Ross Rondeau

Why I Built This: The Question Is Not Buy or Lease

Every car decision gets framed as buying versus leasing, and framed that way it has no answer. The real variable is how long you intend to keep the car. Pay cash and you own every dollar of the risk on day one. Take a loan and you spread that risk while paying for the privilege. Lease and you defer the decision entirely, which is worth something, and pay a premium for the option, which costs something.

This calculator holds the vehicle constant and moves the hold length, because that is the input that actually decides the answer.

How The Model Works

1. Everything is present value. Future money is discounted at a rate you set. That discount rate is also the opportunity cost of paying cash, which is why there is no separate line item for it. Money spent on a car is money not invested.
2. Financing costs the spread, not the interest. A loan taken at exactly your discount rate is free in present value terms, because the payments you make later are worth what the cash you kept can earn in the meantime. What a loan actually costs is the gap between its APR and your discount rate. Borrow at roughly 7.5 percent against a discount rate of roughly 4.8 percent and a five year loan on a $35,000 car pays about $7,100 in nominal interest but only about $2,200 once discounted. This is why the cash and loan lines on the chart sit close together. They are close because the decision genuinely is close, not because the model has collapsed them into one. To read that gap directly rather than squint at it, the chart defaults to plotting every path as its cost above paying cash, which puts the difference on an axis scaled to the difference. The perspective toggle above the chart switches to cumulative totals whenever you want to see full cost curves.
3. Depreciation is anchored to real data, not assumed. Each vehicle's decline rate is solved from its own ten year resale value, so a car that holds its value is modeled as holding its value.
4. Miles matter as much as years. The resale basis assumes 10,000 miles per year. Above that, resale value is docked. Past 110,000 miles or twelve years, whichever comes first, resale floors at scrap value and repair costs escalate.
5. The lease-end buyout price can be estimated or entered directly. A bank sets the residual at signing as a share of the price. By default, the calculator estimates it from an adjustable 36-month market percentage, declining for longer terms and applying an electric vehicle adjustment. If you have a real lease contract or quote, switch the toggle to Exact Contract to enter your stated buyout price directly, which displays the effective residual percentage and avoids conflicting inputs.
6. Buying outright and leasing then buying out converge. Once you have bought the car, the two paths own the same vehicle at the same age, so their costs run parallel from that point on. The gap between them is decided entirely in the first few years, which is why the crossover on the chart is drawn against repeat leasing, the one strategy that never stops costing money.
7. Repairs are a path difference, not a wash. A leased car is under warranty for its whole life. An owned car is not. That is the strongest honest argument for leasing, and the model gives it full weight. In the real world, maintenance arrives in lumpy spurts (a set of tires at 45,000 miles, brake pads and rotors at 60,000 miles, suspension or alternator at 90,000 miles). The model translates these intermittent spikes into an annual actuarial expected value starting at $900 in year four, compounding at 1.15x per year and stepping up 1.6x past 110,000 miles. Discounted to present value, this steady compounding annuity yields mathematically equivalent present value to the lumpy cash outlays of real-world ownership.
8. What happens at lease end is your choice, not an assumption. Lease again, buy it out with a loan, buy it out in cash, or hand it back and stop. Each rewrites the comparison.
9. Monthly cost is presented in two tiers. The calculator separates pure vehicle ownership cost (down payment, loan payments, lease payments, and discounted terminal resale) from operating overhead (fuel, insurance, annual registration, and compounding post-warranty repairs/tires). The vehicle-only card reveals your true net car payment after recouping the discounted sale of the car, while the all-in card reflects full household cash flow.

How Every Number Is Calculated

Net Vehicle Monthly Cost

This card isolates the pure capital cost of acquiring, financing, and selling the vehicle, completely separate from ongoing running costs like fuel and insurance:

1. Cash Path:
2. Upfront Outlay: Negotiated purchase price plus your state sales tax and dealer documentation fees.
3. Resale Credit: What you sell the car for at the end of your hold (e.g. $16,000 at 10 years), discounted to present value (about $10,021).

4. Monthly Math: (Upfront Outlay - Resale Recovery) / Total Months Held. On a $35,000 car held for 10 years (120 months), the $10,021 resale credit knocks $84/mo off your capital cost, dropping net vehicle outlay to $189/mo to $232/mo.

5. Loan Path:

6. Financing Schedule: You pay a down payment at signing and monthly loan installments for your loan term (e.g. 60 months).
7. Hold Horizon Averaging: Payments cease once the loan is paid off. Across a 10-year hold, months 61 through 120 carry zero loan payments.
8. Resale Credit: When you sell the car, you pocket the resale proceeds minus any remaining loan balance.

9. Monthly Math: (Down Payment + Total Loan Payments PV - Resale Recovery PV) / Total Months Held.

10. Lease Path:

11. Contract Outlay: Due at signing (first month payment plus capitalized cost reduction) plus contract monthly lease payments and acquisition/disposition fees.
12. Zero Terminal Equity: When you hand the keys back at lease end, you own nothing. There is zero resale value to offset your outlays.
13. Repeat Leasing: Over a 10-year hold, repeat leasing means cycling through roughly 3 consecutive leases, continually paying for brand-new vehicle depreciation with no equity retention.

Total Cost Per Month (All-In)

This card reflects complete household monthly cash flow by combining net vehicle capital with real-world operating expenses:

• Net Vehicle Cost: The capital outlay calculated above.
• Fuel or Energy: Derived from your annual mileage, the vehicle's combined MPG (or MPGe for electric vehicles), and regional fuel/electricity rates: (Annual Miles / MPG) * Fuel Price / 12.
• Insurance & Registration: Annual full-coverage comprehensive and collision policy plus state motor vehicle registration fees. Leased vehicles include a modeled insurance premium for required higher liability limits and gap coverage.
• Post-Warranty Repairs: A leased vehicle remains under factory warranty throughout its term. For owned cars, maintenance and repairs compound annually after the 3-year warranty expires, reflecting tires, brakes, suspension, and aging mechanical components based on AAA actuarial driving data.

Why Everything Is Present Value (Opportunity Cost Explained)

If someone offers you $10,000 today or $10,000 in ten years, you would choose today. Why? Because $10,000 invested today in a safe treasury or index fund earning 4.8% will grow to over $16,000 in ten years. Conversely, having to pay $10,000 ten years from now only requires setting aside roughly $6,260 today.

In this model: - Discount Rate: Your opportunity cost of capital (how much money earns when invested rather than spent). - Cash Opportunity Cost: Paying $37,750 cash for a car upfront means that entire sum stops compounding in your investment accounts on day one. - Financing Spread: When you take a loan at 7.48% APR while your discount rate is 4.79%, the real economic cost of financing is not the total nominal interest; it is the 2.69% spread between borrowing cost and investment yield.

The Four Buyer Profiles

Rather than treating every car buyer as an identical actor facing a generic coin flip, the model identifies four distinct economic buyer profiles:

1. Cash Optimizer: Long hold horizon (10+ years), standard unsubsidized interest rates (6.99% to 7.47%) exceeding safe yields (4.70%), and unsubsidized vehicles (such as the Volkswagen Taos, Chevrolet Trailblazer, or GMC Acadia). When borrowing carries negative interest spread, paying cash avoids interest drag and eliminates lease transaction friction.
2. Promotional Financer: Subsidized promotional loan APRs (such as 0.90% APR versus a 4.70% safe opportunity yield). Because the borrowing rate sits well below the yield earned by keeping capital invested, financing creates positive interest arbitrage, making a loan cheaper than cash across all horizons.
3. Subsidized Lease Buyout: Vehicles supported by captive finance subvention (discounted capitalized cost, below-market money factors, or inflated contractual residual values). Deferring the buyout price over the 36-month lease keeps capital compounding in safe yield, making Lease Buyout cheaper in present value than both Cash and Loan.
4. Short-Term Lessee: Short hold horizon (3 years), low annual mileage (10,000 miles per year), and a preference for constant bumper-to-bumper factory warranty coverage. For this driver, repeat leasing avoids out-of-warranty repairs and eliminates depreciation tail risk.

Real-World Proof: The 2026 Toyota Camry LE Hybrid TFS Lease Offer

Manufacturer captive finance programs often make leasing then buying out the mathematically dominant acquisition strategy. Under the 2026 Toyota Financial Services (TFS) lease terms for the Toyota Camry LE Hybrid:

• Contract Terms: MSRP $32,739, net capitalized cost $27,917, contractual residual $22,590 (69.0%), $3,999 due at signing, and $299 per month for 36 months.
• Present Value Advantage: At 3 years, Lease Buyout ($20,072 PV) beats Loan ($21,422 PV) by $1,350. At 10 years, Lease Buyout ($52,639 PV) beats Loan ($54,237 PV) by $1,598, while deferring the $23.7k buyout narrows the cash gap to just $177 PV.
• Catalog Champions: In heavily subvented captive programs, the spread widens further. The Toyota RAV4 Hybrid saves $2,874 PV versus Cash and $5,204 PV versus Loan. The Toyota Grand Highlander Hybrid saves $5,986 PV versus Cash and $8,663 PV versus Loan.

Ranking Vehicles By What You Value

The table scores every vehicle on four axes: cargo volume, efficiency, purchase price, and the monthly cost the model computes for it. You set the weights. The defaults, 20 percent volume, 40 percent efficiency, 30 percent price, and 10 percent monthly cost, come from my own spreadsheet, which was built for a household that needed all-wheel drive and cared most about fuel cost. Your weights will differ, which is the point.

What This Does Not Model

Trade-in equity from a car you already own, credit-tier variation in the offered rate, negotiated lease money factors, state by state registration and tax differences beyond a single adjustable rate, and the resale premium some colors and trims command. Insurance is a single annual figure with a percentage premium for leases, not a quoted rate. The lease-end buyout residual is modelled as a declining percentage of price, not a lender's residual table, so it will differ from a real payoff quote, which is why it is adjustable rather than fixed.

Sources

Fuel price defaults come from the EIA gasoline and diesel fuel update. Combined efficiency ratings and the 33.7 kWh per gallon equivalent used for electric vehicles follow fueleconomy.gov and the Alternative Fuels Data Center. Insurance, maintenance, repair, and tire baselines come from AAA Your Driving Costs. Electric vehicle purchase incentives are described by the IRS clean vehicle credit guidance and are not built into the model.

Vehicle level figures come from my own research: efficiency ratings and ten year resale values from Kelley Blue Book, lease terms from Edmunds, captured in the planner workbook this page is built from. Both sites block automated requests, so they are credited here rather than linked.