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Leasing versus Purchasing

The following worksheets can help you estimate
how much it might cost to lease a vehicle and
compare that to the cost of purchasing the same
item and paying for it with a loan. The worksheets
are based on a simple leasing arrangement and do
not take into account some of the variables that
enter into many leasing agreements. (See "Other
Considerations," below.)
Important: These worksheets provide
rough estimates, and the forms are
not intended for commercial use.
Please note that the legal and financial
conditions of leasing and purchasing
vary from place to place and often
depend on the commodity in question.

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Leasing Worksheet
Type into outlined cells, changing the sample values. Type all percent figures without
using % signs. Examples: 25 or 9.5. Do not type in the orange cells, Excel will
automatically add data to them.
Figures do not include taxes Terms of Lease
Retail price, MSRP*, or sticker price $17,500.00
Monthly rental fee $229.00
Capitalized or negotiated cost (the price if you paid cash) $19,000.00
Refundable deposit, if any (security deposit) $500.00
Term (leasing period), in months 36

Residual value [Enter one figure below]

• expressed as a percentage (e.g., 50) 50%
• Or expressed in dollar terms $8,750.00

First month payment in advance $229.00

Last month payment in advance (if required) $229.00

* MSRP: manufacturer's suggested retail price

Other considerations
1. You may be able to negotiate one or more of the lease terms, such as the monthly rental
and the residual value. ("Residual value" is what you agree the vehicle will be worth at the
end of the leasing period.) If you think you might want to buy the item at the end of the
leasing period, be sure to discuss the residual value when you negotiate the lease.
2. Many automobile leases include a clause adding a charge per mile or kilometer driven
above a specified yearly or total maximum. You can use the following cells to make a rough
estimate:
Number of extra miles or kilometers per year 1,000.00
Cost per mile or km (e.g., 0.10) $0.10
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Total mileage or km cost $100.00 Entire period $300.00

Be aware that extra mileage or kilometer charges can substantially affect the figures on the
Comparisons Worksheet (following page).
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The following worksheet may help you compare the costs of leasing and purchasing. For notes
on factors not taken into account here, see "Other Considerations," below.

Comparisons Worksheet
1. Calculate the cost of purchasing the
same vehicle and taking out a loan to pay 2. Compare the cost to lease
for it: with option to buy:

Cost to Purchase Cost to Lease

(From previous page)
Cost of vehicle (MSRP or negotiated price) $17,500.00
Down payment and/or trade-in allowance $5,000.00
Additional costs, if any $400.00
Annual interest on loan (e.g., 10.25) 10.25%
Duration of loan (in years) 3

Monthly payment $417.76 Payment $229.00

Total number of payments (years x 12) 36 No. of pmts. 36

Total principal + interest (P+I) $15,039.45

Total finance charges $2,139.45
Total cash outflow (P+I + down pmt./trade-in)
$20,039.45 Cash outflow $8,244.00

Net (present value)

cost to lease residual
Net (present) $7,203.12
value $6,442.13

Net (present value) cost to own $17,900.00 Net cost to own $13,645.25

3. What if you sell the item for its residual 4. Compare the cost to lease
value just after you pay off the loan? without purchasing:
Net cost to own $17,900.00
Less sale proceeds (=net residual value) $6,442.13
Net cost to own and sell $11,457.87 Cost to lease $7,203.12

Other considerations
1. All calculations assume regular monthly payments. If you make loan payments on a bi-
weekly or semi-monthly schedule, your total finance charges and net cost to own will likely be
lower than the figures shown. Similarly, if you make extra payments against the loan principal,
your total finance charges and net cost to own will be lower.
2. Maintenance costs are another possible factor. If routine maintenance services (for example,
lubrication and oil changes for a car) are included in leasing fees, you will save some of the
normal expenses you would incur if you owned the car.
3. The "Net cost to own" comparison will differ if, at the end of a leasing period, you opt to buy
the item and pay for it with a loan. In this case, finance charges will increase the cost to own.
4. The "Cash outflow," "Net cost to lease," "Net cost to own," and "Cost to lease" figures will all
be higher if you are charged for extra miles or kilometers. (See page 1, "Other Considerations,"
No. 2.)
5. If you use the vehicle for business purposes, the tax ramifications will differ between leasing
and purchasing. Generally, you will be able to claim higher deductible expenses by owning the
vehicle -- but consult your tax adviser for details.