Buying versus Leasing Option 1 Debt Einancing Option 2 Lease Financing Price $14,695 $14,695 Down payment $2,000 $0 APR (%) 3.6% Monthly payment $372.55 $236.45 Length 36 months 36 months Fees $495 Cash due at lease end $300 $8,673.10 Purchase option at lease end Cash due at signing $2,000 $731.45
Two types of financing options are offered for an automobile by a local dealer, as shown in the following table. The calculations are based on special financing programs available at participating dealers for a limited time. For each option, license, title, registration fees, taxes, and insurance arc extra. For the lease option, the lessee must come up with $731.45 at signing. This cash due at signing includes the first month's lease payment of $236.45 and a $495 administrative fee. No security deposit is required. However, a $300 disposition fee is due at lease end. The lessee has the option to purchase the vehicle at lease end for $8,673.10. The lessee is also responsible for excessive wear and use. If your earning interest rate is 6% compounded monthly, which financing option is a better choice?
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