2
QuizMultiple Choice

Leasing vs. Buying a Car — Quiz

Question 2 • Personal Finance

Tim needs a new car while he attends college in the United States for the next three years. The car he would like has an MSRP of 15 dollars comma 000 A local dealer can get him a three-year loan with a 7% interest rate if Tim can make a 1 dollars comma 500 down payment. The same dealer offers the same car for lease with a money factor of 0.00271 and a residual value of 75% The lease requires an additional fee of 1 dollars comma 250 to cover Tim's security deposit and the acquisition and documentation fees for the car. Tim is looking to drive the car home with the smallest monthly payment. Which of these statements is true?

Answer
A
You cannot compare the monthly payments for leases and loans.
B
The monthly payments for the lease and loan are the same.
C
The monthly payment for the loan is lower.
D
The monthly payment for the lease is lower.

Explanation

The loan finances $15,000 − $1,500 = $13,500 for 36 months. At 7% annual interest, its monthly payment is about $417. For the lease, the estimated monthly depreciation charge is ($15,000 − $11,250) ÷ 36 = about $104, and the finance charge is ($15,000 + $11,250) × 0.00271 = about $72. That makes the lease payment about $176 per month, so the lease has the lower monthly payment. The $1,250 fee is an additional upfront cost, not part of the monthly payment calculation.

AI-written and checked against the verified answer.

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