5. The lease versus purchase analysis - Part 2 Which Is Better: To Lease or To Buy? A car buyer has two financing alternatives to lease or to purchase. It is important to evaluate all the options and analyze the consequences of lease versus purchase decision The understanding of a comparative worksheet that analyzes the automobile lease versus purchase decision will help in making an informed choice How should a lease-versus-purchase analysis be conducted? How can this worksheet be applied to help you or someone else make their financing decision? Consider the following scenario Should Mal Lease or Purchase? Mal is considering the purchase of a Ford F-150 Pickup and has negotiated a final price of 527,690. Shey trying to decide whether to lease or purchase the vehicle If she cases, she'll have to pay a $500 security depost, a capital cost reduction (down payment) equal to 10% of the vehicle's cost, and monthly payments of $375 over the four year term of the dosed-end lease the truck will have a residual value of $11,076 . On the other hand, it se buys the truck she'll have to make a 10% down payment pay sales tax equal to 8% of the vehicles price and make monthly payments or 5563 on a fouryear loan that changes interest De aware that funds was down payments and secunty deposits incur an opportunity cost of at they could have earned terest for Mat over the period of tree or lo Amount ($ LEASE Item Description Initiat Payment la Capital Cost Reduction 1b. Security Deposit 1c. Total Initial Payment 2 Number of Months in Lease 3. Monthly Lease Payment 4 Total Payments over Lease Term 5 Opportunity Cost of Initial Payment 6 Estimated End-of-Term Charges 7 Total Cost of Leasing PURCHASE 8 Purchase Price Down Payment 10 Sales Tax on Purchase 11 Monthly Loan Payment 12 Total Payments over Term of loan Opportunity Cost of Down Payment Estimated Vehice Value at End of loan Total Cost of Purchase 0.00 $ 9 14 acer S Dll 0 A @ % A & Based on this analysis, Mal should Use the lease to purchase the truck, because its total cost is greater than the total cost of a purchase transaction Use the lease to purchase the truck, because its total cost is less than the total cost of a loan transaction y use the loan to purchase the truck, because its total cost is less than the total cost of a lease transaction