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Lease Vs. Buy A Car
Before you can compare the options, you need to first decide whether you would like to buy or lease your next vehicle. Utilize this calculator to figure out which is best for you and estimate savings potential. Simply input the purchase price and the deposit to determine estimated monthly payments and net cost.
Find out your savings potential important decision is to purchase or lease a car. This tool calculates the monthly payment and the net cost. By comparing these numbers and between them, you can determine which is the best option for you.
Definitions
PRICE OF BUY
Total cost of purchase. Price must be before any manufacturer’s rebate.
DOWN PAYMENT
A down payment. For leases is usually referred to as capital reduction.
SALES TX RATE
Sales tax percentage to be imposed for the purchase. The sales tax will be included in every lease payment. Sales tax for buying is charged on the total sale amount.
INVESTMENT RATE of RETURN
Rate of return on investments. This is the return that you could get if you were to invest your down payment or security deposit instead of using it for the auto purchase or lease. The exact rate of return is largely dependent on the kind of investments you select. The Standard and Poor’s 500(r) (S&P 500(r)) for the 10 years ending December 31 st 2016 had an annual compounded rate of return of 6.6 percent, which includes dividends 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 highest 12 month return was 61% (June 1982 to June 1983). The lowest 12-month return was just -43 percent (March 2008 through March 2009). Savings accounts in an institution can offer as low as 0.25 percent or less, however they have a significantly lower risk of loss of principal balances. It is vital to note this is hypothetical and that the future rates of return cannot be predicted with confidence and the investments that offer higher returns are generally subject to higher risk and volatility. The actual investment returns can fluctuate widely over time, especially when it comes to long-term investments. This includes the potential loss of principal invested in your investment. It is impossible to directly invest in an index and the compounded rate of return noted above is not inclusive of the sales costs and other fees that Separate Account investments funds and/or investment companies might charge.
LOAN A TERM IN MONTHS
The length of time for your auto loan. The most common is 36 48, 60, and 72. If you’re loan term is longer than the lease term, we examine the buy vs. lease options prior to when the lease expires, and then we use the remainder of your loan term to calculate your outstanding loan amount.
The LOAN INTEREST RATE
Annual rate of interest on your loan.
OTHER FEES
Any other fee, besides a capital reduction or down payment, must be paid at the time of purchase. This can include license fee for title transfer, etc.
ANNUAL DEPRECIATION
The rate of depreciation gauges how fast your new automobile will decrease in value. The highest rate of depreciation is about 20 percent per year. Medium is around 15% per year and low is 10% per year.
MARKET VALUE OF VEHICLE
Value of your auto after the lease term is over.
NET COST OF BUYING
This is the total cost to purchase your car. It is calculated as follows: + Total up front costs (down payment and other costs) + Lost interest + outstanding loan amount at the time lease expires. Market value of the vehicle when lease expires = Net cost of purchase The loss of interest you paid on the purchase is any interest you would have earned at the rate of return for investment on the purchase option’s down payment as well as other fees. If the monthly installment for leasing is less than the monthly payments for purchasing, it also includes any interest that is lost due to the more expensive monthly payment. When leasing costs are more costly than buying, your purchase’s interest cost is reduced by the amount of interest you’d earn on the difference.
Lease TERM IN MONTHS
Term in months for your auto lease.
Lease TERM IN MONTHS
Annual interest rate for your lease.
OTHER FEES
Any fee, except for a capital reduction or down payment, required to be paid at the close to the term of lease. This may include license charges, title transfer fees and more.
RESIDUAL PERCENT
For leases, this represents the remaining value following the lease term expires. The greater the amount, the lower your lease payment will be.
SECURITY DEPOSIT
Security deposit that is refundable at time of lease. We will assume that the security deposit will be completely refunded when the lease ends.
NET COST OF LEASE
The total cost of leasing your car. This is calculated by total up-front expenses (capital reduction plus other fees) + total lease payments plus lost rent = net cost of leasing The loss of interest from your lease will include the interest you could have earned at your rental rate of return your lease’s security deposits, down payments and other fees. Check out the definition of “Net Cost of Buying” to learn more about how we calculate any interest you get from having the lease with a lower monthly payment.
How can you determine the savings potential To effectively calculate if purchasing or leasing your next vehicle is right for you, you must first enter the information about the vehicle. This is the purchase price as well as the down payment on the vehicle with the expected rates of sales taxes. After the calculator has collected these numbers, it can determine the net cost of leasing or buying the vehicle. Then enter the expected term and interest rates for both. The net price of buying can be calculated as a result of adding the upfront costs — down payment, taxes and fees — loss of interest, and the market value of the car. Compare this number with the net price of the lease, which is the sum of the upfront expenses, lease payments, and the loss of interest on the lease. Check out the two numbers on the graph to figure out which is the more cost-effective option.
Buying and leasing definitions
Annual depreciation The amount of depreciation determines the speed at which your new automobile will lose its market value. A high depreciation rate is around 20 percent per year, a medium is about 15 percent per year and the lowest is 10 percent per year.
Down payment The amount that is paid in the form of a down payment which for leases is often called a capital reduction.
Return on investment rate of investment return. This is the rate of return you would earn if decided to invest your down payment , or security deposit instead of investing it for the lease or purchase of your vehicle. The actual return on investments could vary over time, especially for investments that are long-term. This includes the possibility of losing of principal on your investment.
Lease interest rate Annual interest rate on your lease.
Lease term in months by months to be used for the auto lease.
Rate of interest on loan Annual interest rate on your loan.
Loan term in months The duration in months for your auto loan. The typical term is 36, 48, 60 and 72. If you’re loan period is longer than your lease then we will compare the purchase and lease options with respect to the point at which the lease ends, and then we use the remainder of your loan period to determine your remaining loan balance.
Market value of vehicle Value of your car when the lease term has ended.
Net price of leasing This is the total cost of leasing your car. This is calculated as: Total upfront costs (capital reduction plus other fees) + total lease payments plus lost rent on the lease = net cost of lease. The loss of interest on leases includes the interest you could have earned based on the rate of return you earn for the lease option’s down payment as well as security deposit and other charges.
Net price of buying This is the total cost of buying your vehicle. This is calculated as: Total upfront costs (down payment + other costs) + Lost interest + Outstanding loan amount at the time lease expires. Market value of vehicle at time lease expires = net price of buying The lost cost of interest for your purchase also includes any interest you might have earned at your investment rate of return on the purchase option’s down payment as well as other charges.
Other fees Any fee other than a capital reduction , or down payment, that is required to be paid at the time of purchase or close of the lease. This can include license fees charges, title transfer fees, and other costs similar to these.
Purchase price Total cost of purchase. Price should be after any manufacturer’s rebate.
Residual percentage for leases it is the amount left after the lease term expires. The higher this amount, the lower the lease payment.
Sales tax rate Tax rate Percentage sales tax to be charged for this purchase. The sales tax will be included into each lease payment. Sales tax on purchases is added to the total sale amount.
Security deposit Refundable security deposit due at the moment of leasing. We assume the deposit is fully refunded at the time the lease ends.
Do you prefer to lease or buy an automobile? The choice to the next car you purchase comes down to the distances you’ll be driving and the amount you’re willing to pay. There is no absolute guideline when it comes to selecting the right car for you, but instead, you must think about your driving habits and budget. a car tends to cost less on a monthly basis and also gives you the chance to take the wheel of a nicer car. However, it comes with mileage limitations and restrictions on the car. puts you in total control of your vehicle, meaning you won’t have to be concerned about keeping track of the number on the odometer. Or the costs for wear and tear on the vehicle.
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