AN ANALYIS OF FINANCIAL COSTS TO BUY OR LEASE A VEHICLE

Adam Haun Michael King Michael Logan CEE 300Engineering Business Practice Dr. Thomas Seager April 18, 2013 Jessica McLean Yannick Mets Michael Schubert

Ira A. Fulton School of Engineering Arizona State University

[TO BUY OR TO LEASE] 1

LEASING VERSUS BUYING A VEHICLE

EXECUTIVE SUMMARY
Vehicles are what transport Americans from Point A to Point B. Vehicles range from brand new vehicles purchased from the dealership to vehicles that have been traveling roadways for decades. Primarily, Americans prefer a newer vehicle as reliability increases as well as trendiness and efficiency. Newer vehicles come with a greater price tag, and financial institutions become involved by issuing the consumer a loan to purchase the vehicle. Monthly payments are made to pay for the balance until the loan has been repaid. At this point the consumer owns the vehicle free and clear and may act as they wish with the vehicle. Another alternative to owning a newer vehicle is leasing. Consumers sign an agreement where they are issued a new vehicle, pay a monthly fee and then return the vehicle at the end of the lease term. Several options exist when purchasing a vehicle, and this report determines that purchasing a new vehicle is the most financially feasible option. Leasing a vehicle carries many restrictions for yearly mileage, damage and financial implications. Cash flow diagrams were created and values compared in order to determine the consumers best option for a new vehicle purchase or lease. Options include purchasing a vehicle with a 36-month loan, leasing for 36 months, purchasing with a 60-month loan, and leasing for 36 months and then purchasing the vehicle with a 24-month loan. A 2013 Nissan Altima was used for analysis as the vehicle is popular nationwide and provided all the relevant information and fees associated with leasing such a vehicle as well as purchasing. A circumstantial lease was assumed when considering financial costs for leasing a vehicle, and typical loan rates applied for purchasing situations. Finally, depreciation of the vehicles was taken into account to determine the monthly costs associated with each option. Leasing a vehicle for 36 months will set the consumer back $10,806.46 if the vehicle is returned in mint condition, but the benefit is the consumers monthly capital is greater. Financing a vehicle for a 3-year period will result in a total purchase price of $27,314.28. Greater monthly payments reduce the consumers spending capacity, but after the three years they will own their own vehicle and no longer have to make any monthly payments. A five-year loan resulted in a cost of $28,128.60 which is higher overall but carries lower monthly payments. When considering a consumer investing their money towards the purchase of a vehicle, they are best off because they own the vehicle and can choose to sell and repeat the purchasing process or keep the vehicle and no longer need to make payments. Longer period loans are the best scenario for lower income consumers to own their own vehicle. Dealers want to lease vehicles in order to collect greater revenue and still sell the vehicle at the end of the lease term. This report analyzed several common situations and determined longer term financing to be the best option.

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 2

Table of Contents
INTRODUCTION .............................................................................................................. 3 Buying ....................................................................................................................... 3 Leasing ..................................................................................................................... 3 Problem Statement ................................................................................................... 4 INVESTIGATIVE MEHTOD .............................................................................................. 5 3-Year Purchase Option Monthly Payment (with taxes): .......................................... 6 Future Market Value for 5-Year Purchase Option: .................................................... 7 RESULTS AND DISCUSSION ......................................................................................... 8 The Net Present Value Equation ............................................................................ 12 RECOMMENDATIONS .................................................................................................. 13 WORKS CITED .............................................................................................................. 17 APPENDIX...................................................................................................................... 18 Glossary .................................................................................................................. 18

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 3

INTRODUCTION
Buying Buying is a concept that is familiar to just about everybody. Somebody has something for sale, and somebody buys it. In this instance, the somebody who has something for sale is called the dealer; the somebody who buys it is called the consumer. When a consumer wants a pair of jeans, he goes to a store that has jeans, finds a pair he wants, and buys them. Likewise, when a consumer wants a car, he goes to the car dealership, and buys it. The trouble with buying a car is that very few people have enough money to buy a new car in cash. To fix this problem, there are institutions (i.e. banks) that will lend the consumer the requisite money to buy the new car. The consumer will then make monthly payments back to the institution until the amount is paid off. However, because borrowing money is not free, the consumer will also pay interest on what he borrowed. This means that by the time the consumer has finished paying off the car, he will have paid more than what the vehicle cost. This process is called financing. However, buying a car is not that simple. When the car is purchased from the dealer, there are numerous fees and taxes that are added to the price of the vehicle. The consumer must also take care of normal car registration, finance charges, and various other small charges. However, once the car is purchased, the vehicle in effect becomes the consumers. Once the car is driven off the lot, the consumer is fully responsible for the car. The consumer is fully and solely responsible for any damage, depreciation, maintenance, and any equity the car earns. The consumer may modify the car any way he sees fit, drive the as many miles as he wants, or treat the car as he wants. If the car is no longer wanted, the consumer may sell the car. However, no matter what price he can get for the car, he is still responsible for paying back the loan he took out to buy the car. This means that if the car sells for less than what he owes, he has lost money. However, if the car sells for more than what he owes, he has gained money. If he keeps the car after he pays the loan off, then the car officially becomes his. Leasing Leasing is different from buying in a couple different ways. When the consumer (lessee) leases a vehicle, he does not own it. It is much more like borrowing the car for a certain time (usually 2-5 years). For the luxury of borrowing the car, the consumer (lessee) pays the dealership an agreed upon monthly payment. However, there are also various fees and taxes, registration, and even a down payment that can be as much as 10% of the price of the vehicle. After the lease is agreed upon, the consumer drives the car off the lot, and becomes a steward over the car. He does not own the car, but he drives it, maintains it, and shows it off to his friends. However, after the lease term is up, he must return the car to

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 4 the dealership. The consumer must be made aware, though, that there is an acquisition fee that the dealer charges when the vehicle is returned. As opposed to owning a car, there are mileage restrictions on a leased car. If the consumer drives the car more than the allotted mileage (usually 12,000-15,000 miles per year), he must pay a mileage fee (around 10-15 cents per mile). Also, the vehicle cannot be modified in any way, and the vehicle must be maintained properly. Failure to do so will result in more charges upon return of the vehicle. If the consumer decides he does not like the car, and wants to terminate the lease early, there are early termination fees. At the end of the lease term, the consumer has the option of returning the car or buying it. The price that he can buy the car for is agreed upon at the start of the lease. This is one reason why leasing a car can be advantageous: if the car is worth more at lease end than the agreed upon purchase price, the consumer can buy the car and have immediate equity. On the other hand, if the car is not worth as much at lease end, the consumer can give the car back. This way the consumer will never lose money on the car depreciating faster than expected. Once again, if the consumer decides to buy the car, there is also a fee associated with that.

Problem Statement Should a car be bought or leased? One of the problems faced by drivers is whether to buy or lease a vehicle. This report will attempt to determine whether buying or leasing a car is most costefficient by using economical analysis of vehicle payments using net present value calculations, sensitivity analysis, and cash flow diagrams.

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 5

INVESTIGATIVE MEHTOD
To complete the investigation of a consumers decision to buy or lease a car, several comparative analyses were made based on varying time value preferences of the individual consumer. The 2013 Nissan Altima was the vehicle chosen for analysis due to the considerable amount of information available regarding its finances. A 3-year analysis was first conducted with 2 cash flow diagrams comparing a finance option for the consumer to purchase and potentially sell the vehicle or lease the vehicle (and return to the leasing company) for the full 36 months. Alternatively, a 5-year analysis was conducted with 2 cash flow diagrams comparing a finance option for the consumer to purchase and potentially sell the vehicle or lease it for 36 months and purchase the vehicle, financing the remaining 2 years. From Nissans website advertisement, the finance information for the lease was obtained. The 2013 Nissan Altima has an MSRP (manufacturers suggested retail price) of $23,925. An initial down payment of $2,200 is required in addition to the $199 per month (plus taxes) for 36 months. The book value (or lease-end purchase price) of the vehicle set by the Nissan Motor Acceptance Corporation (whom the consumer would have to lease the vehicle from) after the 36-month leasing period is $14,594. An acquisition fee of $595 would be charged to the consumer for returning the vehicle to the leasing company after the 36 months. If the consumer wanted to purchase the vehicle after the leasing period, a $300 purchase option fee (plus tax) would be charged from the leasing company. For purchasing the Nissan Altima, there is no down payment required and the monthly payments are slightly different from the leasing option while the MSRP remains the same. A financial advisor from a Chase bank in Mesa recommended an interest rate for a car loan between 2.5 and 3.5%. Consequently, an interest rate of 3% was used to calculate the monthly payment for the purchase option. The tax rate for the city of Mesa in Arizona is 9.05%. This tax rate was used to compute all monthly payments in this report. Below is a sample calculation for the 3-year purchase option monthly payment:

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 6

3-Year Purchase Option Monthly Payment (with taxes): ! 1 ! 12 1 ! 1 + 12

!

!=

Using a 3% interest rate and tax rate of 9.05%, the monthly payment can be found as: $23,925 1 0.03 12
!"

!=

= $695.77 !"# !"#$ (!"#!"# !"#!")

1 0.03 1 + 12

! = $695.77 + $695.77 0.0905 = $!"#. !" !"# !"#$% (!"#$ !"#$%) To complete the analysis, several subtle but important assumptions were made. The primary assumption behind all of the purchase options is that the purchase is financed as opposed to paid in cash. This assumption was made based on the fact that consumers typically do not have the sufficient funds to buy a car outright at the dealership. The primary assumption behind all the lease options is that the mileage fee of $0.15 per mile exceeding 12,000 miles per year that was advertised by Nissan is not incurred. For both cases, the assumption of purchase or leasing the 2013 Nissan Altima was based on the fact that it is a new vehicle at the time of purchase or lease. This assumption was made to account for depreciation of the vehicle after the 5 year periods to determine the future market value after purchase. This figure depends on a variety of factors including the vehicles condition and the used car prices of other vehicles. For analytical simplicity, straight-line depreciation was used to determine the future value of the vehicle after purchase. A sample calculation of the future worth for the 5-year purchase option is shown below:

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 7

Future Market Value for 5-Year Purchase Option: ! =!! ! !!" !!

Using the MSRP as the present value and the book value as the 36-month future worth, the future market value can be estimated as: ! = $23,925 60 !"#$! $23,925 $14,594 = $!, !"! 36 !"#$!

For simplicity, the 3-year purchase options were assumed to have the same exact future worth as the book value ($14,594) given by the Nissan Motor Acceptance Corporation. Considering that the time preference of each individual consumer varies, discount rates of 6% (for potential consumer investment or savings) and 18% (for potential credit card debt payments) were chosen for all four options between the 3-year and 5-year comparisons. These discount rates were chosen to ultimately determine whether purchasing or leasing the 2013 Nissan Altima makes more financial sense for the given circumstances.

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 8

RESULTS AND DISCUSSION

When analyzing the value of a vehicle, cash flow diagrams are an effective way to visually represent different scenarios. The different magnitudes on the diagram represent negative cash flow (payments) when they point downward and positive cash flow (market value of the vehicle) when they point upward. The following are cash flow diagrams of the four payment options our team has chosen to analyze.

OPTION 1
Future market Value F= Total worth of the car after 36 months $14,594

BUY over 3 years 36 monthly payments

1 H a 3 4 5 6 7 8 34 35 36

!! =Total Monthly Payment $695.77 (Monthly Payment) +$62.97 (Taxes) = $758.73 (Total Monthly)

This option is buying the car financed over 3 years. The object is to compare this to leasing a car over the same time period. $23,925, Financed at 3% over 36 months. No Down payment.

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 9

OPTION 2
36 monthly payments
1

Lease (no Buy)

34

35

36

!! = Total Lease monthly payment !! = 36 $199 (Monthly Payment) +$18.01 (Taxes) = $217.01 (Total Monthly)

!! = Final monthly payment+ acquisition fee $595 Acquisition fee

!! = Total Initial Down Payment $2,200 (Down Payment) +$199.10 (Taxes) = $2,399.10 (Total Down)

This option is to lease one car for 3 years, then give it back at the end of the lease. An acquisition fee is charged by the leasing company for you to give it back.

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 1 0

Future Market Value F= Total worth of the car after 60 months $8,373

OPTION 3
BUY 60 monthly payments
1 2 3 4 5 6 7 8 34 35 36 37 38 39 40 41 42 56 57 58 59 60

!! =Total Monthly Payment N1=60 $429.90 (Monthly Payment) +$38.91 (Taxes) = $468.81 (Total Monthly)

This option is buying the car financed over 5 years. $23,925, Financed at 3% over 60 months. No Down payment.

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 1 1

Future Market Value F= Total worth of the car after 60 months $8,373

OPTION 4

36 monthly payments
2 3 4 5 6 7 8

LEASE AND BUY

34 35 36 37 38 39 40 41

24 monthly payments
42 56 57 58 59 60

!! = Total Lease monthly payment !! = 36 $199 (Monthly Payment) +$18.01 (Taxes) = $217.01 (Total Monthly) !! =Loan Total Monthly Payment !! = 24 $627.25 (Monthly Payment) +$56.75 (Taxes) = $684 (Total Monthly)

Buy Car: !! = Total end of Lease payment $300 Purchase Option Fee

This option is to lease the car for 3 years, then buy it at the end of the lease. The total buyback amount is financed. Buyback option: $14,594, Financed at 3% over 24 months.

When considering whether or not it is worth buying or leasing a vehicle, comparing the Net Present Value (NPV) of the vehicle for different scenarios is a useful tool. The NPV takes inflation, interest rate, and the market value of the vehicle into account. For this case we want the highest NPV for our vehicle because a higher NPV means that the vehicle is worth more over the period a consumer owns it. The following table shows the net present values for the four different finance and lease scenarios chosen by our group. Various discount rates have been compared to account for rising or falling interest rates. Different discount rates have also been considered because a consumer may choose to lease a vehicle because the payment is lower, and in turn, use the savings to pay off a credit card, house, or invest their savings; among many other options. The NPV was calculated using Microsoft Excel. An example of how Microsoft Excel completes this calculation is shown below for option 1 with a discount rate of six percent.

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 1 2 The Net Present Value Equation NPV = -!! + !!! + (!!!) + + (!!! ! )! Where !! = Cost r = Discount Rate NPV = $23,925.00 +
$"#$.!" !!.!" ! ! !

+ (!!.!") + (!!.!")! ...(!!.!")!" = $30,939.83

$"#$.!"

$"#$.!"

$"#$.!"

NPV vs Discount Rate For All Four Options

$32,000.00 $31,000.00 $30,000.00 Net Present Value $29,000.00 $28,000.00 $27,000.00 $26,000.00 $25,000.00 $24,000.00 $23,000.00 6.00% 6.75% 7.50% 8.25% 9.00% 9.75% 10.50% 11.25% 12.00% 12.75% 13.50% 14.25% 15.00% 15.75% 16.50% 17.25% 18.00% $22,000.00 Option 1 Option 2 Option 3 Option 4

Discount Rate

The table above shows a comparison of all four options chosen by our group using a discount rate from six to eighteen percent. The graph clearly shows that the NPV decreases as discount rate increases for all four options. It can be seen that financing the vehicle over a period of three years (option 1) will yield the highest NPV over all discount rates. It can also be seen that option 3 yields the highest NPV when the discount rate is between six percent and roughly ten percent and the lowest NPV with a discount rate higher than roughly ten percent. The lease options end up being very similar for all discount rates with option 4 having a slightly higher NPV from a discount rate between six and ten percent. It must also be noted that options 2, 3, and 4 have a breakeven point when the discount rate equals roughly ten percent. HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 1 3

RECOMMENDATIONS
The decision of whether to buy or lease a car comes down to a case-by-case basis at best. Not everyone will benefit from buying a car, and not everyone should be considered foolish for leasing a car. Consider a brand new 2013 Nissan Altima. An easy place to start comparing is directly financing to purchase the vehicle over 3 years vs. leasing for 3 years. Option 1 shows that when buying the Altima financed over 3 years at a 3% interest rate and no down payment, the buyer will pay $758.73 per month including taxes. For option 2 when looking at leasing the Altima and giving it back at the end of the lease, a down payment of $2,399.10 is collected including taxes but the monthly payment of $217.01 a month with taxes included is much smaller value than the on a 3 year finance purchasing plan. In order to buy the car, it would require an individual to pay $541.72 more a month. Over the course of three years, financing in total will cost an individual $27,314.28, and leasing would set them back $10,806.46. It is important to note that the given total values factor in all taxes as well as including the down payment and the acquisition fee of $595.00. An acquisition fee is a fee that must be paid to the dealer at the time the lease on the car is up and there is not intent to purchase the leased vehicle. So, when exactly would it be wise for a person to lease a car? Leasing is a smart option for individuals who are financially in a bind. It has been shown that the individual who leases the Altima will have access to more money every month than the individual who does not. This is possible because, when leasing a car an individual is only paying for the depreciation of the car for a period of 36 months and not the car itself. In the given example, a down payment was not factored into financing the vehicle. Critics may argue that this is unrealistic that a person would only end up shouldering monthly costs for a vehicle without having to put down a down payment. However, it is not uncommon to see sign and drive events at dealerships used as incentive programs. A sign and drive event is just as it sounds, an incentive event where one can finance a vehicle, sign the agreement and drive right off the lot with no down payment. Leasing is still not lacking in this category. Dealers often time may waive down payments to be able to close a deal. Once again, leasing has shown it can have less of a damaging effect on ones monthly cash flow. A potential problem for individuals leasing the Altima will come in the mileage use of the vehicle. During the 36-month lease, those driving the vehicle are capped at 12,000 miles per year and if exceeded, a $0.15 fee is tacked on every extra mile. Those who drive excessively for errands, or who live far from places of unemployment it would be prudent to refrain from leasing a vehicle. Leasing can be a dangerous option for those who lack the skills necessary to maintain a vehicles appearance, or those who are not the most vigilant of drivers and tend to get nicks and scratches on the vehicle. Wear and tear hidden fees are a reality that must be dealt with. Unfortunately, there is no deposit that is paid on a lease

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 1 4 so if the car comes back in questionable shape, the lessee could be paying a very high sum of money out of pocket in order to satisfy the dealer to get the car back to shape so they can sell it. Wear and tear fees are not included up front unlike a landlord who when drafting a lease for a tenant will require a conditionally refunded deposit. The most important thing an individual should remember before leasing a vehicle is how long they plan on driving the vehicle. In the 36-month case, here it is a feasible option, as the lessee will only end up paying $10,806.46. Comparing costs, it is obvious that there is a major, major price gap between financing and leasing, including all fees, the Altima to the tune of a $16,507.82 difference. Putting this into terms for the layman, this monetary difference can be related to pizza, namely Little Caesars HotNReady $5 pizzas. $16,507.82 can purchase roughly 3029.96 pizzas over the course of three years at the Mesa sales tax rate of 9.05%, which is a very excessive amount of pizza but, if broken down translates to 84.14 pizzas a month, or 21.03 pizzas a week over the course of three years. Breaking a lease will result in fees that will defeat the benefits of leasing in the first place so it should be advised to never break a lease under any circumstance. Buying a car will ultimately cost the consumer $27,314.28 over the course of 36-months but, they will not have to worry about wear and tear fees or the breaking of a lease, and if the consumer falls on hard times economically they could sell the car to another consumer who could take over their finance plan. Therefore, factoring in the Net Present Value of the car is a major component of buying vs. leasing but that will be discussed later. A third option was considered, with the same 3% interest rate, of buying the car and financing it over 5 years, or 60 months. At this finance period, the buyer would end up paying $28,128.60 for the vehicle over the 5 year. Only an additional $814.32 for an additional two years tacked onto the finance. The average household income in Mesa, AZ is $43,417.00, which if broken down monthly is an average household income of $3618.08. Paying $468.81 is a feasible option on that income. This example has shown that buying a new Altima on a longer finance plan is a very reasonable option. The buyer would have a great deal, and in the end would not have to worry about wear and tear, or extra mileage fees either. However, when comparing the future market values of options 1 and 3, the future value of the car financed over 3 years is $14,594.00, and on the 5 year finance the future market value is $8,373.00. A depreciation of $6221.00 (using straight-line) will happen during the course of those two years. What this means for the buyer is that in order to keep the cost low on the monthly finance plan the consumer must plan on financing for a longer period of time. A shorter plan means higher monthly rates but, a larger future market value of the Altima at the time it is paid off at 3 years. If a consumer is planning on buying the car and then selling once paid off, it would be prudent and reasonable for them to probably finance the car assuming they would keep the necessary maintenance up on the car for resell as it is. They

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 1 5 would not have to worry about having to sell the car themselves, that burden would be on the dealer after the acquisition fee is paid upon return. However, if a consumer is planning on purchasing the Altima and ultimately running it into the ground and not worried about resell per se, financing in the long term is the clear winner in this case. Option 4 of leasing the vehicle for 36-months and then financing the vehicle for additional 24-months to pay off the future market value price tag of $14,594.00 for ownership is a surprisingly reasonable option comparative to the three other options. When factoring in every fee and tax over the course of the 60-months the buyer will have spent $26,867.00. The consumer will not assume full ownership until after the loan has been paid off but, taking this long route the consumer can expect to spend less than $1261.60 when directly financing that vehicle for the 60-month period. However, they do own the vehicle in the end but, are subjected to the terms of the lease for the first three years and are not on the path to ownership until the lease is up and they have paid the mandatory $300 purchase option fee. Option 4 seems to be a great option for those unsure if they would want an Altima for a long period and are essentially renting to own with a three year trial period. Financially it is not a bad option, however once the car is paid off, it does have a future market value of $8373.00 as its value has depreciated over 5 years. In order to really get the most out of these comparisons it would be wise to explain the Net Present Value (NPV) of the Altima. The NPV is a useful tool that takes inflation, interest rates, and the market value into account to determine what the vehicle is worth at a point in time. A higher NPV means the vehicle is worth more over the period a consumer owns it and therefore, a higher resell value on the market. An interesting trend to consider is that the as the discount rate increases, the NPV always decreases. Consistent with the data above, financing the vehicle over three years is the clear winner in terms of NPV because; the market value is highest once the car is paid off. Option 3 of financing over the 5 years yields a very low NPV at a large discount rate of 18% but, clearly yields the second highest value at 6% comparative to the lease options and financing over 3 years. Leasing the car over the three years is the cheapest on a month-to-month basis but ultimately yields the lowest NPV of all four options. In the end case-by-case analysis is the only way to determine the best option for every consumer. Wanting more access to money on a monthly basis to invest it elsewhere such as stock, or even to pay off debts financing is a feasible option. Wanting a trial run with a car to cast doubts aside, or wanting to have an easy out if its not working, then leasing and buying is a feasible option. When it comes down to buying the consumer must decide if they want to keep the car long term and depreciate its value, or to sell it a high future market value. The steady family may find it reasonable to have a car they plan on running the mileage up

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 1 6 on. Every case is unique, every vehicle will have different rates, and every consumer will have different needs and wants from their vehicles. The numbers must be crunched for each scenario in order to determine if it is the right option for the individual. Bottom line is, there is no clear winner in the lease vs. buy argument because, all options could be excellent choices for one person but, not for another and vice-versa.

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 1 7

Works Cited
"Buying vs. Leasing Basics." Buying vs. Leasing Basics. Feb. 2013. Web. Logan, R. (2013, April 14). Personal Interview. "Nissan Car Financing | Car Buying Options | Nissan USA." Nissan Car Financing | Car Buying Options | Nissan USA. N.p., n.d. Web. 15 Apr. 2013. Seager, T. (2013, April 5). Understanding depreciation and taxes. Retrieved from http://sustainableengineeringsystems.com/ "To Buy or Lease?" Cars.com. Cars.com Staff, 20 Sept. 2012. Web. "2013 Nissan Altima Ownership Costs." Automobile. N.p., n.d. Web. 14 Apr. 2013.

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT

[TO BUY OR TO LEASE] 1 8

Appendix
Glossary Buying Down Payment: Amount of money given to the entity giving the loan(bank) to secure the loan. Interest Rate: The cost of borrowing the money to pay for the car. Usually given in percent per year. Purchase Price (MSRP): This is the manufacturers suggested retail price. This is what you would pay for the car if you bought it new. Resale Price(Future Market Value): What you would be able to resale the car for at any given point in time. Leasing Acquisition Fee: A fee the lessee (you) pays at the end of the term to give the car back to the dealer. Dealer: The entity that is offering the lease (not you). Lease end purchase price: The price the lessee (you) could buy the car for at the end of the lease term. This price is fixed at the start of the lease. Lessee: The person who will take the car home after the lease is agreed upon (you). Net Capitalized Cost: Agreed upon value of the vehicle, often times less than MSRP. Purchase Option Fee: A fee the lessee (you) pays at the end of the term if you decide to buy the car. Residual Value: See Lease end purchase price

HAUN, KING, LOGAN MCLEAN, METS, SCHUBERT