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This calculator helps you understand the issues related
to leasing or buying an automobile by comparing the costs associated with
each option. Each option requires you to choose a few values. You may provide
these values that are specific to your situation by clicking and entering
the numbers in the text fields or simply by clicking and moving the diamond
shaped sliders to an appropriate place on the line.
The following descriptions explain the importance of
the various choices you have to make during your interaction with this
calculator. The first set are general choices that are common to both the
leasing and the purchasing options:
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MSRP
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This is the Manufacturer Suggested Retail Price. This
plays an important role in the determination of the residual value for
the lease option. The residual value, which is the estimated value of your
automobile after a given period, determines how big your monthly lease
payment is. It also suggests the amount you can sell your automobile for
if you chose the purchase option. The residual value is computed based
on average depreciation rates.
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Purchase Price
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This is the negotiated price of the automobile. This
price is used in both the lease and the purchase options as the basic price
you agreed to pay for the automobile. In the purchase option, this variable
directly affects how big your monthly payment is going to be. In the lease
option, this variable becomes the capitalized cost along with the fees
and deposits and the cash you wish to pay at the signing of the lease.
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Sales Tax
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This is the sales tax rate in your area. The monthly
lease payment includes sales tax on the payment and on the cash you pay
to reduce the capitalized cost.
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Savings Rate
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The rate you would have earned if, instead of paying
for the vehicle, you had left the money in a savings account. We use this
rate as a discount rate to convert the payments you make in both the options
into today's value.
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The second set of choices are related to the purchasing
option:
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Down Payment
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The amount you are willing to pay at the beginning of
the loan in the purchase option. The more money you pay as down payment,
the less your monthly payment will be and the less your annual cost to
purchase will be.
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Loan Rate
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The interest rate charged by the lender for the money
you borrow in the purchase option. Obviously, the lower the rate, the lower
the cost to purchase.
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Loan Term
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The duration for which you borrow the money in the purchase
option.
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The third set of choices are related to the leasing option:
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Cash Down
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The amount of cash you use to pay for the security deposit
and other lease fees. This may also include any extra cash you may wish
to reduce the capitalized cost for leasing. The more cash you pay to reduce
the capitalized cost, the lower your monthly lease payment will be.
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Fees
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The non-refundable fees you pay at the inception of the
lease. These fees and the security deposit tend to increase the capitalized
cost. It is recommended that the cash paid down at least offset the fees
and the security deposit in order to prevent the capitalized cost to increase.
Any increase to the capitalized cost will show up in your monthly payment.
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Security Deposit
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The refundable security deposit you pay at the inception
of the lease. This deposit and the lease fees mentioned earlier increase
the capitalized cost. Since any increase in the capitalized cost means
higher monthly payments, it is recommended that the Cash Down include at
least the fees and the deposit.
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Lease Rate
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The effective rate charged by the lessor for allowing
you to use their money to purchase the vehicle for them. 'Money factor',
as a form of the lease rate is sometimes referred to as, can be converted
to an annual rate by multiplying it by 24. The lease payment consists of
three parts: a) the Depreciation part which depends on the capitalized
cost, the residual value and the lease term, b) the Lease part which depends
on the capitalized cost, the residual value and the money factor (or lease
rate), and c) the Sales Tax part which adds a sales tax to the rest of
the payment and any cash you used to reduce the capitalized cost.
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Lease Term
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The duration of the lease. This is how long you can use
the vehicle. At the end of this term, your choices most often are: a) buy
the vehicle for the residual value set at the time of the lease or b) turn
in the vehicle.
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As you enter values for the above items, you will notice
that the graph displays the average annual costs for the two options as
a function of ownership years. The graph shows how costs of purchasing
as well as leasing go down the longer you keep the vehicle. The assumptions
made for the purposes of a fair comparison are: a) Tax and license fees
as well as maintenance and insurance costs are ignored, b) total costs
of purchasing include the payments made and the down payment and the residual
value is used to reduce this cost, c) total costs of leasing include the
payments made towards the lease, the cash down, d) to compute the average
cost of leasing for a period longer than the lease term, we assumed that
you would tend to lease a vehicle under similar lease terms.
The monthly payment for both the options are displayed.
Also, a status window displays the total cost for both options. Not
only can you evaluate your situation by entering the information and watching
the result, but you may also gather revealing information about how each
of the factors affect your situation.
Here is a sample list of questions that can be answered:
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'What if I can get a hefty discount
on the MSRP?'
'What if I can make a bigger down
payment towards my loan? my lease?',
'What if I can only get a high
rate loan?',
'What if I wish to sell the vehicle
I bought within three years? or keep it for 10 years?',
'What if I my lease is subsidized
and I can get a good lease rate?',
'What if I go for a longer lease?
shorter lease?',
'What if I don't pay any cash down
on my lease? or pay down a large amount?',
'What if I get a longer loan term?
shorter loan term?',
'What if my savings account pays
15%? or 1%?',
'What if I live in an area where
there is no sales tax? 10% sales tax?',
'What if they want a huge security
deposit?',
'What if I want to keep my loan
payment close to a lease payment amount?',
and more...
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As always, the answers are only as far as a mouse click
or a mouse drag away. Your answers appear in the results window at the
bottom. Have fun playing with the planner.
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