I did an Excel Sheet trying to compare between a Car Lease and a Car Purchase.
- By "Car Lease" I mean maybe to what is called "hire purchase scheme"; a monthly payments that at the end of the period (usually 3 years) you can pay the balance remained and own the car, or continue the payments and keep rolling, maybe to a new car.
At first, I thought that Leasing is a total theft as at the end of the period (3 years) I must pay the remaining balance which is $20,000 above the car value!
Furthermore, it seems like the Car Lease Company is having a 30% Yield on this loan.
But, as I sum all the expenses I must pay when I purchase a car (as insurance) it seems like it pretty much the same cost.
I have 2 options: get a loan by myself (at the bank) and buy a car, or go to a lease company which lends me a new car with monthly payments for 3 years (that includes insurance). At the end of the 3 years the "lease" company offers me to pay off and own the car, or to continue rolling with the payments (or upgrade to a new car with the same terms).
The value of this new car is around 75K (don't mind the currency). Assuming it depreciates 15% each year, it turns out that at the end of these 3 years the car can be sold for 44,831. With the loan from the bank, I can have a baloon loan which at the end of the 3 years the remaining balance to be paid will be that exact amount (44,831). But, with the lease company, at the end of the 3 years they want 62,731. Which is 20K above the value of the car.
So to calculation:
The monthly payment if I take a loan from the bank:
The monthly payment if I take the loan from the lease company: I considered the initial payment they want (of 8,900) and the difference from the payment at the end of the period (62K) and the value of the car (44K), and thought that I'd take a loan to cover these expenses (assumed interest of 5% and calculated roughly as you can see below, which adds 817 to the monthly payment).
Am I wrong? Am I missing something? Can someone look at that Excel Spreadsheet and approve/disapprove it?
- Now I have realized that I took into consideration the Depreciation when I calculated the costs of buying a car, but didn't consider it in Leasing a car. Am I Right? That was my mistake?