Should Samantha Lease or Purchase?

Samantha is considering the purchase of a Toyota Prius and has negotiated a final price of $19,895. She’s trying to decide whether to lease or purchase the vehicle.

• If she leases, she’ll have to pay a $600 security deposit, a capital cost reduction (down payment) equal to 10% of the vehicle’s cost, and monthly payments of $352 over the three-year term of the closed-end lease. The Prius will have a residual value of $7,958.

• On the other hand, if she buys the Prius, she’ll have to make a 10% down payment, pay sales tax equal to 8% of the vehicle’s price, and make monthly payments of $529 on a three-year loan that charges 4% interest.

• Be aware that funds used as down payments and security deposits incur an opportunity cost of 3%, as they could have earned interest for Samantha over the period of the lease or loan.