Auto Lease vs Buy Calculator

Auto Lease vs Buy – The Crucial Decision

lease-vs-buy-calculator

Leasing of the vehicle is often a good choice, if you evaluate the option carefully and take all factors into consideration, when comparing it with the outright buy option. There are many types of leasing agreements, but here we are considering the automobile leasing, where the vehicle is returned to the leasing company and you get a certain depreciated value in return as payoff.

As with most financial decisions, there are certain advantages and disadvantages of both leasing and buying decisions. You have to make a choice among them before taking the final call. Let us first list the advantages and disadvantages of leasing an automobile.

Advantages of Auto Leasing

  • Leasing an automobile requires no down payment, while a loan often requires a certain amount as down payment – may be upto 25 percent;
  • Leasing requires no restriction on a company’s financial operations, while loans often do;
  • Leasing allows you to spread payments over a longer period (which means they’ll be lower) than loans permit; and
  • And last but not the least, Leasing provides protections against the risk of equipment obsolescence, since the lessee can get rid of the equipment at the end of the lease.

Advantages of Auto Buying

  • You are most concerned with minimizing long term costs
  • You are not put on any restriction for the annual mileage, which you can drive per year.
  • You like to drive your car into the ground before replacing it
  • You want the flexibility to change or sell your car at any time
There may be some more factors depending upon individual choices and liking. Once you have made the qualitative decision on Lease vs. Buy, then you can use the following calculator to understand the financial justification of the lease vs. buy decision.

Lease vs. Buy Calculator

Here we present you a simplified version of the Lease vs. Buy calculator, which will help you to make the crucial decision by comparing the two options. It is based on an Excel spreadsheet, which  analyzes the lease/purchase decision.

In the case of a purchase, it is assumed sales tax is paid on the negotiated price at the time of purchase, and property taxes are paid annually. In the case of a lease, it is assumed sales tax is paid on the difference between the list price and the payoff at the time of purchase, sales tax is paid on the payoff when the lease expires, and property taxes are paid by the lessor. This spreadsheet assumes the item is purchased at the payoff price at the time the lease expires. The lease has additional value to the lessee because of the option not to purchase. The features of your lease may be different than assumed here.

 

Inputs to be entered into Lease vs. Buy Auto Calculator

Following inputs are required to be entered.

  1. List price: This is the list price of the vehicle you are intending to own or lease.
  2. Negotiated price: This is the price after deducting all the discounts you are being offered.
  3. Lease period (months): The period in months for which you are taking the vehicle on lease.
  4. Payoff: The amount, you are likely to get, when you return the vehicle after the completion of the lease period.
  5. Interest rate (APR): The annual rate of return charged.
  6. Sales tax rate: The rate of Sales Tax applicable in your area. This is one time payment.
  7. Property tax (annual): The rate of Property Tax applicable in your area. This is usually paid on annual basis.
  8. Lease payment: The Lease payment you have to make.

Results you get from Lease vs. Buy Auto Calculator

Following values are calculated by this calculator

  1. Effective annual rate: This is the effective annual interest rate calculated on the basis of APR you entered.
  2. Present value of payments: This is the calculated present value of all the payments you will make in both the options.
  3. Present value of sales tax: This is the present value of the sales tax you will pay in both the options.
  4. Present value of property tax: This is the present value of property tax.
  5. Total: This actually represents the present value of the amount you will actually pay in both the options. This is to be used for comparison of the two options and taking the crucial Lease vs. Buy decision.
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Disclaimer

Lots of approximations and assumptions have been made while developing the calculators.

Please make your own calculations before making any financial decision.