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from The Complete Car Cost Guide

Comparison: Cash, Loan, Lease

This example illustrates a typical lease and loan arrangement for a mid-priced 1998 sedan. If you pay cash for the car, you will end up paying less than if you finance or lease the car for 36 months. This is true even after taking into account any investment income or "opportunity cost" that you may earn if you invest the $21,500 and withdraw the lease payments as you need them (or if you finance the car and withdraw the down payment and monthly payments as you need them).

In this example, we assume your investment has an after-tax yield of 3.5%. We also assume the lessee will purchase the vehicle at the end of the lease for $10,100 the predetermined resale value. We assume a 9.1% after-tax interest rate on the loan.

It all boils down to interest rates. The loan costs $1,658 more than buying with cash because the loan interest rate of 9.1% exceeds the investment interest rate of 3.5%. The regular lease costs $4,394 more than paying cash because the lease's base interest rate of over 11% is higher than the investment rate for the cash buy. Even the subvented lease costs $999 more than the cash purchase, since it has a base interest rate of 4.5%.

1998 The Complete Car Cost Guide™, IntelliChoice®, Inc., Campbell, CA