculator lets you quickly adjust inputs to see how different scenarios affect the optimal choice. This is especially valuable for major capital decisions where the difference between leasing and buying could be tens of thousands of dollars over the asset's life.
When Leasing Makes Financial Sense
Leasing is often the better choice when cash flow flexibility and avoiding obsolescence are priorities. For rapidly depreciating assets like technology equipment or vehicles in high-mileage use, leasing shifts the depreciation risk to the lessor. You pay for the decrease in value during your use period rather than bearing the full ownership loss. This can be particularly valuable when the asset will be worth significantly less than purchase price at the end of your intended holding period.
Cash Flow Preservation
Leasing requires less upfront capital. Instead of $50K down on a purchase, you might pay $1-2K security deposit. This preserves cash for revenue-generating investments like marketing, inventory, or hiring—particularly valuable for growing businesses.
Technology Refresh
For equipment that becomes obsolete quickly (computers, medical devices, certain manufacturing equipment), leasing lets you upgrade every 2-3 years without selling used equipment at a loss. You always have current technology without the disposal headache.
Leasing also offers predictable budgeting and off-balance-sheet treatment. Lease payments are fixed and known, simplifying cash flow forecasting and eliminating surprise repair costs if maintenance is included. Under ASC 842, most leases now appear on balance sheets, but operating leases still receive different treatment than owned assets for certain lenders and investors who focus on specific financial ratios. For businesses focused on returns on assets (ROA) or with debt covenants tied to owned asset levels, leasing can improve these metrics compared to asset-heavy balance sheets. This accounting treatment matters most for companies raising capital or negotiating credit facilities.
Consider leasing when you need flexibility or have uncertain future needs. If you might outgrow the asset, move locations, or pivot your business, leasing provides an exit at lease end without the transaction costs and hassle of selling. Buying locks you into the asset with potentially significant losses if you need to exit early. A 3-year lease on office equipment is lower risk than a purchase if you're not certain about 5-year needs. Early-stage startups with rapid growth plans often benefit from leasing flexibility—what seems like the right car, equipment, or office today may be completely wrong in 18 months.
The math particularly favors leasing when your cost of capital is high. If you're earning 20% returns on invested capital in your business, every dollar tied up in a purchased asset has significant opportunity cost. Leasing lets that capital work elsewhere. Conversely, if your cash is sitting in a savings account earning 4%, the opportunity cost argument for leasing is much weaker. Our calculator lets you input your actual cost of capital to properly weight this consideration in your decision. When capital is scarce and expensive, preserve it through leasing; when capital is abundant and cheap, ownership often makes more sense.
When Buying Makes Financial Sense
Buying typically wins when you plan to hold the asset long-term and it retains value well. The longer you use an asset, the more the upfront costs of purchase are spread across months of use, reducing the effective monthly cost. Assets that depreciate slowly (real estate, heavy equipment, certain vehicles) often cost less to own than to lease because the lessor bakes depreciation risk into lease payments. If you're confident about long holding periods and the asset maintains value, buying almost always wins the math.
Example: 5-Year Vehicle Comparison
In this 5-year scenario, buying saves $3,910—but requires $35K capital upfront versus minimal deposit for the lease.
Ownership also provides tax benefits that leases cannot match. Business owners can deduct depreciation (accelerated via Section 179 or bonus depreciation), deduct loan interest, and benefit from capital gains treatment on sale. Section 179 allows businesses to deduct the full cost of qualifying equipment purchases in year one (up to annual limits), rather than depreciating over multiple years. Bonus depreciation allows 60% first-year deduction on qualifying assets in 2024, stepping down in future years. These accelerated tax deductions can be worth 20-40% of the asset cost depending on your marginal tax bracket and depreciation method. The calculator models these deductions to show the after-tax cost of each option, often revealing that buying is significantly cheaper after tax benefits are included even when it looks more expensive on a pre-tax cash flow basis.
Ownership provides flexibility and equity building that leasing cannot replicate. You can modify owned assets however you want without lessor permission—add custom equipment, rebrand vehicles, upgrade interiors. You can sell at any time without early termination penalties if your needs change or a better asset becomes available. Every payment builds your equity position rather than simply covering usage rights that expire at lease end. For core business assets that you'll use for many years and that enable revenue generation, ownership often aligns incentives better than renting from a lessor who may not prioritize your business outcomes.
Consider buying when you have strong cash position or cheap debt financing available. If you can finance at 5% and earn 15% on alternative investments, the spread still works in favor of financing the purchase rather than tying up cash. If you're a creditworthy borrower with access to SBA loans, equipment financing, or mortgage rates, ownership costs can be very competitive with lease rates while building long-term equity. Low interest rate environments particularly favor buying since the carrying cost of ownership is reduced. Run both scenarios in our calculator to see how your specific financing terms affect the comparison.
Common Lease vs Buy Mistakes
1. Comparing Monthly Payments Instead of Total Cost
Leases almost always have lower monthly payments than loan payments for the same asset—that's the appeal. But lower monthly payments don't mean lower total cost. You must compare the full picture: all payments plus fees minus residual value for buying, versus all lease payments plus any end-of-lease fees or buyout costs. Our calculator ensures you're comparing apples to apples with true total cost figures.
2. Ignoring the Opportunity Cost of Capital
The $35K you put into buying a vehicle is $35K that can't earn returns elsewhere. If your business generates 15% ROI on invested capital, that $35K tied up in a vehicle has a $5,250/year opportunity cost. Leasing frees that capital for revenue-generating activities. Our calculator lets you input your cost of capital to properly weight this opportunity cost in the comparison.
3. Underestimating Lease-End Costs
Leases often have hidden costs at termination: excess mileage fees ($0.15-0.30 per mile over limit), wear-and-tear charges, disposition fees, and early termination penalties. These can add $2,000-5,000+ to what seemed like a good deal. Budget conservatively for these in your analysis, or you'll be surprised when the lease ends and bills arrive.
4. Forgetting About Tax Implications
Owned assets provide depreciation deductions that reduce taxable income. Section 179 allows immediate deduction of the full purchase price (up to limits), providing tax savings in year one. Lease payments are also deductible, but spread evenly over the lease term. For businesses with high taxable income, the accelerated depreciation benefit of buying can swing the math significantly—sometimes making buying thousands of dollars cheaper after tax even when it looks worse pre-tax.
5. Using the Wrong Holding Period
The optimal choice depends heavily on how long you'll use the asset. Buying wins big for 10-year holds; leasing often wins for 2-3 years. Using the wrong assumed holding period in your analysis leads to wrong conclusions. Be realistic about your actual needs—not optimistic about keeping things forever or pessimistic about change. Use scenario analysis with different holding periods to stress-test your decision.
Frequently Asked Questions
What discount rate should I use for comparing options?▼
Use your weighted average cost of capital (WACC) or the rate you could earn on alternative investments with similar risk profiles. For most small businesses, this is typically 8-15% depending on your industry, growth stage, and capital constraints. Venture-backed startups might use 20-25% given their high opportunity cost of capital. For individuals, use your expected investment return minus inflation—perhaps 5-8% for a balanced portfolio. Higher discount rates favor leasing because the capital tied up in a purchase has higher opportunity cost; lower discount rates favor buying since the carrying cost of ownership is reduced. If you're unsure about your exact cost of capital, run the analysis with both 5% and 12% discount rates to see how sensitive your decision is to this assumption. If the optimal choice flips between those two rates, spend more time refining your cost of capital estimate. If one option wins at both rates, you can be confident in that direction regardless of the exact discount rate.
How do I estimate residual value for my analysis?▼
For vehicles, use Kelley Blue Book, Edmunds, or similar established guides to find current values for similar-age vehicles with comparable mileage, then project forward using standard depreciation curves. Vehicles typically lose 15-25% in year one (with significant variation by make and model), then 10-15% annually thereafter. Luxury vehicles and specialty trucks often retain value better than economy cars. For equipment, consult industry resale guides, equipment auction results (Ritchie Bros, Purple Wave), or talk to used equipment dealers for comparable assets. Technology and electronics depreciate fastest—often 50%+ in year one; heavy machinery and industrial equipment depreciate slower and often has 10-15 year useful lives. When in doubt, be conservative with your residual estimate (assume lower resale value)—this makes buying look worse in your analysis, so if buying still wins with conservative assumptions, you can be confident in that direction.
Should I lease or buy my company vehicle?▼
It depends on usage patterns, financial situation, and personal preferences. High-mileage drivers (over 15,000 miles/year) often find buying substantially cheaper since lease mileage overage fees ($0.15-0.30 per mile) add up quickly and can turn a good deal into an expensive mistake. Low-mileage drivers who value having a new, warranty-covered vehicle every 2-3 years may prefer the convenience and predictability of leasing. Business owners should factor in Section 179 deductions—buying can provide significant tax benefits in year one that substantially reduce the effective cost of ownership. If you keep vehicles 5+ years, buying almost always wins on pure total cost analysis. Run both scenarios through our calculator with your specific numbers to get a definitive answer for your situation.
What about equipment with maintenance included in the lease?▼
Full-service leases that include maintenance can be attractive, especially for complex equipment where maintenance is expensive or uncertain. Calculate what you'd pay for maintenance separately if buying, then compare. Sometimes bundled maintenance is priced at a premium; other times lessors get volume discounts they pass along. Also consider whether the lessor's maintenance quality matches what you'd get independently. For critical equipment, maintaining control over service providers may outweigh cost savings from bundled maintenance.
How do I handle this for real estate?▼
Real estate is typically the strongest case for buying if you can afford it. Commercial property often appreciates (unlike vehicles/equipment that depreciate), lease payments don't build equity, and mortgage interest and depreciation provide substantial tax benefits. However, real estate also has transaction costs (5-6% to sell), requires large down payments, and locks you into locations. If you're uncertain about space needs or location for 5+ years, commercial leases provide flexibility. Our calculator handles real estate the same as other assets—input purchase price, loan terms, lease terms, and expected appreciation or depreciation to compare options.
Ready to Compare Your Options?
Run the numbers on your specific situation. Compare total cost of ownership, tax implications, and find your break-even point.
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