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Lease vs Own Formula:
Where:
Net_buy = net cost of buying ($)
U = up front costs ($)
LI = lost interest ($)
O = outstanding loan ($)
M = market value ($)
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The Lease vs Own calculation helps compare the net cost of buying an asset versus leasing it. This financial analysis is crucial for making informed decisions about asset acquisition strategies.
The calculator uses the following equation:
Where:
Explanation: The equation accounts for all costs associated with purchasing an asset (upfront costs, opportunity cost of lost interest, and any remaining loan balance) minus the market value of the asset.
Details: This analysis is crucial for businesses and individuals to make financially sound decisions about whether to lease or purchase assets like vehicles, equipment, or property.
Tips: Enter all monetary values in dollars. Be sure to include all relevant costs to get an accurate comparison between leasing and owning options.
Q1: When should I lease instead of buy?
A: Leasing may be preferable when you need flexibility, want to avoid large upfront costs, or when technology changes rapidly making owned assets obsolete.
Q2: What are the tax implications of leasing vs buying?
A: Lease payments are often fully deductible as business expenses, while purchased assets are typically depreciated over time. Consult a tax professional.
Q3: How do I calculate lost interest?
A: Estimate what you could have earned if the upfront costs had been invested instead, using a reasonable rate of return for your risk tolerance.
Q4: Does this calculator account for maintenance costs?
A: No, maintenance costs should be added to the ownership costs if comparing with lease options that include maintenance.
Q5: What's a good rule of thumb for lease vs buy decisions?
A: Generally, buy if you'll use the asset long-term and it holds value well; lease if you need short-term use or want to avoid depreciation risk.