Extra Credit - Automobile Leasing vs. Bank Loan

Extra Credit - Automobile Leasing vs. Bank Loan -...

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Lease versus Purchase Under Bank Loan, Which Is Better? Study:  Compare   the   features,   benefits   and   negative   aspects   of   automobile   procurement,   as   an  individual consumer, under two separate finance methods:  1. the installment loan method (bank loan); or  2. the lease method.  This study aims to compare the real money costs as well as the contingency costs of each form  of financing and the ramifications for each. Real money costs shall be deemed to mean hard  dollars   expensed   on   down   payments,   monthly   payments,   acquisition   costs   and   interest  expense. Contingency and Mandatory Costs shall be deemed to mean additional costs and fees  that are not factored into the monthly payment amounts. Determine which of the two methods is  better, and offer reasons why. Factual Data Two separate dealerships were used. Each dealership represented one method, e.g. either  bank loan or lease. Each dealership and method represented a different make and model of  vehicle, however, each automobile in the study is a 2011 model year car. Please see specific  details for each method, dealership and automobile in the table below. Method : Lease Bank (Installment) Loan Dealer: BMW of Sarasota 5151 Clark Road Sarasota, FL 34233 Ph. 941-923-2700 Year: 2011 Make:  BMW Model:   328I Amt financed: $37,649
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Dealer:  Wilde Jaguar of  Sarasota 4821 Clark Road Sarasota, FL 34233 Ph. 941-924-3019 Year: 2011 Make:  Jaguar Model:   XF Amt financed: $38,779 Assumptions   For each car and financing scenario, the following assumptions were used in order to make a  reasonable comparison based upon negligible differences in automobile price, etc.: Interest rate*:   3.84% Down payment amount**: $3,250 Number of monthly payments: 27 It is also assumed that each vehicle will go full term and no consideration is given to default  scenarios. *For a lease, the correct terminology is money factor. The actual money factor rate on the BMW lease is .00160%, which equates to  approximately 3.84%. It is important to point out that in most cases the interest rate charged for a leased car, will typically be lower  than under the installment loan method. For this example, it would have been probable that the bank loan method would have likely  targeted an interest rate of 5.9%. **Down payment is applicable under installment loan method, but under lease method the down  payment is deemed to include down payment plus any rebate, plus any capitalized cost reduction. Real Money Costs
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This note was uploaded on 09/29/2011 for the course ACC 302 taught by Professor Smith during the Spring '11 term at University of Phoenix.

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Extra Credit - Automobile Leasing vs. Bank Loan -...

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