Calculations Involved In Auto Credit Financing

Auto credit leasing or personal contract purchase is the new entity in the lending community and transactions which allows borrowers to take a car for few years at very low monthly installments. The main talking point about this auto credit option is that the applicant can get finances for any car, get a new car after few years and still pay low monthly installments for it. If one hears it like this then it might seem a little hard to believe but the following mentioned example carries the calculations involved in leasing which can be read to see for sure.

For example, take the price of the car in the current scenario to be 1000 dollars. This is just taken as example to clarify the calculations. Let the loan term be a couple of years and the interest charged be 10 percent. When auto credit is taken, the yearly installment comes to 600 dollars every year because of the interest amount addition in the loan. However, in auto credit leasing, the lender or leaser calculates the price of the car after two years. It is calculated by checking the reduction rate of the car or depreciation factor. Let’s say that the car’s price drops to 700 dollars after two years. The depreciation factor is taken high but it is the case with many cars out there.

Now, the difference of the prices is 300 dollars and this is what is taken on auto credit. This means that by adding the interest the total money that the applicant has to pay back over the course of the loan is 360 dollars. One can easily see that the price of the total installment in auto credit leasing is less than what it is for simple auto credit for the first year. However, this thing should be noted that the applicant doesn’t retain the car and gives money just for driving it for few years.