If you have questions of a specific nature consider consulting a financial professional, accountant or attorney to discuss. The content offered on is for general informational purposes only and may not be relevant to any consumer’s specific situation, this content should not be construed as legal or financial advice. of Veterans Affairs, please visit their website at va.gov. If you have questions about Veteran programs offered through or by the Dept. The content on is produced by Three Creeks Media, its partners, affiliates and contractors, any opinions or statements on should not be attributed to the Dept. Departments of Defense or Veterans Affairs. Neither nor Three Creeks Media are associated with or endorsed by the U.S. Click “View Report” for a detailed breakdown of the two options. leasing it, based on the information you provide. The calculator will show you the net cost of buying a vehicle vs. The “investment rate of return” box provides detailed information on historic rates of return to assist you in making a good estimate. If you have questions, click on the heading by any box for more information. You’ll need information on the vehicle cost, fees, expected depreciation, residual value at the end of the lease, auto loan interest rates, expected return you could earn on money not spent on a vehicle and the other information indicated by the calculator.Įnter the information indicated. Auto Buy CalculatorĬheck the explanation above if you’re unsure about how the net cost of buying vs. That’s money you could invest and earn a return on if it wasn’t tied up in car payments – and the calculator reflects that opportunity cost as well. In the example above, the monthly leasing payment is more than $400 less than the monthly loan payment. leasing is the rate of return you could earn on the money you’d save each month by leasing vs. And dealers vary in what they will pay or charge on the same vehicle with identical mileage.Īnother factor to keep in mind when considering buying vs. Some models and makes depreciate faster than others. The rate at which a vehicle depreciates, and the residual value as well, depends on several factors. Price negotiations play a key role in what a vehicle is worth, and vehicle leases tend to be shorter than car loans – often three years instead of five, for example – but the example illustrates the basic principle of how net cost is compared in buying vs. Of course, it doesn’t always work out that neatly. So in that case, leasing was a slightly better deal. Subtract the $20,000 current value of the vehicle for Driver A (or add it to Driver B) and you find that Driver A had a net cost of $11,870 to buy the car, while Driver B had a net cost of $11,520 to lease it. Let’s also assume Driver B leased that same car for $240 a month, with no down payment, or $11,520 over four years. Assuming an interest rate of 3 percent, Driver A would have paid a total of about $31,870 to own that car, with monthly payments of about $665. The question of who got the better deal depends on what they paid to get to that point. The two drivers are in financially equal positions – one has a $20,000 asset, and the other would have to pay $20,000 to acquire that asset. Let’s also say driver B leases the same car for four years, and he’d have to pay $20,000 to buy it from the dealer at the end of that time. It’s lost a third of its value, or depreciated by 33 percent. Let’s say Driver A buys a car for $30,000 (taxes and fees included) and it’s worth $20,000 when he pays it off four years later. They’re actually mirror images of each other. Both reflect what the vehicle is worth once you’re done making your lease or loan payments. Residual value, on the other hand, is what the dealer would charge to sell you the vehicle at the end of the lease, and is expressed as a percentage of MSRP, the Manufacturer’s Suggested Retail Price. It’s how much the value of the vehicle falls while you own it. Most car and truck owners have a pretty good understanding of depreciation. Both are ways of looking at how much value you got out of the vehicle while you were paying for it. The most important factors in making that determination, after the monthly payments themselves, are the depreciation rate of the vehicle if you’re buying it, and its equivalent for a leased vehicle, the residual percentage. You get a brand-new car or truck at a low monthly payment and when the lease is done, simply get to walk away without haggling over a trade-in.īut is it really a good deal? Or are you better off buying the vehicle outright, so you’ve got something of value at the end of the loan? What’s going to be a better strategy over time – to repeatedly lease new vehicles, or to buy new ones and trade them in when it comes time to replace them? Leasing a vehicle is a popular option these days.
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