How Lease Payments Are Calculated from Depreciation
When you lease a car, you are essentially buying the depreciation portion of a vehicle’s value -- you pay for the value the car loses during the lease term and then return it. Understanding this framing makes the lease vs buy decision much clearer: leasing makes sense when a vehicle depreciates significantly (luxury cars, high-depreciation models) and buying makes sense for low-depreciation vehicles you plan to keep long-term.
Lease vs buy depreciation comparison by vehicle type
| Scenario | Vehicle Price | 3-Year Lease Cost | 3-Year Own Cost (then trade) | Winner |
|---|---|---|---|---|
| High-depreciation luxury sedan | $60,000 | $28,000 | $36,000 (60% depreciation) | Lease |
| Low-depreciation truck | $45,000 | $22,000 | $15,300 (34% depreciation) | Buy |
| Economy car, keep 3 years | $25,000 | $10,500 | $9,250 (37% depreciation) | Buy (marginally) |
| Economy car, keep 10 years | $25,000 | N/A (must re-lease) | $2,500 (10% yrs 5-10) | Buy (strongly) |
A car lease payment is primarily the monthly cost of the depreciation you are consuming during the lease term. A vehicle that drops $15,000 in value over a 36-month lease costs $417/month in depreciation alone before any financing, taxes, or fees. High-depreciation vehicles have higher lease payments for this reason.
The Residual Value: Heart of a Lease Deal
- Lease payments = (capitalized cost - residual value) / term + rent charge
- High-depreciation vehicles (luxury cars) have high lease payments relative to purchase price
- Low-depreciation vehicles (trucks, Toyotas) have high residuals -- leases are proportionally more expensive vs buying
- Mileage limits in leases mean you pay a penalty for driving beyond the built-in miles
- Buying and keeping 7+ years eliminates all depreciation as a cost -- the vehicle is fully depreciated by the buyer
When Leasing Beats Buying on Depreciation Math
Use the car depreciation calculator to estimate your vehicle’s current and future market value based on make, model, year, mileage, and condition.
Calculate Your Car’s Depreciation
Enter your vehicle details to see current value, projected future value, and annual depreciation cost.