# Buy or Lease?

Should you lease or buy? Use this calculator to find out! We calculate monthly payments and your total net cost. By comparing these amounts, you can determine which is the better value for you.

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# Definitions

Purchase price
Total purchase price.
Down payment
Amount paid as a down payment, which for leases is often called a capital reduction.
Sales tax rate
Sales tax percentage to be charged on this purchase. Sales tax is included in each lease payment. Sales tax for a purchase is charged on the total sale amount.
Investment rate of return
Rate of return on investments. This is the return that you would make if you were to invest your down payment or security deposit instead of using it in your purchase or lease.

The actual rate of return is largely dependent on the type of investments you select. For example, from December 1999 to December 2009, the average annual compounded rate of return for the S&P 500 was -0.6%, including reinvestment of dividends. From January 1970 to December 2009, the average annual compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 10.1% (source: www.standardandpoors.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a bank may pay as little as 1% or less but carry significantly lower risk of loss of principal balances.

It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that funds and/or investment companies may charge.

Term in months
Term in months for your lease or your loan.
Other fees
Any fee, other than a capital reduction or down payment, required to be paid at the close of the lease or loan.
Annual rate of depreciation
The rate of depreciation gauges how fast your new purchase will lose its market value. A high depreciation rate is about 20% per year, medium is 15% per year and low is 10% per year.
Interest rate
Annual interest rate for your loan or your lease.
Residual percent
For leases, this is the remaining value after the lease term expires. The higher this amount is, the lower your lease payment will be.
Security deposit
Required deposit on leases. The security deposit is refunded to you at the end of your lease (depending on excessive wear or damage).
Lost interest on buy option
This includes any interest you would have earned at your investment rate of return on the buy option's down payment and other fees. If the monthly payment for leasing is less than the monthly payment for buying, this also includes any lost interest due to the higher monthly payments for buying. If leasing is more expensive than buying, your interest costs for buying are reduced by the amount of interest you would earn on the difference.
Lost interest on lease option
This includes any interest you would have earned at your investment rate of return on the lease option's down payment, security deposit and other fees. Please see the definition for "Lost interest on buy option" for an explanation on how we account for any interest you might earn by having a lower monthly lease payment.

Information and interactive calculators are made available to you as self-help tools for your personal independent use and are not intended to provide investment advice. We can not and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.