Tim needs a new car while he attends college in the United States for the next three years. The car he would like has a MSRP of $15,000. A local dealer can get him a 3-year loan with a 7% interest rate if Tim can give them a $1,500 down payment.

The same dealer offers the same car to lease with a money factor of 0.00271 and a residual value of 75%. The lease requires an additional fee of $1,250 to cover Tim’s security deposit and the acquisition and documentation fees for the car.

Tim is looking to drive the car home with the smallest initial out-of-pocket cost. Which of the following statements is true?
a.
The initial out-of-pocket cost is less for the lease.
b.
The initial out-of-pocket cost is less for the loan.
c.
The initial out-of-pocket cost is the same for the lease and loan.
d.
The initial out-of-pocket cost for a lease is not comparable to that of a loan.

Tim needs a new car when he is in college for 3 years. The car is like a $15,000 a local dealer got him a deal of 7% of interest worth a 3 year loan. If Tim can give him $1500 as a down payment.

Same dealers offer the very same car at a lease of 0.00271. and give a residual value of 75%. Tim is looking to drive the car back home with a small amount of cost from his pocket.

He needs initially make out of the pocket costs less when taking the lease.

Hence the option A is correct.

Learn more about the while he attends college in the United States.

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