Automobile Lease vs Purchase Analysis
| AUTOMOBILE LEASE VERSUS PURCHASE ANALYSIS | |||
|---|---|---|---|
| Name | www.calculatormine.com | Date | June 20, 2024 |
| Item | Description | Amount | |
| LEASE | |||
| 1 | Initial Payment | ||
| a. Down Payment (capital cost reduction) | $2,900.00 | ||
| b. Security Deposit | $500.00 | ||
| $3,400.00 | |||
| 2 | Term of lease and loan (years) | 4 | |
| 3 | Term of lease and loan (months) | 48 | |
| 4 | Monthly lease payment | $440.00 | |
| 5 | Total payments over term of lease | $21,120.00 | |
| 6 | Interest rate earned in savings | 0.03 | |
| 7 | Oportunity cost of initial payment | $408.00 | |
| 8 | Payment/Refund for market value adjustment at end of lease ($0 for closed-end leases) and/or estimated end-of-term charges | $0.00 | |
| 9 | Total cost of leasing | $24,428.00 | |
| PURCHASE | |||
| 10 | Purchase price | $29,990.00 | |
| 11 | Down payment | $4,500.00 | |
| 12 | Sales tax rate (in decimal form) | 0.05 | |
| 13 | Sales tax | $1,499.50 | |
| 14 | Monthly loan payment (Terms: $25,490.00, 48 months, 4%) | $575.54 | |
| 15 | Total payments over term of loan | $27,625.92 | |
| 16 | Opportunity cost of down payment | $540.00 | |
| 17 | Estimated value of car at the end of loan | $16,500.00 | |
| 18 | Total cost of purchasing | $17,665.42 | |
| DECISION | |||
| BUY | |||
| *Note: This form is based on assumed equal terms for the lease and the installment loan, which is assumed to be used to finance the purchase | |||
Description
To decide whether it is less costly to lease rather than purchase a car, you need to perform a lease versus purchase analysis to compare the total cost of leasing to the total cost of purchasing a car over equal periods. In this analysis, the purchase is assumed to be financed with an installment loan over the same period as the lease.
How to use this Automobile Lease vs Purchase Calculator ?
To use this calculator, you must have some basic information about the car. After plugging these in, you’ll be given the estimate of how much you’ll pay to lease a car vs buy it.
Lease Down Payment:
Enter $2,900 as the downpayment of the lease, which is also called capital cost reduction. Your input should be greater than 0.
Security Deposit:
Enter a security deposit of $500. Your input should be greater than 0.
Terms of Lease:
Enter 48 months if you like to lease for 4 years. This value should be atleast one month.
Monthly Lease Payment:
Your dealer should tell you what the monthy lease payment is going to be. Let’s assume your monthy lese payment is $440.
Investment Return:
This is an investment return that you can earn elsewhere. For example, you can invest your money in S&P500 index, 5 or 10 years treasury bonds, savings, or CDs. In todays economic environment (year 2023), the risk free interest rate that you can earn in 10 years US treasury is close to 5%. Let’s assume that you could invest your lease down payment at US risk free inte rest rate instead of leasing the car. This can be considered your opportunity cost. Therefore, you can enter 5% in this field.
Payment/Refund:
The maojoriy of car lessees choose the closed - end lease, often called the walk - away lease, because at the end of its term you simply turn in the car, assuming that you have neither exceeded the preset mileage limit nor abused the car. Enter 0 if this is the case or enter estimated end-of-term charges.
Purcahse Price of your car:
Enter the price of the car if you like to buy outright. We assume that you can buy the car for $29,990.
Down Payment:
Enter the amount that you like to pay as a down payment if you are to buy this car. You can enter $4,500 as your down payment.
Sales Tax:
This number depends on the state in which you are buying this car. Basically, this is the sales tax rate if you are to buy this car now.
Interest rate on car loan:
If you are to buy this car using dealr or bank financing, what is the borrowing interest rate? This is simply your loan rate.
Terms of your car loan:
If you like a better comparison between lease and buy, both lease term and loan term should equal. However, you can change loan term. In that case,estimated value of car should be after the lease term ends.
Estimated value of car at the end of loan:
To find your estimated value of car at the end of loan term, you can use our automobile depreciation calculator:
Automobile Depreciation
If lease term and loan terms are equal, use estimated value of car at the end of loan. If lease term is smaller than loan term, use estimated value of car at the end of lease term.
This way you can have better comparison. Once you entered all the numbers as stated above, click on “Calculate” button to see which option is benefital for you.