We can address the decision to lease versus buy a new car using financial mathematics. The lease versus buy decision may be complicated by a number of factors, such as differences in insurance and security deposits. Let's sweep these aside for now so that we can get a grip on the problem. Suppose you want a new car (Volkswagen Golf 1.4T TSI Auto 2020) that costs EUR19,912, and face three choices: Deal 1. Buy outright, in an all-cash deal. Deal 2. Finance at 10% APR over 36 months, with a down payment of EUR3,000. Deal 3. Lease over 36 months, with financing costs of 11% APR and a depreciation cost of 2% per month, with a down payment of EUR2,000. Cars depreciate in value, so in this analysis we have to estimate what the value of the car will be at some point in time. If we estimate that the car depreciates in value such that it is worth only EUR7,000 at the end of 36 months, this means that the rate of depreciation is 2.95% per month (PV = -EUR7,000; FV = EUR19,912; n = 36; Solve for i). Let's assume that you can earn 3% on your money, so this will become the discount rate that we use to evaluate the cash flows of each deal. We can address the decision to lease versus buy a new car using financial mathematics. The lease versus buy decision may be complicated by a number of factors, such as differences in insurance and security deposits. Let's sweep these aside for now so that we can get a grip on the problem. Suppose you want a new car (Volkswagen Golf 1.4T TSI Auto 2020) that costs EUR19,912, and face three choices: Deal 1. Buy outright, in an all-cash deal. Deal 2. Finance at 10% APR over 36 months, with a down payment of EUR3,000. Deal 3. Lease over 36 months, with financing costs of 11% APR and a depreciation cost of 2% per month, with a down payment of EUR2,000. Cars depreciate in value, so in this analysis we have to estimate what the value of the car will be at some point in time. If we estimate that the car depreciates in value such that it is worth only EUR7,000 at the end of 36 months, this means that the rate of depreciation is 2.95% per month (PV = -EUR7,000; FV = EUR19,912; n = 36; Solve for i). Let's assume that you can earn 3% on your money, so this will become the discount rate that we use to evaluate the cash flows of each deal