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Should you lease or buy your car? Use this calculator to find out! We calculate
your monthly payments and your total net cost. By comparing these amounts, you can
determine which is the better value for you.
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Definitions
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- Term in months
- Term in months for your auto lease or your auto loan.
- Down payment
- Amount paid as a down payment, which for leases is often
called a capital reduction.
- Other fees
- Any fee, other than a capital reduction or down payment, required
to be paid at the close of the lease or loan. This may include license, title transfer
fees, etc.
- Purchase price
- Total purchase price. Price should be after any manufacturer's
rebate.
- Interest rate
- Annual interest rate for your loan or your lease.
- Sales tax rate
- Percentage sales tax to be charged on this purchase. Sales
tax is included in each lease payment. Sales tax for buying is charged on the total
sale amount.
- Rate of depreciation
- The rate of depreciation gauges how fast your new
automobile will lose its market value. A high depreciation rate is about 20% per
year, medium is 15% per year and low is 10% per year.
- Residual percent
- For leases, this is remaining value after the lease term
expires. The higher this amount, the lower your lease payment will be.
- Market value of vehicle
- Value of your auto after the lease term is over.
- Investment rate of return
- Rate of return on investments. This is the return
that you would make if you were to invest your down payment or security deposit
instead of using it in your auto purchase or lease.
The actual rate of return is largely dependent on the type of investments you select.
From January 1970 to December 2008, the average annual compounded rate of return
for the S&P 500, including reinvestment of dividends, was approximately 9.7% (source:
www.standardandpoors.com). During this period, the highest 12-month return was 61%,
from June 1982 through June 1933. The lowest 12-month return was -39%, which happened
twice, once from September 1973 to September 1974 and again from November 2007 to
November 2008. Savings accounts at a bank may pay as little as 1% or less but carry
significantly lower risk of loss of principal balances.
It is important to remember that future rates of return can't be predicted with
certainty and that investments that pay higher rates of return are generally subject
to higher risk and volatility. The actual rate of return on investments can vary
widely over time, especially for long-term investments. This includes the potential
loss of principal on your investment. It is not possible to invest directly in an
index and the compounded rate of return noted above does not reflect sales charges
and other fees that funds and/or investment companies may charge.
- Lost interest on buy option
- This includes any interest you would have
earned at your investment rate of return on the buy option's down payment and other
fees. If the monthly payment for leasing is less than the monthly payment for buying,
this also includes any lost interest due to the higher monthly payments. If leasing
is more expensive than buying, your interest costs for buying are reduced by the
amount of interest you would earn on the difference.
- Lost interest on lease option
- This includes any interest you would have
earned at your investment rate of return on the lease option's down payment, security
deposit and other fees. Please see the definition for "Lost interest on buy option"
for an explanation on how we account for any interest you might earn by having a
lower monthly lease payment.
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Information and interactive calculators are made available
to you as self-help tools for your independent use and are not intended to provide
investment advice. We can not and do not guarantee their applicability or accuracy
in regards to your individual circumstances. All examples are hypothetical and are
for illustrative purposes. We encourage you to seek personalized advice from qualified
professionals regarding all personal finance issues.
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