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eBook Do the Math 8-3 Buy Versus Lease Amanda Forsythe of Springfield, Missouri, must decide whether to buy or lease a car she has selected. She has negotiated a purchase price (gross capitalized cost) of $33,000 and could borrow the money to buy from her credit union by putting $2,700 down and paying $725.57 per month for 48 months at 7 percent APR Alternatively, she could lease the car for 48 months at $450 per month by paying a $2,700 capitalized cost reduction and a $350 disposition fee on the car, which is projected to have a residual value of $11,600 at the end of the lease. Use the Run the Numbers worksheet to advise Amanda about whether she should finance or lease the car. Round your answers to the nearest cent Finance charges (borrowing the car) S The dollar cost of leasing: S Amanda should lease the car RUN THE NUMBERS Finance or Lease? This worksheet can be used to compare leasing and borrow ing to buy a vehicle. Remember that the cost of credit is the finance charge--the extra that you pay because you bor rowed. Leases also carry costs, but they are hidden within the contract. Indeed, some may remain unknown until the end of the lease period. These lease costs, which are indicated by an asterisk (*), are negotiable and are defined in the text. Ask the dealer for the price of each item, as these fees must be disclosed by dealers. Then complete the worksheet and compare the dollar cost of leasing with the finance charge on a loan for the same time period. To make the comparison accurately, you must know the underlying price of the car as if you were purchasing it. Often you are not offered this value with a lease arrangement, DO IT IN CLASS so you should always negotiate a price for the vehicle before mentioning your interest in leasing. Also, shop for a lease through dealers and independent leasing companies because costs vary widely. This worksheet can be found on the Garman/Forgue companion website, or you can find a similar worksheet at www.bankrate.com you can find a similar work /calculators/auto/buy-or-lease-calculator.aspx Your Figures Step 1. Monthly lease payment (36 payments of $375, for example) 2. Plus acquisition fee* (if any) Plus disposition charge of any) Plus estimate of excess mileage charges (if any) Plus projected residual value of the vehide 3. Amount for which you are responsible under the lease 4. Less the adjusted capitalized cost (gross capitalized cost less the capitalized cost reductions") 5. Dollar cost of leasing to be compared with a finance charge if you purchased the vehide Example $13,500 400 400 0 6,500 20,800 18,000 2,800

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