Question

Savings: $2,500
Discretionary spending: $450 per month

Option A to buy has a total cost of 22,780 dollars, up-front cost of 2,500 dollars, monthly payment of 338 dollars for 60 months, and no mileage restriction. Option B to lease has a total cost of 12,169 dollars, up-front cost of 3,925 dollars, monthly payment of 229 dollars for 36 months, and mileage restriction of 10,000 per year.

Compare the costs of buying and leasing a new vehicle.

What are the advantages of buying the car? Check all that apply.

I have enough saved for the down payment.
There are no mileage restrictions.
The price of the car is less.
The monthly payment is less.
I will own the car in five years.

Answer 1

Select the true advantages of buying (Option A):

- I have enough saved for the down payment. — Yes. Your savings = $2,500 and the up-front cost to buy = $2,500.
- There are no mileage restrictions. — Yes. Buying has no mileage limit; the lease has a 10,000/yr cap.
- The price of the car is less. — No. Total cost to buy ($22,780) is higher than the lease total ($12,169).
- The monthly payment is less. — No. Buy payment = $338/mo; lease payment = $229/mo.
- I will own the car in five years. — Yes. The buy term is 60 months, after which you own the vehicle.

(Also note: buying is more expensive overall but fits your monthly discretionary budget of $450, and you have exactly the down payment required.)