Question

Goals: Investigate the financial considerations of acquiring a car and make a decision on how to acquire the car based purely on those financial considerations. Instructions: Imagine that you have decided to acquire your dream car. You now have to decide whether to buy or lease that car. Write a report specifying the differences between leasing and buying your dream car and make a decision on whether to buy or lease. In writing your report you must do the following:

Gather the terms under which you would lease the car, such as the necessary down payment amount and monthly payment amount.

Calculate the total costs when leasing the car.

Gather the terms under which you would buy the car, such as the necessary down payment amount and monthly payment amount.

Calculate the total costs when buying the car.

Include the benefits, drawbacks, and costs involved with each of the two financial options.

Consider what measures you could use to make a decision.

Decide on a specific measure to use as the basis of your decision and explain why you chose that measure.

State your decision.

Answer 1

Leasing gives you an option of immediately owning the asset without putting in too much money.

Buying, on the other hand, allows you to have ownership of the asset.

Leasing will allow you an option to immediately get hold of the asset you want to use without paying a hefty amount. . And for leasing, you would pay lesser money for the asset per month than if you would have bought the asset. In leasing, you would receive another benefit. You would also be able to save taxes (depending on the place you’re located at).

Buying will allow you to own the asset. If you take a loan from the bank, a bank will own the asset until the amount is paid off. But for buying an asset, you need to pay more per month than if you would have leased the asset. Buying an asset also allows you to pay less insurance premium than leasing an asset.

Both Lease vs Buy are popular choices in the market; let us discuss some of the major Differences Between Lease vs Buy :

• Leasing allows you to pay less and get all the benefits of buying (most of). Buying allows you to take the ownership but at a hefty cost.
• Leasing doesn’t need any down payment (or need a lower down payment). Buying needs 10-20% of immediate down payment.
• When you lease, you need to pay less amount per month as an amount for leasing the asset. When you buy, you need to pay a handsome amount to the bank before you pay off the entire amount of the loan.
• Leasing is best when you need the asset for a limited time. Buying is best when you feel you want to own an asset for long-term.

Suppose if we want to buy a car of $ 50,00,000.

If that car is available on lease for $ 25000 per month then, paying lease rent every month is good option rather than $ 5000000 in lumpsum in 1 month. Lease option gives less payment possession of car, while buying option gives ownership. In leasing, tax savings are available (in few countries), while buying option gives depreciation benefit.

CONCLUSION- Lease option is better, as it does not block liquidity, the saved money can be used for any other business purpose. Opting for lease option for more than 20 years, gives benefit to lessee to use the asset at fullest without ownership and blocking the money.