LEASING VS.

BUYING ANALYSIS

Leasing vs. Buying Analysis

LEASING VS. BUYING ANALYSIS

Leasing Vs. Buying Analysis

Introduction
Passenger cars have become an important part of the life in modern cities where people
need to travel from one place to other. There are many types of car available in the market which
differ in terms of brand, luxury, style, engineering, power etc. At the same time there are many
options available in the market for financing the purchase of the cars. One can buy the car by
paying the money upfront, or he can buy it by taking a loan from the car company itself or take it
on lease.
When a person take the car on lease then he may be required to pay a small down payment, and
monthly installments over a period of time. The companies usually check the credit of the buyer
and take some down payment as well before giving it on lease. It will be interesting to analyze
each option and purchase the best deal as per given financing options and personal convenience.
Objective:
To identify whether to purchase a car by paying complete price upfront or by taking it on
lease.
Given Information:
Car Model = 2016 BMW M235i xDrive Coupe
Buying price = $46,150
Buying on Loan = Interest rate = 2.99% APR, 36 months, $0 down payment
Leasing price = $499.00 for 36 months ; $3000 down payment ; $925 acquisition fee;
Disposition fee = $350 at lease end ; Limitation of $10000 miles/year or extra charges of
$0.25/mile over more than 10,000 miles each year;
Assumptions: There will be extra cost for the Sales Tax, title, license, registration and dealer fees
which are assumed to be same for buying or leasing the car. It is also assumed that the car is run
for only $10,000 miles (maximum) every year.

Options:
1. Buying the car with upfront payment
2. Buying the car on loan
3. Taking the car on lease
Analysis:
1. Buying the car with upfront payment - It will cost the MSRP price which is $46, 150. It
needs a lot of money to be paid right away and hence one should check his wealth, and
expected future expenses which will need to be managed once the car is purchased right

LEASING VS. BUYING ANALYSIS

away. For students it might be tough to pay complete amount right away and they may
look for other payment options.
2. Buying the car on load In this case the person will pay $0 down payment and equally
monthly installments (EMI) for next 36 months.
For principle amount= $46,150 ; Interest rate = 2.99% APR, 36 months, $0 down
payment
PMT

= L (r/m) / (1 (1 +r/m) ^-mt)

=46150 (.0299/12) / ( 1- (1+.0299/12)^-36)
= $1,341.89

So, the total interest paid = PMT * m * t L = 1341.89* 36 46150 = $2158.20

Amortization Schedule:
PM
T
NO.
1

PAYMEN
T
$1,341.89

PRINCIPA
L
$1,226.90

INTERES
T
$114.99

TOTAL
INTERES
T
$114.99

$1,341.89

$1,229.96

$111.93

$226.92

$1,341.89

$1,233.03

$108.87

$335.79

$1,341.89

$1,236.10

$105.80

$441.59

$1,341.89

$1,239.18

$102.72

$544.31

$1,341.89

$1,242.27

$99.63

$643.93

$1,341.89

$1,245.36

$96.53

$740.47

$1,341.89

$1,248.46

$93.43

$833.90

$1,341.89

$1,251.57

$90.32

$924.22

10

$1,341.89

$1,254.69

$87.20

$1,011.42

11

$1,341.89

$1,257.82

$84.08

$1,095.49

12

$1,341.89

$1,260.95

$80.94

$1,176.44

13

$1,341.89

$1,264.10

$77.80

$1,254.23

14

$1,341.89

$1,267.25

$74.65

$1,328.88

15

$1,341.89

$1,270.40

$71.49

$1,400.38

16

$1,341.89

$1,273.57

$68.33

$1,468.70

BALANC
E
$44,923.1
0
$43,693.1
3
$42,460.1
1
$41,224.0
1
$39,984.8
3
$38,742.5
7
$37,497.2
1
$36,248.7
4
$34,997.1
7
$33,742.4
8
$32,484.6
6
$31,223.7
0
$29,959.6
1
$28,692.3
6
$27,421.9
6
$26,148.3
9

LEASING VS. BUYING ANALYSIS

17

$1,341.89

$1,276.74

$65.15

$1,533.86

18

$1,341.89

$1,279.92

$61.97

$1,595.83

19

$1,341.89

$1,283.11

$58.78

$1,654.61

20

$1,341.89

$1,286.31

$55.59

$1,710.20

21

$1,341.89

$1,289.51

$52.38

$1,762.58

22

$1,341.89

$1,292.73

$49.17

$1,811.74

23

$1,341.89

$1,295.95

$45.95

$1,857.69

24

$1,341.89

$1,299.18

$42.72

$1,900.41

25

$1,341.89

$1,302.41

$39.48

$1,939.89

26

$1,341.89

$1,305.66

$36.24

$1,976.12

27

$1,341.89

$1,308.91

$32.98

$2,009.10

28

$1,341.89

$1,312.17

$29.72

$2,038.83

29
30
31
32
33
34
35
36

$1,341.89
$1,341.89
$1,341.89
$1,341.89
$1,341.89
$1,341.89
$1,341.89
$1,341.89

$1,315.44
$1,318.72
$1,322.01
$1,325.30
$1,328.60
$1,331.91
$1,335.23
$1,338.56

$26.45
$23.17
$19.89
$16.59
$13.29
$9.98
$6.66
$3.34

$2,065.28
$2,088.45
$2,108.34
$2,124.93
$2,138.22
$2,148.20
$2,154.86
$2,158.20

$24,871.6
5
$23,591.7
3
$22,308.6
2
$21,022.3
1
$19,732.7
9
$18,440.0
7
$17,144.1
2
$15,844.9
4
$14,542.5
3
$13,236.8
7
$11,927.9
5
$10,615.7
8
$9,300.34
$7,981.62
$6,659.61
$5,334.31
$4,005.71
$2,673.79
$1,338.56
$0.00

In this case, the buyer will need to pay $1341.89 every month to the financer and make this
payment for next 3 years. It is a good option seeing the small amount of payment required for
keeping the car. This could be manageable for students too as the monthly installment amount is
small which they can ask from parents or from their monthly salary from outside jobs. The total
interest amount is also not very high ($2158), or it is almost one more installment. Instead of
paying the whole price of $46150 upfront and stretching the budget, it would be better to have
financing option.
But, at the end of the 3 years, the buyer will own the car and hence it will be better for him if he
wants to use the car for a long period.

3. Taking the car lease:

LEASING VS. BUYING ANALYSIS

Leasing price = $499.00 for 36 months ; $3000 down payment ; $925 acquisition fee;
Disposition fee = $350 at lease end ; Limitation of $10000 miles/year or extra charges of
$0.25/mile over more than 10,000 miles each year., Trade in value = $28794

In this case, the total expenses of the buyer will be:

a.
b.
c.
d.
e.

Total payment by EMI = 36 * $499 = $17964

Down payment = $3000
Acquisition fee = $925
Disposition fee = $350
Trade in value = $28794

Total = 17964 + 3000 + 925 + 350 + 28794 = 51033 (Approximate calculation)

Calculating the present value of above transaction, using present value formula
=PV(2.99%/12,36,499,(28794 + 350)) = $43808.85
lease end

;***$350 added for disposition fee at

There is additional fee of down payment and acquisition is also to be added

= 43808.85 + 3000 +925
= $477,33.85
It shows that leasing is the best option, as it gives almost same value as todays car purchase
price and gives extra flexibility of trading in the car at the end of lease. The trade-in value has
been calculated from external website which might be different than actuality. The monthly
installments are smaller (as compared to financing) and the buyer can change the vehicle also
after 3 years.

Conclusion

LEASING VS. BUYING ANALYSIS

Leasing is the best option considering the lower payments, flexibility of changing the
vehicle after 3 years and easy managing of expenses. The buyer would need to maintain the
vehicle in a good condition to ensure he gets a good trade in value and he needs to control his
yearly mileage too.

LEASING VS. BUYING ANALYSIS

References:
BMW (2016). 2016 M235i xDrive Coupe, BMW USA. Retrieved from
http://www.bmwusa.com/bmw/special-offers/finance/2016-M235i-xDrive-Coupe
KBB (2016). Used Car Value, Kelly Blue Book . Retrieved from
http://www.kbb.com/bmw/1-series/2013/135i-coupe-2d/?vehicleid=381368&intent=buyused&category=coupe&mileage=35522&condition=good&pricetype=retail

LEASING VS. BUYING ANALYSIS

Buying the car by Financing

Leasing the car: