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March 25, 2013

The pros and cons of leasing a car

(Continued)

We'll start with an expensive car, like the Audi S5 coupe.

To lease the vehicle, the dealer determines how much depreciation should occur from the $50,900 MSRP when it's in the showroom until you return it three years later. The dealer applies an interest rate and amortization schedule, adds in some other fees and charges, and comes up with a monthly payment.

To purchase the same car a consumer would have to put down as much as $10,000, with the monthly payment reflecting the full value of the vehicle.

For that reason the buyer would likely be making payments longer than three years. Some payment plans for a car in this price range could easily extend six or seven years.

The Chevrolet Cruz, with an MSRP of $17,130, would most likely carry a much smaller lease payment but would lose a greater percentage of its value than the Acura.

To purchase the Cruz you would need a down payment of no more than $2,500 and the montly payment, while higher than a lease payment, might only be for three or four years. At the end of that time you would own the vehicle. So it would seem a lease probably makes more sense for an expensive car and less sense for an inexpensive one.

But many personal finance experts say it depends on a lot of factors. Do you change cars every three or four years or do you drive one until the doors fall off? If it's the latter then buying is a better deal. But if you change your wheels more often, then leasing starts to look like a better deal.

Just like buying, it only becomes a good deal if you negotiate one. Many consumers don't realize that a dealer will negotiate a lease, just as they would a sale. To dealers, there's very little difference. The consumer should view it the same way, and that means not paying so much attention to the monthly lease payment, which is what the car commercials flash on the screen.

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