Age Cost per year $2499 $3069 $3348 $3348

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1 Chapter 6 Activity Sheet 6.2 Should You Lease or Buy Your Car? Leasing a car, which is somewhat like renting a car, is an alternative to buying. When you lease a car, you essentially pay for the car s depreciation during the time that you lease it. Leases typically last for three years, so you are paying for the most expensive years in the life of the car. At the end of three years, you can return the car or buy the car at the amount specified at the time of leasing. If you return the car, you have no equity in the car and receive no compensation for the car. Additionally, certain restrictions apply with leases, such as mileage limitations and expectation of ordinary wear and tear. If you exceed contracted limits, you have to pay even more money when you return the car. So, which is better for you to lease or to buy? Leasing: Costs associated with leasing a new car valued at $25,220 are displayed in the table below. Lease payments are calculated at $279/month. Initial costs of $2499 include down payment, first month s payment, and miscellaneous expenses. Age Cost per year $2499 $3069 $3348 $ Use a graphing calculator or software to plot cost versus age on a scatterplot. Draw a rough sketch of your graph here.

2 Chapter 6 Activity Sheet 6.2 page 2 2. Describe the relationship between the car s age and the costs associated with leasing the car. 3. In Activity Sheet 6.1, you found the depreciation and value over time for a car of the same price (see the table below). Write the statement that compares yearly leasing costs with the yearly depreciation costs associated with owning this car. Also write a statement that compares the total costs of leasing a car after 3 years with the total depreciation costs associated with owning this car for 3 years. Age Value Depreciation Depreciation values do not include any costs associated with financing a vehicle. If you are paying interest on a loan used to purchase a vehicle, then any comparison of leasing or buying must take into consideration this additional cost. Let s focus just on costs for the moment and compare the costs associated with buying and leasing: To buy the car costing $25,220, you finance $23,220 for 5 years under a promotional rate of 1.9%. Monthly payments would be $ If you wanted to pay off the loan at the end of 3 years, you would still owe $ on the car. To lease the car costing $25,220, you pay $279/month for 3 years plus initial costs of $ Answer the following questions about leasing or owning this car given the scenario above: Leasing: a. How much will you have spent to lease the car at the end of 3 years? b. How much will you owe on the car at the end of 3 years? c. How much of the value of the car is yours at the end of 3 years?

3 Chapter 6 Activity Sheet 6.2 page 3 Owning: d. How much would you have spent to own the car at the end of 3 years? e. How much will you owe on the car at the end of 3 years? f. How much of the value of the car is yours at the end of 3 years (assuming the car is valued at $14,627 as shown in the table for question 3)? Comparing: g. Write a statement that compares the costs of purchasing the vehicle at the end of 3 years with the costs associated with leasing for 3 years. h. At the 3-year point, which option is costlier and why? At the end of your third year of leasing, you have the option to purchase the vehicle for $15,688. If you do not purchase the vehicle at the end of the lease, you return it to the dealer. You do not receive any compensation, but you may choose to lease a new vehicle. 5. Write a statement that compares the costs at the end of 3 years for initially purchasing the vehicle with the costs associated with leasing the vehicle for 3 years and then purchasing it. 6. At the end of 3 years, the financial differences between owning and leasing a car are not great. Would you expect the same to be true at the end of 6 years? Why or why not?

4 Chapter 6 Activity Sheet 6.2 page 4 Remember: To buy the car costing $25,220, you finance $23,220 for 5 years under a promotional rate of 1.9%. Monthly payments would be $ After 60 payments, you own the car. Remember: To lease the car costing $25,220, you pay $279/month plus initial costs of $2499. Assume that after three years, you return the car and lease a second vehicle for $25,220 under the same terms: you pay $279/month plus initial costs of $ Answer the following questions about leasing or owning cars during a 6-year period, given the scenario above: Leasing: a. How much will you have spent to lease the two cars at the end of 6 years? b. How much will you owe on the cars at the end of 6 years? c. How much of the value of the cars is yours at the end of 6 years? Owning: d. How much would you have spent to own the car at the end of 6 years? e. How much will you owe on the car at the end of 6 years? f. How much of the value of the car is yours at the end of 6 years? Comparing: g. Write a statement that compares the costs of purchasing the vehicle at the end of 6 years with the costs associated with leasing for 6 years. h. At the 6-year point, which option is costlier and why?

5 Chapter 6 Activity Sheet 6.2 page 5 8. Write a statement that compares the costs of purchasing the $25,220 vehicle at the end of 9 years with the costs associated with leasing for 9 years, assuming that you lease three vehicles under the same terms for each leasing period of $279/month plus initial costs of $ Sketch a graph below of the cumulative costs associated with purchasing this car over the course of 9 years. Write a mathematical model to describe the cost of purchasing this car over time. Cumulative Cost Time in Years

6 Chapter 6 Activity Sheet 6.2 page Sketch a graph of the cumulative costs associated with leasing 3 cars over the course of 9 years. Write a mathematical model to describe the cost of leasing 3 cars over time. Cumulative Cost Time in Years 11. When might leasing a car be a better option than buying? A worse option? Why? There is more to making a decision about buying or leasing than the cost of the cars taxes, mileage, and insurance will vary. Check out these websites (and others) to learn more about owning or leasing a car: carbuyingtips.com/. Leasing or purchasing a car is a complex and costly endeavor. You should plan to do considerable research before making any decisions.