Lease or buy? Add up the true cash cost of each path — lease payments versus purchase price minus what the asset is worth at the end — and compare net cost over the same period.
The example
$400/mo lease for 36 months vs $20,000 buy with $8,000 resale.
| A | B | |
|---|---|---|
| 1 | Option | Net cost |
| 2 | Lease (36×$400) | $14,400 |
| 3 | Buy ($20k − $8k resale) | $12,000 |
The formula
Net cost of each path:
How it works
Put both on the same cash basis:
- Lease cost is the payment times the number of months (plus any down payment or fees).
- Buy net cost is the purchase price minus the asset’s value at the end of the term (resale/residual).
- If you finance the purchase, add the loan interest with
PMTso both options reflect cash actually spent. - Compare net costs over the same time horizon — a 36-month lease against 36 months of ownership.
Money has a time value. For a rigorous comparison, discount each option’s cash flows with NPV — a dollar paid in year 3 costs less than one paid today.
Try it: interactive demo
Compare lease and buy.
Variations
Add lease down payment
Include upfront cash:
Finance the purchase
Include loan interest:
NPV of each
Discount the cash flows:
Pitfalls & errors
Same horizon. Compare equal time periods, or the longer option looks artificially expensive.
Don’t forget residual value. Buying leaves you an asset worth something; ignoring resale overstates the cost of buying.
Include all fees. Lease acquisition/disposition fees and purchase taxes belong in the totals.
Practice workbook
Frequently asked questions
How do I compare leasing vs buying in Excel?
Should I include resale value when buying?
How do I account for the time value of money?
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