Lease (or Rental, or Contract Hire)
How to construct a spreadsheet to compare lease and loan
The best way to decide between your options is to construct a spreadsheet to make some financial projections of the various scenarios that might be relevant to you - eg:
- keeping a car for 6 years vs getting rid of it after 2 years,
- doing 5,000 miles or 20,000 miles per annum,
- exercising any option to buy the car at the end of the lease, vs handing it back to the finance company,
Take account of all costs, such as:
- monthly payments
- if relevant, any tax relief
- if you put down a cash deposit from your savings, the interest you lose as a result
- running costs,
- the depreciation (difference between purchase and resale values of the car)
- any financial penalties such as high mileage at the end of the lease,
- gap insurance (in case of accident, to cover the difference between the car value and what you owe on the lease/loan).
Then compare the short and long term costs of those scenarios.
The construction of the spreadsheet would involve:
- each column would be a month,
- each line would be a financial component of the lease or loan,
- there would also be a total in each column to add the costs for a month
- the total costs would then be carried forward to the next month,
- by repeating the columns beyond the life of the lease, you will be able to project your total spending on each option.
To help you construct such a spreadsheet, then we have a simple Excel example that illustrates the above principles. You can use this to get some ideas on how to start constructing your own spreadsheet.
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