Assignment 2: financial decisions



Assignment 2: financial decisions

Introduction

Case 1: Leasing a car for three year period

In this modern world car has become an important necessity of life mainly because it provides numerous advantages to individual life style. Individual can purchase car either by paying it in cash or either by using leasing options that has become a most popular financing tool used by individual for obtaining of new cars. The decision of obtaining a car through either cash or lease is individual personal decision and for that individual has to consider several financial and non-financial factors. Some of the most common factors that are imperative for the individual to consider before accepting leasing agreement such as period of time individual aim to keep the car, usage of car and is urgent need for the individual (Fields, 2011).

Advantages of leasing

leasing a relatively new concept of financing but is being used in considerable amount particularly by newer generation and lower income people because it has provided them the opportunity of owning personal car that was previously a dream. In spite of this there a several other advantages of leasing that are discussed below.

Lower monthly payments 

The most important advantage of leasing that its monthly payment is exceptionally lower as compare to loan payments because leasing payment schedule is being formulated by keeping in mind the financial condition of the customers.

Guarantee coverage. 

The second most important advantage of leasing is that customers are relieved from the tension, and pressure of insuring the car as mostly leasing companies for instance banks provide cars that are insured. In addition to this, insurance and other service amount are included in lease contract and hence get negligible for the individual (Gotze et al, 2008).

Contract flexibility

Another advantage of leasing is that majority of the leasing contract are flexible that in simple words means that it provides certain benefits to the individual for instance, individual has the option of changing the payment structure, cancelling the leasing contract and have the option of leasing of new car.

Disadvantages of leasing

In spite of certain advantages, leasing tool has certain disadvantages that are briefly discussed below

Leasing object is not owned

The most common disadvantage of financing through leasing is that item obtain through lease is not owned until is bought after the end of leasing period. Hence, car bough by individual is not his property until is bought by the individual and actual price after the ending of leasing period. In addition to this leasing payment is also a source of debt for customer that has to pay within allotted time.

 Maintenance and other cost

Individual using leasing tool for obtaining car might have to pay some extra amount under other expenses like, leasing charges, Kibor rate, security deposit, and other. In addition to this, in case of major problem in vehicle individual will become entirely dependent on bank contract and thus might not able to use the car for some period (Fields, 2011).

Appropriate steps required for decision-making

It is imperative for the individual to analyze the ...