In In this scenario, at the end of the 4-year evaluation period, you do not want to keep the vehicle. So, if you had purchased the vehicle you will will need to sell it, and if you leased the vehicle you will just turn it in at the end of the lease. The vehicle has a current value of $17,000, while the residual is $15,000.

Let’s assume that if you purchase the vehicle you will finance the purchase. The costs to purchase are shown in the table below. You will have a down payment of $602.48 plus 48 monthly payments of $693.40 each. We estimate that you will incur $500 in expenses when you sell the vehicle. This would include minor repairs, advertising, finder’s fees, etc. You sell the vehicle for $17,000. Your total net cost to purchase would be $17,385.68.

The cost to lease are shown in the table below. You will have an initial lease fee of $602.48 which includes the first payment. You will have 47 additional lease payments of $404.98 for total payments of $19,636.54.

Since you don’t want to keep the vehicle, you could simply turn it in and be done. However, there is a better strategy. Remember, when you lease a vehicle, you have a preset residual, and you have the right to purchase the vehicle at the end of the lease for this residual amount, or in this case $15,000. Since the vehicle is worth $17,000 less selling expenses of $500, you can buy the vehicle for the residual, turn right around and sell it, and reduce your leasing costs by $1,500.00 Table 2 shows that the total cost to lease under this scenario is $17,337.20

In the final analysis, the cost to purchase is $17,385.68 and the cost to lease is $17,337.20, which are basically the same. Please note, that since the residual is set at the beginning of the lease, it doesn’t matter what the value of the vehicle is when it is greater than the residual. It could be $30,000 and you could still recapture the difference between the market value and the residual. You do not have to had purchased the vehicle in the first place to capture this gain. This is one of the advantages of leasing.

Summary

Under this scenario, the results are the same. Neither leasing nor purchasing has an advantage. In general, anytime the value is greater than the residual, and you do not want to keep the vehicle, leasing and purchasing should be about equal. Please remember that it can be a major pain to sell a used vehicle. One of the reasons that you leased in the first place is that you didn’t want to deal with selling the used vehicle. You may decide that the extra proceeds to you are not worth the hassle of selling the vehicle.