8-3Buy Versus Lease.Amanda Forsythe of Springfield, Missouri, must decide whether to buy or lease a car she has selected. She has negotiated a purchase price (gross capitalized cost) of $35,000 and could borrow the money to buy from her credit union by putting $3,000 down and paying$751.68per month for 48 months at 6% APR. Alternatively, she could lease the car for 48 months at$495per month by paying a $3,000 capitalized cost reduction and a $350 disposition fee on the car, which is projected to have a residual value of $12,100 at the end of the lease. Use the Run the Numbersworksheetto advise Amanda about whether she should finance or lease the car.

8-3.

Purchase this car, she will be borrowing $32,000 ($35,000 - $3000)

Her finance charges will be $4,080.64 [($751.68 48) - $32,000].

Leases the car, the capitalized cost after taking the capitalized cost reduction will be $32,000 ($35,000 - $3000).

The dollar cost of leasing - the finance charges of borrowing = $4270 [($495 48) + $350 + $12,100 - $32,000].Leasing would be more costly than purchasing.

Vehicle Lease versus Buy Worksheet 33

Step

Leasing

Borrowing

1.Total monthly lease payments

$495 x 48 = 23760

2.Plus acquisition fee* (if any)

Plus disposition charge* (if any)

Plus estimate of excess mileage charges

Plus projected residual value of the vehicle

+00

+350

+00

+12,100

3.Amount for which you are responsible under the lease (#1 plus #2)

$36210

4.Adjusted capitalized cost*the capitalized cost* after taking capitalized cost reductions*

$35,000 - $3000 = 32,000

5.Dollar cost of leasing (#3 minus #4)

$36210 - $32000 =$4210

6.Finance charge for loan you arrange to purchase rather than lease the vehicle

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