Back to Assignment Attempts Average/3 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 Jacques lease or purchase? Jacques is considering the purchase of a Porsche Boxster and has negotiated a final price of $48,100. He's trying to decide whether to lease or purchase the vehicle. If he leases, he'll have to pay a $500 security deposit, a capital cost reduction (down payment) equal to 10% of the vehicle's cost, and monthly payments of $652 over the four-year term of the closed-end lease. The Porsche will have a residual value of $19,240. On the other hand, if he buys the Porsche, he'll have to make a 10% down payment, pay sales tax equal to 5% of the vehicle's price, and make monthly payments of $977 on a four-year loan that charges 4% interest. Be aware that funds used as down payments and security deposits incur an opportunity cost of 3%, as they could have earned interest for Jacques over the period of the lease or loan.