Let's look at an example. A number in brackets indicates an income and a number without brackets indicates expense. The assumptions used are the same for both buy and lease. This may not be the case when you make your lease deal.

 The example takes into account the following assumptions:

1. The price of the car is $17,000.
2. The down payment required is 10%.
3. The sales tax rate is 6%.
4. Interest lost or foregone is computed using a 5% after tax rate of return.
5. The interest rate on the lease and loan is 8%.
6. The lease and loan terms are both 48 months.

* Be aware that this is an estimate of the value of the car at the end of four years. If the car is kept longer, the resale value will likely decline. It also depends on the condition of the car; some people treat their cars with care, while others are more careless. What is your tendency? Take it into consideration here. Also factor in mileage and extra options; these will affect the value of the car as well.

** Sales tax is included in the monthly lease payment.

*** A residual value of $5,650 was used to compute the monthly lease payment.

Sales tax is treated differently depending on which state the lease is in. Find out from a dealer how sales tax, if any, is computed on a lease in your state.

Here is a blank worksheet for you to fill in. Before you begin, get the following information from a dealer. Remember, in order to do a valid comparison, your lease term and loan term (if you are borrowing) must be equal.

1. The required down payment and security deposit amounts.
2. The cost of gap insurance and any other fees.
3. The sales tax amount on both the lease and purchase.
4. An estimate of the resale value (residual) of the car at the end of the lease term.
5. The cost of the car.
6. The term of the lease.

Use this worksheet to give you a rough idea of how the cost of leasing compares to buying a car. The comparison is only one component of your decision. Factor in your objectives.