You have been looking around for a nice car and have found the car you want for the right price. All along, you have told the dealer that you want to purchase the car. It will cost you $45,000 out the door. You will put 25% down and take out a 4-year car loan. The interest rate you got from a local bank is 2.99% for 48 months.

You made the deal and now you need to finalize the paperwork with the dealers finance officer. He offers you an opportunity to lease the car and save you money every month! What a deal!! Here are the terms:

• Capitalized cost $4,500
• Lease payments $399
• Security deposit = 2 lease payments
• Lease term: 48 months
• Mileage cap: 10,000
• Mileage charge if over the cap: $0.25/mile
• Residual value: $22,500

Your savings account pays you 0.80% per year. You typically drive 13,000 miles per year. You plan on bringing the car back in perfect condition and expect to get your deposit back.

Questions:

1. If you buy the car, what are your monthly payments?
2. What is the cost of leasing the car over the entire lease term?
3. Why do car dealers offer leasing programs?
4. Based on pure numbers, should you buy or lease? Why?