1. What is Loan vs Lease Calculation?

The loan vs lease calculation compares the total costs of financing a purchase through a loan versus leasing the same item. It helps determine which option is more financially advantageous.

2. How Does the Calculator Work?

The calculator uses these formulas:

Where:

• \( U \) — Up front costs ($)
• \( LI \) — Lost interest ($)
• \( O \) — Outstanding loan ($)
• \( M \) — Market value ($)
• \( \text{total lease payments} \) — Sum of all lease payments ($)

Explanation: The net loan calculation accounts for all costs associated with a loan minus the residual value, while the net lease is simply the sum of all lease payments.

3. Importance of Loan vs Lease Comparison

Details: Comparing loan and lease options helps individuals and businesses make informed financial decisions about asset acquisition, considering both short-term and long-term costs.

4. Using the Calculator

Tips: Enter all financial values in dollars. Include all relevant costs for accurate comparison. The lower result (net loan or net lease) typically indicates the better financial option.

5. Frequently Asked Questions (FAQ)

Q1: Which is better, loan or lease?
A: It depends on your financial situation, usage needs, and tax considerations. Leases often have lower monthly payments but no ownership at the end.

Q2: What is included in up front costs?
A: Down payment, taxes, registration fees, and any other initial costs required to secure the loan.

Q3: How is lost interest calculated?
A: This is the interest you could have earned if you had invested the money instead of using it for the down payment or lease.

Q4: What if the market value is unknown?
A: Estimate based on depreciation schedules or similar asset sales. For leases, this would be the residual value.

Q5: Are there tax implications to consider?
A: Yes, loans and leases have different tax treatments. Consult a tax professional for your specific situation.