If the lease requires an initial payment of $1,200 and the finance agreement requires an initial payment of $2,000, the $800 difference could be invested to generate earnings or used to pay off other bills and thereby save interest payments. These earnings or savings will generate investment earnings or interest savings that should be applied to the cost of the lease. Generally, it is better to do this calculation after deducting any income tax due on the earnings.

If the $800 difference is deposited in an account that earns 5% and the earnings are taxable at your tax rate of 30%, the effective monthly after-tax interest rate is 5% ÷ 12 × (1–30%) = 0.2917%. The benefit for each month in the lease term is $800 × 0.2917% = $2.33 per month. If the $800 difference is instead used to pay a nondeductible credit card debt on which the APR is 16%, the benefit received each month in the lease term is $800 × 16% ÷ 12 = $10.67 per month.

Just as the value of a difference in the up-front costs of a lease and a purchase should be included in the buy-versus-lease comparison, so, too, should the value of any difference in monthly payments. The methodology is similar to that used for a difference in up-front costs; the amount of the savings will be different each month and should include amounts gained from the reinvestment of any interest earnings on investments and interest savings resulting from debt repayments. Thus, a table would have to be developed that shows how the monthly payment savings, and the earnings from those savings, accumulate. Example