Lease vs Buy Calculator
Compare leasing versus buying with NPV analysis. See the true total cost of each option including payments, maintenance, insurance, and resale value.
What are you comparing?
Lease Option
Buy Option
Analysis Settings
Leasing is More Cost-Effective
Based on NPV analysis, you save $5,615 (18.4% less) by choosing to lease over a 60-month period.
Lease Best
Buy
Cumulative Cost Over Time
Understanding NPV Analysis
Net Present Value helps compare costs that occur at different times
Time Value of Money
A dollar today is worth more than a dollar next year. NPV converts all future cash flows to today's value using a discount rate, allowing fair comparison of options with different payment timing.
Discount Rate
Use your cost of capital or expected investment return. If you could invest spare cash at 8%, use 8% as your discount rate. Higher rates favor leasing since they reduce future savings from ownership.
Residual Value
When buying, the asset retains some value at the end. This resale value reduces your net cost of ownership. Leasing means you return the asset with no residual benefit (unless you buy it out).
Total Cost Comparison
Beyond payments, include all costs: insurance, maintenance, repairs, taxes. Some lease agreements include maintenance, while ownership puts all costs on you. Factor these into your analysis.
Key Decision Factors
Consider these factors beyond just the numbers
When Leasing Makes Sense
- Need to preserve cash for other investments
- Technology changes rapidly (avoid obsolescence)
- Maintenance is included in lease terms
- You want to upgrade to newer models regularly
- Full lease payments are tax deductible
When Buying Makes Sense
- You plan to use the asset for many years
- Strong resale value expected at end of use
- You want full control and ownership rights
- Lower total cost over the asset's life
- Depreciation tax benefits outweigh lease deductions
How This Calculator Works
A step-by-step breakdown of the NPV analysis
Enter Asset Details
Input the purchase price, lease terms, and expected holding period. Select your asset type to see relevant defaults for maintenance and insurance costs.
Set Your Discount Rate
Use your cost of capital or expected return on alternative investments. A 6-10% rate is common for most businesses. This converts future costs to present value.
Include Operating Costs
Add monthly maintenance and insurance costs for buying. Note that some leases include maintenance. These ongoing costs significantly impact total ownership cost.
Compare NPV Results
The calculator shows NPV for both options, accounting for payment timing, operating costs, and resale value. The lower NPV represents the more economical choice.
Pro Tips for Your Analysis
- Get actual quotes from dealers and lessors before final analysis
- Research realistic resale values for your specific asset
- Consider lease-end options: return, buyout, or new lease
- Factor in opportunity cost of down payment capital
- Check if lease has mileage limits or wear penalties
- Consult a tax advisor for depreciation vs. lease deduction
Frequently Asked Questions
How do I decide whether to lease or buy?
Consider: (1) Cash flow - leasing has lower monthly costs, (2) Total cost - buying often costs less long-term, (3) Flexibility - leasing allows upgrades, (4) Tax implications - different deduction rules apply, (5) Usage - high-use assets may be better to own. Use NPV analysis to compare true costs.
What discount rate should I use?
Use your cost of capital or expected return on alternative investments. Common rates are 6-10% for businesses. If you would invest spare cash at 8% return, use 8% as your discount rate. Higher discount rates favor leasing since they reduce the value of future savings from ownership.
What costs should I include?
Include all costs: For leasing - monthly payments, down payment, fees, insurance, maintenance not covered. For buying - purchase price, loan interest, insurance, maintenance, repairs, and subtract resale value. Operating costs like fuel apply to both and may cancel out.
How does residual value affect the decision?
Higher residual value favors buying because you recover more of your investment when you sell. Vehicles and equipment depreciate faster, while property may appreciate. If resale value is uncertain, leasing removes that risk.
What about tax considerations?
Lease payments are typically 100% deductible as a business expense. When buying, you can deduct depreciation and loan interest. Section 179 allows immediate expensing for some purchases. Consult a tax professional for your specific situation.