You are considering whether or not to buy a car and finance it through your bank or to lease it through GMAC. The bank currently charges an interest rate of 8.5% (use 8.5% and monthly compounding throughout this problem) and if you buy with bank financing you will be making 5 years of monthly payments of $250 per month and you are required to make a down payment of $2,500. If you lease the car you will pay $0 down and $225 a month for 5 years and at the end of 5 years you then must pay an additional $6,000 balloon payment. Is it cheaper to lease or to buy? By how much?

Answer rating: 100% (QA)

It is cheaper to lease the car by approximately 1144914 over the five year term Heres a breakdown of the costs for each option Buying the car Down pay... View the full answer