Question

Annabelle is buying a scooter priced at $5599.00. She can lease the scooter for $110.00 monthly for 4 years with a residual value of 40% or she can put down a payment of 15% and take out a loan for the rest. To repay the loan, she will make bi-weekly payments of $61.43 for 4 years.

a) Which will be the cheaper option in the end?

b) What is the difference in cost?

Answer 1

[AI-generated answer — Bot GPT 3.5]

To compare the two options, we need to calculate the total cost of each option.

Option 1: Leasing
Lease payment for 4 years:
$110.00 per month x 12 months = $1320.00 per year
$1320.00 per year x 4 years = $5280.00 total lease payments

Residual value at the end of the lease:
40% of $5599.00 = $2239.60

Total cost of leasing = $5280.00 + $2239.60 = $7519.60

Option 2: Loan with down payment
Down payment:
15% of $5599.00 = $839.85

Loan amount:
$5599.00 - $839.85 = $4759.15

Bi-weekly payment for 4 years:
$61.43 per payment x 26 payments per year = $1595.18 per year
$1595.18 per year x 4 years = $6380.72 total loan payments

Total cost of loan = $838.85 (down payment) + $6380.72 (loan payments) = $7219.57

a) The cheaper option in the end is taking out a loan with a down payment.

b) The difference in cost between the two options is:
$7519.60 (total cost of leasing) - $7219.57 (total cost of loan) = $300.03

Taking out a loan with a down payment will save Annabelle $300.03 compared to leasing the scooter.