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Lease Vs. Purchase A Car
Before you can compare the options, you need to first decide if you want to lease or buy your next vehicle. Utilize this calculator to figure the most suitable option for you and estimate savings potential. Simply enter information on the price of purchase and down payment to calculate anticipated monthly payments and the total net cost.
Calculate your potential savings A big decision is whether to lease or purchase an automobile. This tool will calculate monthly payments and the total net cost. By comparing these amounts and between them, you can determine which one is best for you.
Definitions
PRICE OF BUY
The total cost of purchase. Price should be after any manufacturer’s rebate.
DOWN PAYMENT
A down payment, which for leases is often called capital reduction.
SALES TX RATE
Percentage sales tax to be imposed for the purchase. The sales tax will be included in each lease payment. Sales tax for buying is charged on the total purchase amount.
INVESTMENT RATE of RETURN
Rate of return on investments. This is the amount of money you would make in the event that you invested your down payment or security deposit instead of using it for your lease or auto purchase. The actual yield is dependent on the type of investments you select. The Standard & Poor’s 500(r) (S&P 500(r)) for the 10 years that ended on December 31 st 2016 had an annual compounded rate of return of 6.6%, including dividend reinvestment. From January 1, 1970 to December 31 st 2016, the average annual compounded rate of return for the S&P 500(r), including reinvestment of dividends, was approximately 10.3% (source: www.standardandpoors.com). Since 1970, the most impressive 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was just -43% (March 2008 through March 2009). Savings accounts at a financial institution may be able to pay 0.25 percent or less, but have a significantly lower risk of loss of principal balances. It is crucial to keep in mind the fact that all of these situations are only hypothetical and that the future rates of return cannot be predicted with confidence and those investments that earn higher rates of return generally have higher risk and greater volatility. The return on investments can vary widely over time, especially for investments that are long-term. This includes the potential loss of principal invested in your investment. It is not possible to invest directly in an index. The compounded rate of return noted above does not reflect sales charges and other fees that Separate Account investment funds and/or investment companies might charge.
LOAN TERM in MONTHS
Term in months for your auto loan. Typically this is 36 48, 60, 48 and 72. If you’re loan duration is more than the lease term and you want to evaluate the buy vs lease options prior to when the lease ends, and then we use the remainder of your loan term to calculate your remaining loan amount.
LOAN INTEREST RATE
Annual rate of interest on your loan.
OTHER FEES
Any fee, except for a capital reduction or down payment, must be paid at the moment of purchase. This can include license, title transfer fees, etc.
ANNUAL DEPRECIATION
The rate of depreciation is the speed at which your new car will lose its market value. The highest rate of depreciation is around 20 percent per year, a medium is 15% per year and the lowest is 10% per year.
MARKET VALUE OF VEHICLE
Value of your auto when the lease term is past.
NET COST OF BUYING
It is the total cost to purchase your car. This is calculated using: + Total up front costs (down payment + other costs) + Lost interest + Outstanding loan balance when lease expires. Market value of vehicle when lease expires = net cost of purchasing The lost interest on your purchase includes any interest you would have earned at the investment rate of return on the buy option’s down payments and any other charges. If the monthly payment for leasing is lower than the monthly payments to purchase, this includes any interest lost because of the larger monthly installments. In the event that leasing becomes more expensive than purchasing, your interest costs for buying are decreased by the amount of interest you’d earn on the difference.
LEASE TERM IN MONTHS
Term in months for your lease.
LEASE TERM IN MONTHS
Annual interest rate for lease.
Other FEES
Any fee, other than an capital reduction or a down payment, that is required to be paid upon the expiration to the term of lease. This may include license charges, title transfer fees and more.
Percentage of RESIDUAL
For leases, this represents the remaining value after the lease expires. The greater the amount the more affordable your lease payment will be.
SECURITY DEPOSIT
Security deposit that is refundable at time of lease. We will assume that this security fee will be fully refunded at the time the lease expires.
NET COST OF LEASE
It is the total cost you pay for leasing your car. This is calculated as total up-front expenses (capital reduction plus other charges) + Total lease payments + Lost rent = net cost of leasing The loss of interest from your lease includes the interest you could have earned at your investment rate of return on your lease’s security deposits, down payments, and other fees. See the definition of « Net cost of purchasing » for an explanation on how we account for any interest you might get from having the lease with a lower monthly payment.
How to calculate potential savings To determine whether purchasing or leasing your next vehicle is right for you, start by entering the vehicle information. This includes the price at which you purchase the vehicle, vehicle down payment along with the expected rates of sales taxes. After the calculator has collected those starting numbers check the net cost for leasing or buying the vehicle. Then , enter the anticipated term and the interest rates for both. The net cost of purchasing is calculated by adding upfront costs of the purchase — down payment, taxes and fees, loss of interest, along with the fair market value for the vehicle. Compare this number with the net cost of the lease which is the result of upfront costs, lease payment and interest paid on the lease. Check out the two numbers displayed on the graph to determine which option is less expensive.
Definitions of leasing and buying
Annual depreciation Rate The rate of depreciation gauges how fast your new vehicle will lose its market value. A high rate of depreciation is about 20% per annum, a medium is around 15 percent annually and the lowest rate is 10 percent per year.
Down payment Amount paid as a down payment that for leases is usually called capital reduction.
Investment rate of return Rate of returns on investments. This is the rate of return you would earn if would invest your down payment , or security deposit rather than using it in the purchase of your car or leasing. The actual rate of return for investments may vary over time, and this is especially true for investments that are long-term. This includes the possibility of losing of capital on your investment.
Lease interest rate Annual interest rate on your lease.
The lease term is in months. by months to be used for the car lease.
Interest rate on loans Annual interest rate applicable to your loan.
Loan term in months The duration in months for your auto loan. Typically this is 36 60, 48 (or 72) months. If you’re loan term is longer than your lease term and you want to compare buy and lease options with respect to the point at which the lease ends, and then apply the remainder of your loan time to compute your remaining loan amount.
Market value of vehicle Value of your car when the lease period is up.
Net price of leasing This is the total cost of leasing your vehicle. This is calculated as Total upfront costs (capital reduction plus any other charges) + the total amount of lease payments and lost interest on lease = Net price of lease. The loss of interest on leases includes the interest you could have earned based on your investment rate of return on the lease option’s down payment, security deposit , and other charges.
Net price of purchasing It is the total price of purchasing your vehicle. It is calculated using the following: Total upfront cost (down payment and other charges) + Lost interest + outstanding loan balance at time lease expires – market value of vehicle at time lease expires = net price of purchase The loss of interest from your purchase is any interest you might have earned based on your investment rate of return for the buy option’s initial down payment as well as other charges.
Other fees Any fee, other than a capital reduction or down payment, that is required to pay at time of purchase or close to the term of lease. This could include license fee for title transfer, license fees, and other costs similar to these.
Purchase price Total price of purchase. Price must be before any rebate offered by the manufacturer.
Residual percentage for leases it’s the value left after the lease term has ended. The greater the amount is, the less your lease payments will be.
Sales tax rate Percentage sales tax to be charged on this purchase. Sales tax is included in every lease payment. Sales tax for buying is imposed on the entire value of the sale.
Security deposit Deposit for security that is refundable to be paid at the date of the lease. We presume the deposit is fully refunded by the time the lease expires.
Do you prefer to lease or purchase an automobile? The decision to purchase or lease your next car depends on how many distance you plan to travel and the amount you’re willing to invest. There is no golden guideline when it comes to choosing the best car, but it more often, it is a matter of reflection on your lifestyle and financial budget. The cost of a car will be less monthly and offers you the chance to drive in the direction of a nicer car. However, it comes with mileage limitations and limitations on the limits of the vehicle. You are in complete control of your vehicle, so you won’t have to be concerned about keeping an eye on the odometer or additional charges for vehicle wear-and-tear.
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