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  #1  
Old 06-09-2006, 02:28 PM
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mclaren mclaren is offline
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Buy Vs Lease ? Check this out

For this execise I'm going to assume you could get 5% on a 3 year CD which you can and you could put your lease payments in an account paying 5% which you probably can't. I'm also going to use numbers from my recent Z4 lease.

Buy: $45.870 + 7% tax +$200 ( for whatever ) = $49,280.90
3 year 5% CD with 20% income tax = $55,495.22

Lease
3 year 5% CD of drive off of $4633.02 = $5,217.24
35 payments of $528.48 at 5% = $19,594.63
Payoff $29,332 + 7% tax = $31,374.54
Return 7 security deposits = -$3,850
Total Leasing cost = $52,336.41

Savings of Lease vs Buy = $3158.81

The money factor on the lease was .00021 (.0005 - 7*.00007 + .0002 )
which is the key to the savings.

Anything wrong with this ?
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  #2  
Old 06-09-2006, 03:05 PM
BayAreaBMWFan BayAreaBMWFan is offline
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Nothing significantly wrong but for the fact that the future value of your monthly lease payments will be higher at a discount rate of 5%.

BMW gave you an interest rate of 0.5% and that is where the savings are coming from.

Leasing often makes a lot of sense especially when you have free money like in this case.
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  #3  
Old 06-10-2006, 05:53 AM
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Andrew*Debbie Andrew*Debbie is offline
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I've said this before. Sometimes lease to own makes sense.


If you actually do this, you may be able to get the car for less than the residual. I've read posts that sometimes BMWFS will offer to sell you the car for less than the residual.

Also ask your dealer for the CPO price.
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Last edited by Andrew*Debbie; 06-10-2006 at 05:58 AM.
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  #4  
Old 03-10-2012, 06:26 PM
Tomjh Tomjh is offline
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Quote:
Originally Posted by Andrew*Debbie View Post
I've said this before. Sometimes lease to own makes sense.


If you actually do this, you may be able to get the car for less than the residual. I've read posts that sometimes BMWFS will offer to sell you the car for less than the residual.

Also ask your dealer for the CPO price.
I'm thinking about the pros and cons as I have leased my last four cars. One advantage of a purchase is you can get a good discount up front but a payoff is based on the starting point of the msrp even if your lease is based on a reduction of the msrp
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  #5  
Old 06-10-2006, 11:21 AM
exchequer exchequer is offline
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I can't get your lease numbers to work out in a lease calculator, which may not be surprising since I'm a leasing n00b. I get a $587 payment which includes $38 in tax compared to your $528.48 payment. Do you mind walking me through your lease numbers? I have to make this decisions soon and I was leaning toward buying, but this could sway my thinking. Thanks!

Here are the numbers I used:
Base Cap Cost: $49280
Cap Cost Reduction: $4633 (driveoff) - $3850 (returned security deposits) = $783
Residual: $29332
MF: 0.00021
Term: 36 months
Tax Rate: 7%

Here in the info you originally posted so it will be eaiser to reference without scrolling:
Quote:
Buy: $45.870 + 7% tax +$200 ( for whatever ) = $49,280.90
3 year 5% CD with 20% income tax = $55,495.22

Lease
3 year 5% CD of drive off of $4633.02 = $5,217.24
35 payments of $528.48 at 5% = $19,594.63
Payoff $29,332 + 7% tax = $31,374.54
Return 7 security deposits = -$3,850
Total Leasing cost = $52,336.41

Savings of Lease vs Buy = $3158.81

The money factor on the lease was .00021 (.0005 - 7*.00007 + .0002 )
which is the key to the savings.

Last edited by exchequer; 06-10-2006 at 11:24 AM.
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  #6  
Old 06-10-2006, 06:23 PM
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mclaren mclaren is offline
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Quote:
Originally Posted by exchequer
I can't get your lease numbers to work out in a lease calculator, which may not be surprising since I'm a leasing n00b. I get a $587 payment which includes $38 in tax compared to your $528.48 payment. Do you mind walking me through your lease numbers? I have to make this decisions soon and I was leaning toward buying, but this could sway my thinking. Thanks!

Here are the numbers I used:
Base Cap Cost: $49280
Cap Cost Reduction: $4633 (driveoff) - $3850 (returned security deposits) = $783
Residual: $29332
MF: 0.00021
Term: 36 months
Tax Rate: 7%

Here in the info you originally posted so it will be eaiser to reference without scrolling:
You didn't figure the lease correctly.
The cap cost is $45870 + $625 (Lease Aquisistion )= $46495.
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  #7  
Old 06-10-2006, 07:11 PM
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chuck92103 chuck92103 is offline
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The cheapest vehicle is still and will always be the one that is paid off.

A paid off BMW costs approx. $200 per month to maintain. Much less than any lease.

A paid off car costs always trumps a financed or leased one.

Last edited by chuck92103; 06-10-2006 at 07:38 PM.
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  #8  
Old 06-10-2006, 07:57 PM
BayAreaBMWFan BayAreaBMWFan is offline
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Quote:
Originally Posted by chuck92103
The cheapest vehicle is still and will always be the one that is paid off.

A paid off BMW costs approx. $200 per month to maintain. Much less than any lease.

A paid off car costs always trumps a financed or leased one.
If a paid off BMW costs $200 to mantain then it is almost a no-brainer to lease one every three years instead of paying it off. The lease of a new BMW includes the depreciation, the finance charge, the sales tax, the maintenance and the warranty. Even a used BMW will depreciate unless it is more than 6-7 years old. Though the depreciation will be lower I am quite sure that the difference is not going to be more than $200. The general rule of the thumb is 40% every three years. So a new car will be worth 60% of its MSRP after 3 years. A three year old car will be worth 36% of MSRP after another 3 years, resulting in another 24% (of MSRP) in depreciation. Though there is a 16% difference in depreciation between the first 3 years and the next three years, most smart buyers never pay MSRP on their cars (ED folks pay 88-90%). Thow in the free maintenance and repairs and you have a winner in the under-warranty lease.

To get an idea of what I am talking about, price out the lease for a new car and a lease for a similar three year old car on leasecompare.com. You will be surprised on how close the lease for three year old car is compared to a new car. Throw in ED and BMWCCA rebates into the mix; add special residuals and MF and it is almost a slam dunk. Of course if you plan to drive the car for 10 years you will come out ahead but if your horizon is less you (5-6 years), you are much better off leasing.
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  #9  
Old 06-10-2006, 09:01 PM
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As it was said before, leasing or buying is always a case-to-case decision. If you can write your payments off, leasing isn't bad. If you want more freedom, financing is the way to go since you can get out of a finance much easier than out of a lease (on a lease, you find yourself upside-down more often than on a financing)...well, since cars are never such a great investment, it's at least smart to pick a BMW with an above average residual...
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  #10  
Old 12-05-2008, 11:50 AM
Corgidog Corgidog is offline
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Quote:
Originally Posted by chuck92103 View Post
The cheapest vehicle is still and will always be the one that is paid off.

A paid off BMW costs approx. $200 per month to maintain. Much less than any lease.

A paid off car costs always trumps a financed or leased one.

Can't let this statement pass even though it is almost 3 yrs later (lol).

Anyone know where one can get a "paid off car" (other than to pay it off which costs money.)
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  #11  
Old 12-14-2008, 07:30 PM
adgrant adgrant is offline
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Quote:
Originally Posted by Corgidog View Post
Can't let this statement pass even though it is almost 3 yrs later (lol).

Anyone know where one can get a "paid off car" (other than to pay it off which costs money.)
Its pretty simple. You just keep your current car instead of leasing a new one and pay for the repairs yourself.
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  #12  
Old 06-10-2006, 11:52 AM
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chuck92103 chuck92103 is offline
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Quote:
Originally Posted by mclaren
For this execise I'm going to assume you could get 5% on a 3 year CD which you can and you could put your lease payments in an account paying 5% which you probably can't. I'm also going to use numbers from my recent Z4 lease.

Buy: $45.870 + 7% tax +$200 ( for whatever ) = $49,280.90
3 year 5% CD with 20% income tax = $55,495.22

Lease
3 year 5% CD of drive off of $4633.02 = $5,217.24
35 payments of $528.48 at 5% = $19,594.63
Payoff $29,332 + 7% tax = $31,374.54
Return 7 security deposits = -$3,850
Total Leasing cost = $52,336.41

Savings of Lease vs Buy = $3158.81

The money factor on the lease was .00021 (.0005 - 7*.00007 + .0002 )
which is the key to the savings.

Anything wrong with this ?
Not quite. You forget that on a 3 year lease, you will need to buy tires before turning the car in. Also, any damage will have to be repaired. Tires alone can easily cost $1000. Plus when you re-lease at 3 years, you are incurring the setup charges again. So the 4th year (1st year of new lease) you would be behind.

However, nothing wrong with buying or leasing. Leasing will always be cheaper on a monthly basis because you are renting not buying. It is a bell curve however. If you look at 3 year window, the lease option looks attractive. If you look at a 6-12 year window, finance option looks better. Just depends if you want a new car every few years or if you want to hold onto it for awhile. Right now money is cheap, so leasing is very attractive to some folks. However, in a few years we may see very high interest rates in which case those who financed today will be in a much better position than those negotiatiing car deals at higher money rates.

Last edited by chuck92103; 06-10-2006 at 12:10 PM.
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  #13  
Old 06-10-2006, 02:42 PM
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suzer suzer is offline
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Quote:
Originally Posted by chuck92103
Not quite. You forget that on a 3 year lease, you will need to buy tires before turning the car in. Also, any damage will have to be repaired.
You only have to buy tires when you turn it in if they are below the wear level indicated on the turn-in sheet. I didn't buy tires on the X5 I leased for 3-years, they were fine.

AND if you bought the car, you'd be buying tires, too, when the wear began to negatively effect driving.
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  #14  
Old 06-10-2006, 03:43 PM
BayAreaBMWFan BayAreaBMWFan is offline
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Quote:
Originally Posted by suzer
You only have to buy tires when you turn it in if they are below the wear level indicated on the turn-in sheet. I didn't buy tires on the X5 I leased for 3-years, they were fine.

AND if you bought the car, you'd be buying tires, too, when the wear began to negatively effect driving.
Chuck's point is that you pay for the tires when you buy the car and then you pay for them again when you replace them. However if the tires are replaced close to the lease turn in time, you never get to use them!

For BMWs with the free maintenance, ED options, BMWCCA rebates, good lease rates and periodic specials, leasing is an attractive option versus owning for 5-6 years. Of course if you keep the car for 8-10 years it is likely to cost you less. But it is a toss up between buying for 5-6 years versus leasing for 3 years especially if you have to pay high sales tax.
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  #15  
Old 06-10-2006, 04:02 PM
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Your example is comparing apples to oranges. You are trying to compare the economics of leasing (at a very favorable lease finance rate) to the economics of investing in a depreciating asset. Of course the economics that include leverage will win out in such a comparison. But for the sake of comparing two like things your exercise is not very useful.

Ideally you would be looking at lease finance purchase vs. debt finance purchase. (this is what most people do anyway.) People who plunk large amounts of cash down on depreciating assets are fools (and listen to Suzy Orman much too much).

When you realize that lease finance and debt finance purchase are essentially the same you'll understand that as long as the finance rates and expected residuals are the same for the two options the economics will be essentially equal. In your situation, you have a lease finance rate and residual subsudized by BMW hoping to move metal. Thus the skewed economics in favor of leasing.

I can make the economic case that even leasing a new car every three years could be nearly equal to purchasing the car and owning if for 9 years.
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  #16  
Old 06-10-2006, 04:15 PM
martingalemetho martingalemetho is offline
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Even if you plan to keep the car, leasing will be a good deal. Say you have the $49k to spend. Option 1 is to buy outright you would pay $49k today. Option 2 is to lease and pay $4600 today and put your other $42400 in the bank (say ING for 4.25%). Then out of the saving account make the payments and finally the residual payoff. In three years you will own the car and have several thousand left.
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  #17  
Old 06-11-2006, 08:59 PM
DJ_INHALE DJ_INHALE is offline
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I would just like to say great thread.

Alot of good info here
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  #18  
Old 06-11-2006, 11:44 PM
jl5555 jl5555 is offline
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Quote:
Originally Posted by DJ_INHALE
I would just like to say great thread.

Alot of good info here
I would agree with you except for anything that Chuck has to say, he's thoroughly misinformed and should be ignored on this topic.

Look mileage is irrelevant to the concept of leasing vs. buying (or lease financing vs. debt financing). BMW and other lease operations offer 10k, 12k and 15k residuals because the car is worth less if you drive it more. I don't care if you own the car, the same principle applies. It's somewhat inhibiting that there are only 3 distinctive levels of depreciation for leases, but don't forget you can pay per mile above those levels. They're not priced very attractively, but the concept is there.

Bayareafan made an excellent point (at Chuck's expense) that if one assumes an older BMW will cost $200 per month to maintain, then the economics of leasing (or buying depending) every 2-3 years become much more appealing. This strikes at the heart of those who believe that keeping a car for 9-10 years represents economic nirvana for car owners. I say hogwash to that. You not only pay for continued maintenance, but you forgo some economic benefit due to technological changes in the car. IE: what dollar amount would you ascribe to the difference in technology between a 1996 BMW and a 2006 BMW (same general model)?

As I said above, I can very easily make the economic case for ongoing car replacement.
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  #19  
Old 06-12-2006, 12:42 AM
BayAreaBMWFan BayAreaBMWFan is offline
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Quote:
Originally Posted by jl5555
Bayareafan made an excellent point (at Chuck's expense) that if one assumes an older BMW will cost $200 per month to maintain, then the economics of leasing (or buying depending) every 2-3 years become much more appealing. This strikes at the heart of those who believe that keeping a car for 9-10 years represents economic nirvana for car owners. I say hogwash to that. You not only pay for continued maintenance, but you forgo some economic benefit due to technological changes in the car. IE: what dollar amount would you ascribe to the difference in technology between a 1996 BMW and a 2006 BMW (same general model)?

As I said above, I can very easily make the economic case for ongoing car replacement.
I feel that up to 6 years there is no financial case to be made. If you are keeping it for 10 years then the low depreciation after the 6th year really helps and your maintenance and repair costs may not be large enough to justify a new car. But they you are driving an old car with the risks of a major mechanical breakdown, new electronics not working properly and more important, the airbags and other safety electronics running towards the end of their life.

chuck has a valid point earlier that leases make maximum financial value if you drive 15K/year. With a new car you pay for depreciation just because changes in model years lower the value of the car; if you do not add miles during this period you are givien up that depreciation without making much use of it. As the car gets old, the model year becomes less relevant and the milage/condition becomes more important in determining its value.
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  #20  
Old 06-12-2006, 01:04 PM
BayAreaBMWFan BayAreaBMWFan is offline
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Leasing: For low end buyers only?

chuck:
I strongly disagree with the observation that people lease BMWs because they can not afford them. As a lot of math here as already proven, BMW leases are designed to keep the initial cost of ownership low. BMW is then able to turn around the in-factory warranty cars as CPO and sell them at a premium again.

In general the more expensive the car, (or for that matter any depreciating asset,) the more sensible it is to lease. You do not carry any risk of a diminished value if the car is in an accident. I would want at least a 25% discount to FMV if I am buying 1 year old M5 which has been in an accident. You also take away the risk of higher depreciation than what the residual suggests because of unforseen circumstances (higher gas prices and 2 year old Expiditions anyone?). Plus you save on the 8-9% sales tax you would have paid when you bought the car. The promotional money factors sweeten the lease deals even further.

It is also easier to get out of a lease if circumstances so dictate assuming you got a good deal up-front. I did not lose money on my Z4 lease transfer when personal circumstances meant that I needed to get a 4-seater. If I had to sell the car I would have definitely been a bit under.

I bought my first BMW with cash; did not even finance it. After that I am leasing them. It makes no financial sense to buy them unless you plan to keep them for 8+ years.

In lower priced brands, leasing might be the way to get people who can not afford to buy into new cars. I doubt it is the same for BMWs and other higher priced brands where a lot more folks lease intead of buying.
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Last edited by BayAreaBMWFan; 06-12-2006 at 01:07 PM.
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  #21  
Old 06-12-2006, 01:31 PM
sdbrandon sdbrandon is offline
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Quote:
Originally Posted by BayAreaBMWFan
chuck:
I strongly disagree with the observation that people lease BMWs because they can not afford them. As a lot of math here as already proven, BMW leases are designed to keep the initial cost of ownership low. BMW is then able to turn around the in-factory warranty cars as CPO and sell them at a premium again.

In general the more expensive the car, (or for that matter any depreciating asset,) the more sensible it is to lease. You do not carry any risk of a diminished value if the car is in an accident. I would want at least a 25% discount to FMV if I am buying 1 year old M5 which has been in an accident. You also take away the risk of higher depreciation than what the residual suggests because of unforseen circumstances (higher gas prices and 2 year old Expiditions anyone?). Plus you save on the 8-9% sales tax you would have paid when you bought the car. The promotional money factors sweeten the lease deals even further.

It is also easier to get out of a lease if circumstances so dictate assuming you got a good deal up-front. I did not lose money on my Z4 lease transfer when personal circumstances meant that I needed to get a 4-seater. If I had to sell the car I would have definitely been a bit under.

I bought my first BMW with cash; did not even finance it. After that I am leasing them. It makes no financial sense to buy them unless you plan to keep them for 8+ years.
In lower priced brands, leasing might be the way to get people who can not afford to buy into new cars. I doubt it is the same for BMWs and other higher priced brands where a lot more folks lease intead of buying.
Where did you come up with a 8 year pay back? This is a very broad statement to make as each car/financial deal is different. When I run the numbers, in general 4-6 year is the balance.
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Old 06-12-2006, 01:32 PM
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chuck92103 chuck92103 is offline
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Quote:
Originally Posted by sdbrandon
Where did you come up with a 8 year pay back? This is a very broad statement to make as each car/financial deal is different. When I run the numbers, in general 4-6 year is the balance.
Everything I have read agrees with you.
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  #23  
Old 06-12-2006, 01:42 PM
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HGilmore HGilmore is offline
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Quote:
Originally Posted by chuck92103
Everything I have read agrees with you.
Of course you agree with him (sdbrandon). He has a DB9.
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  #24  
Old 06-12-2006, 01:50 PM
BayAreaBMWFan BayAreaBMWFan is offline
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Quote:
Originally Posted by sdbrandon
Where did you come up with a 8 year pay back? This is a very broad statement to make as each car/financial deal is different. When I run the numbers, in general 4-6 year is the balance.
I am talking about the total cost of ownership including repairs and maintenance costs. The tradeoff is between the higher depreciation and finance charges for a new car versus the repair/maintenance cost for old cars.

My calculations suggest that you should either:

Lease for three years with zero out of pocket maintenance/repair costs (except tires)
OR
Buy the car and keep it for at least 8 years.

Buying the car and keeping it for 6 years is not financially smart since there is still a considerable amount of depreciation in years 4-6 while the maintenance and repair costs add up.

Further they are many items which are replaced between 50-100K. If you sell the car after fixing them in years 4-6, you are not getting use of the money you put in to fix it. So if you like to buy, keep the car for at least 8 years to get your money's worth and reap the rewards of lower depreciation and amortization of the money put in repairs. There is not much point in spending a couple of thousands in repair in years 4-6, suffer significant depreciation between years 4-6 and then sell the car off!
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  #25  
Old 06-13-2006, 12:22 AM
jl5555 jl5555 is offline
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Do not forget the economic "cost" of having a generation (or two) older car. This is not an amount to be ignored. Certainly, once your car goes into the older generation technologically, there are a significant number of enhancements that are missing. These are the things we "pay" for with new cars. I don't think it's inappropriate to apply even a $50 per month value to such a consideration.
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