Buy vs Lease a Car:
The 2026 Break-Even Calculator

Lease cost is not just the monthly payment. It is monthly payments plus acquisition fee at each cycle start plus disposition fee at each cycle end plus any mileage overage at turn-in. Across a 7-year horizon with two 3-year leases and one current cycle, those fees add up to $1,800 or more on top of payments.

Buy cost is monthly loan payments minus the equity you have built. Equity equals the car’s current market value minus the remaining loan balance. In the first 18 months of a long loan, equity can be negative (you owe more than the car is worth). By year 4 to 5 at prime APR, most buyers are meaningfully positive.

The break-even year is the point at which buy net cost (cumulative payments minus equity) first falls below cumulative lease cost. Before that crossing, leasing has been cheaper month by month. After that crossing, buying is cheaper in total.

The calculator handles lease cycling (acquisition and disposition fees at each 3-year turn), standard amortisation for the loan, and a simplified MSRP depreciation curve (20% year 1, 15% year 2, 10% years 3 to 5, 7% years 6 onward). Business and EV toggles add the relevant tax adjustments.

Short horizon drivers. A 36-month lease is designed exactly for this: the lessee pays for the steepest part of the depreciation curve (years 1 to 3), then walks away. A buyer over the same 3 years would owe roughly $18,000 on a $40,000 car while the car is worth approximately $22,000 - a net position of negative $8,000. The lessee paid $18,000 in rent and has no car and no debt. Over 3 years the numbers are similar, but the lessee has no residual risk. Horizon guide →

Low mileage drivers. Under 10,000 miles per year, the car depreciates slower than the standard residual assumes. The captive is pricing the lease on a 12,000-mile depreciation curve; if you drive 8,000 miles, the car retains more value at turn-in than the residual suggests. You pay a low monthly payment calculated on a high residual. Meanwhile a buyer builds equity more slowly because the car is worth more, but also faces a lower loan payoff at the same pace. The lease is structurally efficient. Mileage guide →

Business deduction users. Lease payments are a deductible business expense under the actual-expense method, proportional to business use. A $650/month lease payment at 80% business use means $520/month of deductible expense. At a 24% marginal rate, that is $124.80 of tax savings per month, or $1,497.60 per year. The equivalent math for a purchased vehicle runs through Section 179 and depreciation, which front-loads the deduction in year 1 but may be less flexible for vehicles under 6,000 lbs GVWR. Business guide →

Long-hold drivers. Once a 60-month loan clears, the buyer drives a free car. A $40,000 vehicle with a 5-year loan at prime APR has $0 payment from year 6 onward. Two consecutive 3-year leases over the same period cost $36,000 to $42,000 in payments with no residual asset. Over 10 years, buying the same vehicle typically saves $12,000 to $22,000 in total outlays. Horizon guide →

High mileage drivers. Mileage overage fees of $0.15 to $0.30 per mile are pure cost at lease-end. A driver who does 15,000 miles per year on a 12,000-mile lease turns in 9,000 excess miles over 3 years. At $0.25 per mile, that is $2,250 added to the lease total - effectively raising the monthly cost by $62.50. A buyer at 15,000 miles per year takes steeper depreciation but faces no penalty and keeps the resale value. Overage fee guide →

Equity-motivated owners. Buying builds an asset, however slowly. At year 5 on a 60-month loan, a well-maintained $40,000 vehicle is worth approximately $18,000 to $22,000 and is fully owned. That asset can be traded in, sold privately, or handed to a family member. A lessee at the same point has been paying $500 to $650 per month and has nothing to show for it other than the depreciation they paid for - which is exactly what they should have paid, but the equity argument favours buyers who care about net worth.

On 30 September 2025, the Inflation Reduction Act’s Section 30D new-EV credit and the Section 45W commercial clean vehicle credit both expired. The Section 45W credit was the mechanism behind the “EV lease loophole” - the captive lessor claimed the $7,500 credit and passed it through as a cap-cost reduction, effectively giving any lessee a $7,500 break regardless of income or US-assembly requirements. That loophole is gone.

The One Big Beautiful Bill Act (OBBBA), signed in 2025, replaced it with a different structure: up to $10,000 per year of auto-loan interest is deductible above-the-line (no itemising required) on loans for US-assembled new vehicles originated between 1 January 2025 and 31 December 2028. This applies only to personal-use purchases, not to leases and not to business vehicles. Income phase-out begins at $100,000 MAGI for single filers and $200,000 for joint filers.

The practical implication: for US-assembled EVs in 2026, the tax-credit argument that made leasing the automatic choice throughout 2023 and 2024 has inverted. Purchasing is now the more tax-efficient path for eligible buyers. For non-US-assembled EVs, neither the IRA credit nor the OBBBA deduction applies, so the decision reverts to pure lease-vs-buy economics. Full EV guide with OBBBA detail →