Net Advantage To Leasing - NAL

After years of experimentation, you've settled into a habit of using an elaborate, full-sized beaver costume as an important component of your personal, romantic routine. The original costume that you bought is now pretty worn out. It's time to get a new one. But the question comes up: buy or rent?

One of the figures you'll use to make your decisions is called Net Advantage to Leasing. As the name suggests, it describes the amount of money you can save if you decided to lease (or rent) something, rather than buying it.

You can buy a used beaver mascot costume from a local high school for $300. You use your costume about once a month. A rental costs $75.

It's pretty clear without doing much math that the NAL for this transaction would be negative...you're much better off buying the costume (as long as you don't mind one that some high school kid has sweated through during every home football and basketball game).

In real life, NAL comes up a lot in real estate. Companies often have the choice of renting offices and/or factory space, or building/buying their own facilities.

The math can get complicated on these larger-scale transactions. Lease provisions become important, and the buy side has the advantage of depreciation (not available in the mascot costume example). Generally speaking, if the NAL turns out positive (meaning there is, in fact, a net advantage to leasing), the company should go with the leasing option.