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Lease Vs. Purchase A Car
Before you compare potential, you must first decide whether you would like to buy or lease the next car. Make use of this calculator to find the best option for you and calculate possible savings. Enter the information about the purchase price and vehicle deposit to determine the expected monthly payments and total net price.
Calculate your potential savings A big decision is whether to purchase or lease a car. This tool will calculate the monthly installments and the net cost. By comparing these numbers and between them, you can determine which one is best for you.
Definitions
PURCHASE PRICE
The total cost of purchase. Price should be after any rebate from the manufacturer.
DOWN PAYMENT
A sum paid as a down payment, which for leases is usually referred to as a capital reduction.
SALES TAX RATE
Percentage sales tax that will be imposed for this purchase. Sales tax is included in each lease payment. Sales tax on purchases is imposed on the entire purchase amount.
INVESTMENT RATE of RETURN
Return on investment. This is the amount of money you could earn when you invest your down payment or security deposit instead of putting it into the auto purchase or lease. The exact yield is dependent on the types of investments you select. The Standard & Poor’s 500(r) (S&P 500(r)) for the 10 years ended December 31st, 2016 had an annual compounded rate of return of 6.6%, including dividends reinvestment. From January 1, 1970 to December 31 st 2016, the average annual compounded rate of return for the S&P 500(r), including reinvestment of dividends, was approximately 10.3% (source: www.standardandpoors.com). Since 1970, the highest annual return of 61% was recorded in the 12 months prior to it (June 1982 until June 1983). The lowest 12-month return was 43% (March 2008 to March 2009). Savings accounts at an institution could pay as little as 0.25 percent or less, however they carry significantly lower risk of losing principal balances. It is crucial to keep in mind this is hypothetical and that the future rates of return can’t be forecast with absolute certainty. It is also important to remember those investments that earn higher rates of return generally come with higher risk and greater volatility. The actual investment returns can fluctuate widely over time, especially when it comes to long-term investments. This includes the potential loss of principal invested in your investment. It is not possible to invest directly in an index and the compounded rate of return mentioned above is not inclusive of the sales costs and other fees that Separate Account investments funds and/or investment companies may charge.
LOAN TERM IN MONTHS
The length of time for your car loan. The most common is 36 48, 60, or 72 months. If your loan term is longer than the lease period then we will evaluate the buy vs lease options prior to when the lease expires, and then we use the remaining loan term to calculate your outstanding loan balance.
LOAN INTEREST RATE
Annual rate of interest on your loan.
Other fees
Any fee, other than the capital reduction or down payment, that must pay at moment of purchase. This can include license, title transfer fees, and so on.
ANNUAL DEPRECIATION
The depreciation rate is a measure of the speed at which your new car will decrease in value. The highest rate of depreciation is about 20 percent per year, a medium is 15 percent annually, and the lowest is 10 10% per year.
MARKET VALUE OF VEHICLE
The value of your vehicle after the lease term is completed.
NET COST OF BUYING
This is the total cost of buying your vehicle. It is calculated as follows total up-front expenses (down payment and other costs) + lost interest Outstanding loan balance at time lease expires – market value of vehicle when lease expires = Net cost of purchasing The lost cost of your purchase in interest includes the interest you earned at your investment rate of return on the buy option’s down payment and any other charges. If the monthly cost for leasing is lower than the monthly amount to purchase, this includes any interest lost due to the more expensive monthly installments. When leasing costs are more costly than buying, the purchase’s interest cost is decreased by the amount of interest you’d earn on the difference.
LEASE TERM IN MONTHS
Term in months for your lease.
Lease Term in Months
Annual interest rate for lease.
OTHER FEES
Any other fee, besides the capital reduction or down payment, that is required to be paid by the end to the term of lease. This could include license fees fee, title transfer fees and more.
Percentage of RESIDUAL
For leases, this represents the remaining amount after lease expires. The more you pay is, the less your lease payment will be.
SECURITY DEPOSIT
A security deposit that can be refunded is required at the moment of leasing. We presume that security deposits is completely refunded when the lease comes to an end.
NET COST OF LEASE
This is the total cost of leasing your car. It is calculated as follows total up-front costs (capital reduction plus other charges) + total lease payments plus lost the interest earned on lease = Net Cost of Lease loss of interest on your lease will include any interest you would have earned at the investment rate of return on leasing options’ down payment and security, and other charges. See the definition of “Net Cost of Buying” for a detailed explanation of the way we take into account any interest you get from having less of a monthly lease payment.
How do you calculate the potential savings? To effectively calculate if purchasing or leasing your next vehicle is right for you, start by entering the details of your vehicle. This is the purchase price, vehicle down payment along with the expected sales tax rate. After the calculator has gathered the initial numbers, check the net cost for leasing or purchasing the car. Then enter the expected term and the interest rate for both. The net cost of purchasing is calculated by adding upfront costs of the purchase — down payment, all taxes and fees, loss of interest, and the market value of the car. Compare this number with the net cost of the lease, which is the sum of the upfront costs, lease payments and the loss of interest on the lease. Check out the two numbers displayed on the graph to figure out which is the more cost-effective option.
Buying and leasing definitions
Annual depreciation The amount of depreciation is a measure of how quickly your brand new car is going to lose value. A high depreciation rate is about 20 per cent per year, a medium is about 15 percent per year and the lowest rate is 10 percent per year.
Down payment The amount that is paid as a down payment which for leases is often known as a capital reduction.
Return on investment rate of investment return. This is the rate of return you could earn if you would put your down payment or security deposit instead of investing it for the lease or purchase of your vehicle. The actual return for investments may vary over time, especially when it comes to long-term investments. This includes the possibility of losing of principal from your investment.
Lease interest rate Annual rate of interest for your lease.
Lease term in months Term of your car lease.
Interest rate on loans Annual rate of interest on your loan.
Loan term in months The time period in months of your car loan. Typically this is 36, 48, 60 and 72. If the loan period is longer than the lease period then we will compare the purchase versus lease options to the point at which the lease ends, and then apply the resting loan term to calculate your outstanding loan amount.
Value of your vehicle in the market of your vehicle after the lease term has ended.
Net cost of leasing It is the total cost of leasing your vehicle. This is calculated using: Total upfront costs (capital reduction plus other fees) + total lease payments plus lost interest on lease = Net cost of lease. The amount of lost rent on your lease is any interest you would have earned based on the rate of return you earn on the lease option’s initial payment, security deposit and other fees.
Net price of buying The net price is the cost of buying your vehicle. This is calculated as the following: Total upfront cost (down payment + other fees) + lost interest Outstanding loan amount at the time lease expires – Market value of the vehicle at the time lease ends = Net cost of purchase The loss of interest from your purchase is the interest you could have earned based on the investment rate on the buy option’s down payment and other charges.
Other fees Any cost, other than a capital reduction or down payment, required to be paid at the moment of the purchase or at the end to the term of lease. This could include license charges, title transfer fees, and other similar costs.
Purchase price Total price of purchase. Price should be after any rebate offered by the manufacturer.
Residual percent for leases, it is the amount left when the lease expires. The greater the amount is, the less your lease payments will be.
Sales tax rate Sales tax Percentage to be charged for this purchase. Sales tax is included in every lease payment. Sales tax on purchases is charged on the total purchase amount.
Security deposit Refundable security deposit to be paid at the moment of leasing. We will assume that the security deposit will be fully refunded at the time the lease ends.
Do you prefer to lease or buy an automobile? The decision on your next vehicle comes down to the distance you plan to travel and the amount that you’re willing to pay. There isn’t a definitive guideline when it comes to selecting the right car for you, but rather takes some reflection on your driving habits and budget. a car tends to cost less monthly and also gives you the chance to take the wheel of a more luxurious car. But it does mean mileage limitations and restrictions on the limits of the vehicle. You are in complete control of your vehicle, so you won’t have to be concerned about keeping an eye on the odometer, or any additional costs for wear and tear on the vehicle.
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