16 October, 08:30

# You are considering a car with no down payment and monthly payments of \$550 for 48 months and an estimated value at the end of the loan term of \$8,000. A comparable model can be leased for \$550 a month for 36 months with end-of-lease costs of \$1,800. Which arrangement should you choose?

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1. 16 October, 09:48
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I would choose to buy the car with no down payments and monthly payments of \$550 for 48 months

Explanation:

Purchase of car

Down payment = 0

Monthly payment = \$550

Duration = 48 months

End of the loan term value = \$8000

Purchase = (\$550 x 48) - 8000 = \$18,400

Lease of Car

Monthly lease = \$550

Duration of lease = 36 months

End of lease cost = \$1800

Lease = (\$550 x 36) + \$1800 = \$21,600

From the calculation above, it takes the buyer 18,400 dollars to buy the car in 4 years, whereas the person who want to lease the car for 3 years spends more at 21,600 dollars and still does not own the car. Hence the wise choice will be to purchase the car rather than lease it.