Lease versus buy
Two structures, side by side, with what each one leaves you holding at the end of the same number of months.
This page does not name a cheaper option
The two columns answer different questions. One is what it costs to use the vehicle for 36 months. The other is what it costs to own it, and what you are holding when the term ends. Which one suits you turns on how long you keep vehicles, how far you drive and what you want at the end, and none of those is arithmetic.
A lease is taxed on each monthly payment as it is made. CDTFA Regulation 1660. A purchase is taxed once, on the price, at signing. On a $42,000 vehicle at 8% that is $3,360 on day one against $46 a month on the lease. The gap between the two widens as the vehicle gets more expensive, which is why the structures diverge most at the top of the market.
Acquisition and disposition charges, and anything owed for mileage over the allowance or for wear beyond the contract. Each varies by lender and by contract, so none of them is estimated here. The purchase side carries no registration charges either. Those are on the out-the-door page, where they are itemised against the statute that sets them.
How this is calculated
A lease payment is two charges. Depreciation is the capitalized cost less the residual, spread over the term. The rent charge is the money factor applied to the sum of the capitalized cost and the residual. California taxes the total of the two, month by month.
A purchase is taxed once, on the price, at signing. That single difference is why the gap between the two widens as the vehicle gets more expensive, and it is the reason a lease and a loan on the same car are not the same tax event.
The end of the term is where the two stop being comparable. A lease ends with nothing owned. A loan held the same number of months ends with a vehicle worth something and possibly a balance against it.
This page stops there. Which structure suits a given buyer turns on how long they keep vehicles, how many miles they drive and what they want at the end, and none of those is arithmetic.
A worked example
A $42,000 vehicle over 36 months
- Vehicle price
- $42,000
- Lease: residual 58%, factor .00275, $3,000 at signing
- $629 a month, taxed monthly
- Lease at the end of 36 months
- Nothing owned
- Purchase: 6.9% over 36 months, $3,000 down
- $1,309 a month, taxed once at signing
- Purchase at the end of 36 months
- A vehicle worth about $25,800, nothing owed
The two columns answer different questions. One is what it costs to use the car for three years. The other is what it costs to own it.
What this assumes
- Both sides start from the same negotiated vehicle price.
- A California lease is taxed on the monthly payment. A purchase is taxed once, on the price. CDTFA Regulation 1660.
- The lease side excludes acquisition, disposition and any mileage charge, because those vary by lender and by contract.
- The purchase side carries no registration charges. Use the out-the-door calculator for those.
- The end-of-term value is a stated assumption drawn forward, not an appraisal.
- This page does not name a cheaper option. The two are not the same transaction and what you hold at the end differs.
Where these figures come from
California taxes a lease on each monthly payment and a purchase once on the price. CDTFA Regulation 1660. Every other figure here is arithmetic over the terms you enter, so nothing on this page is transcribed from a schedule.
Reviewed by Andrea Nanigian, California licensed auto broker.
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