Question

An off road sport utility vehicle is advertised with a purchase price of $43,995.00. Shelli is considering the following options in buying the SUV.

Option 1: Purchase the Vehicle with a Loan

Shelli will make a down payment of $8,000 if she chooses this option.

The monthly payments for a loan at 7.95% per year on the balance will be $765.44 per month for 5 years.

Option 2: Lease the Vehicle

No down payment is required, but Shelli will make a down payment of $8,000 if she chooses this option.

The lease rate is 7.75% per year for 4 years.

The monthly lease payment is $626.25 for 4 years.

To buy the SUV at the end of the lease, it's buyout is 38% of the original value.

Calculate the total cost to own the SUV for each option. Which option is the cheapest for Shelli and by how much?


Option 2, by $851.70

Option 1, by $1,002.75

Option 2, by $1,002.75

Option 1, by $851.70

Answer 1

• Option 1, by $851.70

Explanation:

Option 1 total:

• $8000 + $765.44*5*12 = $53926.40

Option 2 total:

• $8000 + $626.25*4*12 + 0.38*$43995 = $54778.10

The difference:

• $54778.1 - $53926.40 = $851.70

As we see the option 1 is cheaper by $851.70

Correct answer choice is the last one