You are interested in getting a Nissin Rogue. You have decided to look into leasing to see how it compares with buying.
In recent years, you have noticed that advertised lease payments are considerably lower than those advertised for financing a purchase. It always seemed as if you would be getting "more car for the money!"
In your research, you have found that a closed-end vehicle is an agreement in which you make equal monthly payments based on your estimated usage for a set period of time.
Then you turn the vehicle back in top the leasing dealer. No equity, no ownership, no asset at the end! You also have the option of purchasing the vehicle at the agreed upon price. Leasing terminology is different from that of purchasing, but they are related.
Purchase Lease
Purchase Price = Capitalized cost
Down payment = Capitalized cost reduction
Interest rate = Money factor
End-of-lease market price = Residual value
Use the advertisement below and the purchase vs. lease worksheet on page 454 to compare the total cost of each option. The residual value of the car is estimated to be $13,650. The lease has no termination fees or charges.
If you decide to purchase, your bank requires a down payment of $3,800 and will finance the balance with a 10.25% APR loan for 36 months.
The sales tax in your state is 6.5% and the tag and title charges are $75. The opportunity cost is the interest your down payment could have earned if you didn't purchase the vehicle. Currently, your money earns 4.5% in a savings account.
***Advertisement Info***
NISSAN ROGUE
$19,995 or @249/ month lease
36 months. No security deposit. $2,500 due at signing. Plus tax, tag and title with approved credit.
QUESTIONS:
A: What is the total purchase price of the vehicle, including tax tag and title?
B: What are the monthly payments on the loan?
C: What is the total cost of purchasing?
D: What is the total cost of leasing?
E: In your own words, explain which of these financing choices is a better deal and why?
F: (Optional)