The lease versus purchase analysis $-$ Part $2$

Which is bettera to lease or to buy?

making an Informed choice.

declsion? Consider the following scenarlo:

Should Eric lease or purchase?

Eric is considering the purchase of a Ford F$-150$ Pickup and has negotlated a final price of $$27,690.$ He's trying to decide whether to

lease or purchase the vehicle.

If he leases, he'll have to pay a $$550$ security deposit, a capital cost reduction $($down payment$)$ equal to $10\%$ of the vehicle's

cost$,$ and monthly payments of $$491$ over the three$-$year term of the closed$-$end lease. The truck will have a residual value of

$$11,076.$

On the other hand, if he buys the truck, he'll have to make a $10\%$ down payment, pay sales tax equal to $8\%$ of the vehicle's

price, and make monthly payments of $$736$ on a three$-$year loan that charges $4\%$ Interest.

Be aware that funds used as down payments and security deposits Incur an opportunity cost of $4\%,$ as they could have earned

Interest for Eric over the period of the lease or loan.

Amount

LEASE Item Description

$($$$)$

Amount

Based on this analysis, Eric should:

Use the loan to purchase the truck, because its total cost is less than the total cost of a lease transactlon.

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.