Question

You need a new computer. You are considering either leasing or putting the purchase on your credit card.

The terms of the lease agreement are $250 down and a monthly payment of $100 for 12 months, with an option to purchase for $300 at the end of the lease period.

If you buy the computer now and put the purchase on your credit card, your monthly payment would be $130.00, with the credit card interest rate of 18% compounded monthly.

What is the best option?

Answer 1

Since the cost of buying on credit card is less

hence, buying from credit card is best option.

Explanation:

Given;

Terms of lease as:

$250 down

monthly payment = $100 for 12 months

cost of purchase at the end of lease period = $300

Thus,

the total cost of buying on lease terms = $250 + ( 12 × $100 ) + $300

or

the total cost of buying on lease terms = $1750

Now,

For second alternative

Monthly payment = $130.00

Duration = 12 months

Rate of interest = 18%

monthly rate of interest, r =
`\frac{\textup{18}}{\textup{12}}` = 1.5% = 0.015

Now, using the compounding formula

Th total cost =
`\textup{Part payment}*((1+r)^n-1)/((1+r)-1)*(1+r)`

on substituting the values, we get

Th total cost =
`\textup{130}*((1+0.015)^12-1)/((1+0.015)-1)*(1+0.015)`

or

the total cost = $1720.78

Since the cost of buying on credit card is less

hence, buying from credit card is best option.