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A Used Lease Car Could Be A Good Buy

Written by Robert G. Jackson    Friday, 13 February 2009

As the 1994 models arrive in car showrooms, dealers are also selling 1992 models whose two year leases have just expired. The dealers started heavy promotion of two year personal leases a couple of years ago, and now the trade ins (or lease ins) are coming back for resale. Are these used cars, which are often in excellent condition, good buys? "It depends on how long you plan to keep the car," says James Boerger of Fairfax, Va., author of a handbook for car buyers published by the American Automobile Association. If, for example, you plan to keep the car for a long time, until it wears out, buying a used lease car might be a good deal. "One of my buyers got a 2 year old Lincoln with less than 10,000 miles for only $23,000," Boerger says. "The original cost was $36,000." Because the buyer planned to keep the car a long time, depreciation wasn't a worry. Neither was financing. But for the average customer, who wants to keep a car for four years or so and is concerned about overall cash expenditure, a new car might be the better way to go. "When you run the numbers on a new car vs. a 2 year old, the new car almost always wins," says Jerry Duffy, salesmanager of Jefferson Bank Leasing Services Division, a Maryland based subsidiary of Jefferson Bank. Duffy uses a 1994 Ford Taurus with normal equipment as an example. The price of the new Taurus is $14,000; the price of a 2 year old Taurus, similarly equipped, is $8,500. At first blush, it seems like a terrific deal. It appears you can save $5,500 on a car that is almost identical to the $14,000 edition. "But watch out," Duffy warns. "The numbers don't add up when you take into account depreciation, financing, warranty coverage, and maintenance costs." According to Duffy's figures, if you keep your 2 year old $8,500 Taurus for another two years and trade it in, you will get $3,500. The cost of depreciation would be $5,000. If, instead, you buy the new car for $14,000 and sell it in two years, you will get $7,200. "The $5,500 savings you thought you were getting in your initial price comparison is now down to $1,800, and the additional maintenance costs you'll face on the older car will eat up the $1,800. "On top of that," he says, "you won't have nearly as good warranty coverage, and the cost of financing the used car will be much higher."

Last Updated ( Friday, 13 February 2009 )