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Lease Vs. Purchase A Car
Before you compare potential, you must first decide whether you would like to purchase or lease your next vehicle. Utilize this calculator to figure out which is best for you and estimate potential savings. Simply input the purchase price and the deposit to determine the anticipated monthly payments and the total net cost.
Calculate the savings you could save A important decision is to lease or purchase a car. This tool will calculate the monthly installments and the net cost. When you compare these figures and between them, you can determine which option is better for you.
Definitions
PRICE FOR BUY
The total cost of purchase. Price should be after any manufacturer’s rebate.
DOWN PAYMENT
A down payment, which for leases is usually referred to as a capital reduction.
SALES Tax Rate
Percentage sales tax that will be imposed on the purchase. Taxes on sales are included with every lease payment. Sales tax for buying is added to the total purchase amount.
INVESTMENT RATE OF RETURN
Rate of return on investments. This is the amount of money you would make in the event that you invested your security deposit or down payment instead of using it for your lease or auto purchase. The yield is largely dependent on the types of investments you select. The Standard & Poor’s 500(r) (S&P 500(r)) for the 10 years that ended on December 31 st 2016 earned an annual compounded rate of return of 6.6 percent, 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). From 1970 to the present, the top 12-month return was 61% (June 1982 through June 1983). The lowest return of 12 months was 43 percent (March 2008 through March 2009). Savings accounts at a financial institution may offer as low as 0.25% or less but are significantly less prone to loss of principal balances. It is crucial to keep in mind the fact that all of these situations are speculative and that the future rates of return cannot be predicted with confidence and those investments that earn higher returns are generally subject to higher risk and volatility. The actual investment returns can fluctuate dramatically over time, and especially for investments that are long-term. This is because of the risk of loss of principal invested in your investment. It is not possible to invest directly in an index and the compounded rate of return noted above is not inclusive of sales charges and other fees that Separate Account investments funds and/or investment companies may charge.
LOAN TIME IN MONTHS
The length of time for your car loan. Typically this is 36, 48, 60 (or 72) months. If you’re loan period is longer than the lease period then we will evaluate the buy vs lease options prior to when the lease expires. We then use your remaining loan term to determine your remaining loan amount.
The LOAN INTEREST RATE
Annual interest rate on your loan.
OTHER FEES
Any fee, other than an capital reduction or a down payment, that must be paid in full at time of purchase. This may include license fee for title transfer, etc.
ANNUAL DEPRECIATION
The rate of depreciation gauges how fast your new automobile will lose its market value. A high depreciation rate is approximately 20 percent per year. Medium is around 15% per year and low is 10 10% per year.
MARKET VALUE OF VEHICLE
Value of your auto when the lease term is over.
NET COST OF BUYING
The total amount is the price of purchasing your vehicle. This is calculated using total up-front costs (down payment + other charges) + Interest paid + Outstanding loan balance at time lease expires – Market value of the vehicle when lease expires = net cost of buying The lost cost of your purchase in interest includes any interest you would have earned at the investment rate of return on the purchase option’s down payment and other fees. If the monthly installment for leasing is lower than the monthly payments to purchase, this includes any interest lost due to the higher monthly installments. In the event that leasing becomes more costly than purchasing, your interest costs for buying are decreased by the amount of interest you’d earn on the difference.
LEASE TERM IN MONTHS
Term in months for your auto lease.
Lease Term in Months
Annual interest rate for your lease.
OTHER FEES
Any fee, except for the capital reduction or down payment, that is required to be paid at the close to the term of lease. This can include license fee, title transfer fees and so on.
Percentage of RESIDUAL
In the case of leases, this is the remaining value following the lease term expires. The greater the amount is, the less your lease payment will be.
SECURITY DEPOSIT
Security deposit that is refundable at the time lease is signed. We assume that the security deposit is fully refunded at the time the lease ends.
NET COST OF LEASE
The total cost you pay for leasing your vehicle. This is calculated as: + Total up front expenses (capital reduction and other charges) + total lease payments and lost rent = net cost of leasing The loss of interest on your lease will include the interest you accrued at your rental rate of return your lease’s security deposits, down payments and other charges. Please see the definition for “Net cost of purchasing” for a detailed explanation of how we calculate the interest you could earn by having the lease with a lower monthly payment.
How do you calculate the potential savings? To effectively calculate if leasing or buying the next car is the right choice for you, you must first enter the details of your vehicle. This is the purchase price and down payment for the vehicle along with the anticipated taxes on sales. Once the calculator has gathered the initial numbers, check the net cost for buying or leasing the vehicle. Then , enter the anticipated term and the interest rates for both. The net price of buying can be calculated as a result of adding upfront costs — the down payment, all taxes and fees, lost interest along with the fair market value for the vehicle. Take a look at the cost of the lease which is the result of upfront costs, lease payment and lost interest for the lease. Check out the two numbers on the graph to determine which one is more affordable.
Leasing and buying definitions
Annual depreciation The rate of depreciation determines the speed at which your new automobile will decrease in value. The highest depreciation rate is about 20 per cent per year, a medium is 15 percent per year and low is 10 percent per year.
Down payment Amount that is paid in the form of a down payment which is for leases, is typically called a capital reduction.
Investment rate of return Rate of returns on investments. This is the amount of money you could earn if you would put your down payment or security deposit instead of using it for your auto purchase or lease. The actual rate of return on investments can vary widely in time, particularly for investments that are long-term. This is not just the loss of principal on your investment.
Interest rate on lease Annual rate of interest for your lease.
Lease term in months of your automobile lease.
Rate of interest on loan Annual interest rate for your loan.
Loan term in months The time period in months of your auto loan. The typical term is 36 60, 48 (or 72) months. If your loan term is longer than your lease, we compare the buy and lease options with respect to the point at which the lease expires. We then we use the remaining loan term to calculate your outstanding loan balance.
Market value of the vehicle of your vehicle after lease term has ended.
Net cost of leasing The net price of leasing is the total amount of leasing your vehicle. This is calculated as Total upfront costs (capital reduction plus any other fees) + Total lease payments + Lost rental interest = Net cost of lease. The loss of interest on your lease includes any interest you would have earned at your investment rate of return on the lease option’s initial payment, security deposit and other fees.
Net price of purchase It is the total price of purchasing your car. This is calculated as the sum of: Total upfront costs (down payment + other fees) + lost interest outstanding loan amount at the time lease expires – Market value of the vehicle at the time lease expires = Net price of buying The lost interest from your purchase is any interest you might have earned at the investment rate for the buy option’s initial down payment and other charges.
Other fees Any fee other that a capital reduction or down payment, required to pay at moment of the purchase or at the end to the term of lease. This can include license fees fee for title transfer, license fees, and other costs similar to these.
Purchase price Total price of purchase. Price must be before any rebate offered by the manufacturer.
Residual percent for leases, this is the remaining value when the lease expires. The higher this amount is, the less your lease payments will be.
Sales tax rate Tax rate Percentage sales tax to be imposed for this purchase. The sales tax will be included into each lease payment. Sales tax for buying is imposed on the entire value of the sale.
Security deposit Refundable security deposit due at the time of lease. We assume that security deposit will be fully refunded at the time the lease ends.
Is it better to lease or purchase the car? The decision on your next car depends on how many distance you plan to travel and the amount you’re willing to pay. There isn’t a definitive standard to follow when selecting the right car for you, but instead, you must think about your spending habits and your budget. A car is usually priced less per month and offers you the chance to take the wheel of a nicer vehicle. However, it also means that you have to travel restrictions and over the limits of the vehicle. You are in complete control of your vehicle, so you won’t have to worry about keeping the track of the mileage on the odometer. Or the cost for wear-and-tear on your vehicle.
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