Does it make more sense to buy or lease a car from a dealership?

1.       Choose a car that you wish to own, and find the price of this car. For this example, only consider new cars to purchase from a dealership. This will be your principle value, P.2015 Malibu Car. Principal is 22,465

2.       Research available interest rates on this particular car. This will be the rate, r. The Rate Amount is 7.9%.

3.       Decide how long you would like to take to pay off this car. Choose between 3–7 years. This will be the time, t. Time is 5years.

4.       The simple interest formula, can tell you how much interest will be added to the principle amount of this loan. Calculate the interest on your loan. R= 7.9%/100=0.079 per year

I= 22,465 X 0.079 X 5 = 8873.675

5.       How much will you be repaying over the life of your loan? New pay amount is 8,873.68.

6.       How much are your monthly payments? I = 8,873.675 + 22,465 = 31338.67 = 522.311

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7.       Assume that you have 5% to put as a down payment. How much will you be putting down?

8.       With the down payment, what will the new monthly payments be? 22,465 X 0.05 X 5 = $5,616.25.

Now, consider the option to lease this same car.

9.       Most leases require a down payment. Assume that the dealership is requiring a 5% down payment. What is the new value of P on your lease? New value of p is 5,616.25.

10.   The appeal to a lease is a lower interest rate. Reduce the interest rate that you received on your purchase by 2%, with a minimum rate of 0.5%.

11.   The length of a lease is typically 2–5 years. Choose how long you wish to lease this car.

12.   The monthly payment on a lease accounts for the depreciation of the car’s value. Assume at the end of your lease, the car has only retained 50% of its original value. What is your car’s value at the end of the loan? Use this for your new value of P.

13.   How much interest will you be paying over the course of this lease?

14.   What is your total cost, in other words principle plus interest?

15.   What are the monthly payments?

At the end of the lease, you do not own the car. If you wish to purchase the car, you would still owe the value of P from step 12. At this point, you could turn in the keys and walk away,