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In order to make your lease versus buy comparison valid, the lease term and the loan term (if you are borrowing), must be equal.

Let's look at an example. A number in brackets indicates an income and a number without brackets indicates expense. The assumptions used are the same for both buy and lease. This may not be the case when you make your lease deal.

Lease	Amount	Buy	Amount
Security Deposit	$350	Down Payment (10%)	$1,700
Sales Tax**	N/A	Sales Tax (paid up front)	$1,020
Gap Insurance	$400	Gap Insurance	N/A
Interest Lost on Deposit & Gap Ins.	$150	Interest Lost (down payment & sales tax)	$544
Monthly Payments*** ($331/month)	$15,888	Monthly Payment ($374/month)	$17,952
Interest Lost on Monthly Payment	$1,271	Interest Lost on Monthly Payment	$1,436
Refund of Security Deposit	($350)	Refund of Security Deposit	N/A
Disposition Fee	$275	Resale/Trade-in Value*	($5,650)
Net Cost	$17,984	Net Cost	$17,002

 The example takes into account the following assumptions:

1. The price of the car is $17,000.
2. The down payment required is 10%.
3. The sales tax rate is 6%.
4. Interest lost or foregone is computed using a 5% after tax rate of return.
5. The interest rate on the lease and loan is 8%.
6. The lease and loan terms are both 48 months.

* Be aware that this is an estimate of the value of the car at the end of four years. If the car is kept longer, the resale value will likely decline. It also depends on the condition of the car; some people treat their cars with care, while others are more careless. What is your tendency? Take it into consideration here. Also factor in mileage and extra options; these will affect the value of the car as well.

** Sales tax is included in the monthly lease payment.

*** A residual value of $5,650 was used to compute the monthly lease payment.

Sales tax is treated differently depending on which state the lease is in. Find out from a dealer how sales tax, if any, is computed on a lease in your state.

Here is a blank worksheet for you to fill in. Before you begin, get the following information from a dealer. Remember, in order to do a valid comparison, your lease term and loan term (if you are borrowing) must be equal.

1. The required down payment and security deposit amounts.
2. The cost of gap insurance and any other fees.
3. The sales tax amount on both the lease and purchase.
4. An estimate of the resale value (residual) of the car at the end of the lease term.
5. The cost of the car.
6. The term of the lease.

Lease	Amount	Buy	Amount
1. Security Deposit	$ _____	1. Down Payment ( ____%)	$ _____
2. Sales Tax	N/A	2. Sales Tax	$ _____
3. Gap Insurance and fees	$ _____	3. Gap Insurance and fees	N/A
4. Interest Lost on Deposit & Gap Insurance (Line 1 plus Line 3 x 5% x #years)	$ _____	4. Interest Lost on Down Payment and Sales Tax (Line 1 plus line 2 x 5% x #years)	$ _____
5. Total of All Monthly Payments ($ ____ /month x number of months)	$ _____	5. Total of All Monthly Payments ($ ____ /month x number of months)	$ _____
6. Interest Lost on Mo. Payment (Line 5 x 8%)	$ _____	6. Interest Lost on Mo. Payment (Line 5 times 8%)	$ _____
7. Refund of Security Deposit	$ _____	7. Refund of Security Deposit	N/A
8. Disposition Fee	$ _____	8. Resale/Trade-in Value	$ _____
9. Net Cost	$ _____	9. Net Cost	$ _____

Use this worksheet to give you a rough idea of how the cost of leasing compares to buying a car. The comparison is only one component of your decision. Factor in your objectives.