The Math Behind the Payment
Staring at a monthly payment quote at a dealership doesn't actually tell you much. Car salesmen often negotiate based on the monthly payment, obscuring the true cost of the vehicle. We calculate your Total Cost of Ownership using the standard amortization formula.
When you finance a car, your monthly payment is a combination of paying down the principal and paying interest to the lender. Our calculators break this down so you can see exactly where your money goes. If you choose to lease instead, you are essentially financing the car's depreciation over the lease term plus a rent charge (money factor).
Monthly Payment = P [ r(1 + r)^n ] / [ (1 + r)^n - 1 ]
P = Principal Loan Amount
r = Monthly Interest Rate (Annual Rate / 12)
n = Total Number of MonthsLease vs Buy Matrix
Many drivers wonder whether it's more efficient to buy a car or lease one. Using standard depreciation and interest rates, we can plot the estimated total out-of-pocket costs for a $35,000 car over different ownership periods.
| Ownership Period | Lease Cost (Total) | Buy Cost (Total - Equity) | Better Option |
|---|---|---|---|
| 3 Years | ~$18,500 | ~$20,000 | Lease |
| 5 Years | ~$31,000 | ~$25,500 | Buy |
| 7 Years | ~$44,000 | ~$31,000 | Buy |
| 10 Years | ~$62,000 | ~$38,000 | Buy |