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 Leasing a car vs. buying
  Purchasing a car with a car lease buyout
By the EchoBay Loans Expert
 Leasing a car vs. buying
Dear EchoBay Expert: I'm trying to make the decision of whether to get an auto loan and buy a new car or go the easier route and just lease it. I usually keep a car for three to four years and I have $6,000 saved for a down payment if I buy the car. Which is better or will save me more money; lease or buy?

Dear Loyal Reader: Before saying definitely whether a lease or buy is best, you will also need to know how many miles you plan to drive the car and how well you treat your vehicles. Going over on the mileage (usually 10-15,000/year) or excessive wear and tear can quickly exclude a lease from being the best deal for you.

That said, let's compare the two. Typically, if you will only have the car for three years, you are better off with leasing. This assumes you can stay within mileage requirements and will treat the car well. This is because you will only be paying for the usage of the car. The dealer will set a lease price or capitalized cost - this is what the car is worth the day you leased it. He will also set a residual amount, which is what they think the car will be worth at the end of the lease.

You will only pay for the difference between these two amounts. If you lease a car with a price of $24,000 and a residual value of $18,500, you will only pay for $5,500 over the term of your lease. Compare this to buying the car and paying for the full $24,000 over the life of your auto loan and you can easily see how your payments will be less with a lease.

Leases typically also require low down payments, which means you can put your $6,000 to use elsewhere. If you do decide to lease, be sure not to extend your lease beyond the term of your warranty. If your vehicle comes with a three-year warranty, you should not lease any longer than three years. But if you cannot stay within the mileage requirements or if you plan to keep the car longer than the warranty, a car loan may be your best option.

Although your payments may be larger with an auto loan, you will own the car. You will not have to be concerned with excessive mileage, wear and tear or what will happen if for some reason you can't fulfill the terms of your lease.



 Purchasing a car with a car lease buyout
Dear EchoBay Expert: The three year term on my leased car is over in two months and the residual value looks low. Should I do a car lease buyout and purchase my car at the end of its lease?

Dear Loyal Reader: Whether or not you should pursue a car lease buyout won't depend solely on your car's residual value. What you are really going to want to look at is your purchase option price. While your purchase option price is usually tied to your vehicle's residual value, it's not always the case.

In addition to the purchase option price, you will probably also need to pay a purchase option fee (normally not more than $700). As a rule, the residual value is the minimum you should expect to pay to purchase your vehicle at the end of the lease.

If your car's purchase option price, in addition to the purchase option fee, is lower than the car's fair market value, you may very well want to consider a car lease buyout. Even if you don't want to keep the car, you could sell it for more than what you financed it for, providing there isn't a pre-payment penalty and you can recoup all of the costs, if any, that were associated with the car lease buyout.


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