1. What are some basic purchasing guidelines that the Harrisons should consider when choosing which new car to buy or lease? How can they find the information they need?
2. How would you advise the Harrisons to research the lease-versus-purchase decision before visiting the dealer? What are the advantages and disadvantages of each alternative?
3. Assume that the Harrisons can get the following terms on a lease or a bank loan for the car, which they could buy for $17,000. This amount includes tax, title, and license fees.
• Lease: 48 months, $245 monthly payment, 1 month’s payment required as a security deposit, $350 end-of-lease charges; a residual value of $6,775 is the purchase option price at the end of the lease.
• Loan: $2,000 down payment, $15,000, 48-month loan at 5 percent interest requiring a monthly payment of $345.44; assume that the car’s value at the end of 48 months will be the same as the residual value and that sales tax is 6 percent. The Harrisons can currently earn interest of 3 percent annually on their savings. They expect to drive about the same number of miles per year as they do now.
a. Use the format given in Worksheet 5.1 to determine which deal is best for the Harrisons.
b. What other costs and terms of the lease option might affect their decision?
c. Based on the available information, should the Harrisons lease or purchase the car? Why?