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Prestige without the price
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July 22, 1998: 2:47 p.m. ET
Used luxury cars offer competitive rates -- and a warranty to boot
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NEW YORK - Ready to buy a shiny, new Camry but secretly longing for the prestige of a Lexus?
Consider buying -- or even leasing -- a used luxury car coming off a lease. It's good for the wallet -- and the ego.
The allure of certified pre-owned cars and competitive financing are driving more people to consider used cars for the first time, said Tom Webb, a senior economist at the National Automobile Dealers Association.
Smart buy
The interest rate for used cars is generally less than 2 percent higher than that for new cars. On July 15, the interest rate on a 36-month used car loan was 9.73 percent, only 1.10 percentage point higher than the 8.63 percent, 48-month new-car rate Bank Rate Monitor found in the same survey of national averages.
"It makes a lot of sense when you look at the depreciation curve on a typical new car. Most of the depreciation takes place in the first two years, so someone else takes the hit," said Jack Nerad, former editor of Motor Trend and co-host of the "America on the Road" radio show.
"On one level, it's a smart buy. On another level, it's ego. Because instead of driving a Camry, you're driving a Lexus." said James Bragg, author of The Car Buyer's and Leaser's Negotiating Bible.
And there are plenty of used luxury cars out there to choose from.
Luxury models easy to find
Art Spinella, vice president of CNW Marketing Research in Bandon, Ore., said more than 62 percent of new luxury cars, including prestige cars of $60,000 or higher, are leased. And luxury cars, often leased by companies for their employees, are also less likely to be bought at the end of the lease than mid-range cars. For example, in 1997, 42 percent of Ford cars were kept at the end of the lease as compared with 33 percent of Lexus and Mercedes automobiles.
Luxury cars coming off leases have low mileage and are typically well-maintained. Nerad suggests shopping even before you're ready to buy. Call dealers and ask about the availability of a specific model and year.
"Say, 'I'm interested in buying a two-year-old BMW 325I in the next two months. What do you have coming off lease?'" Nerad said. "You can make some sort of preliminary deal over the phone."
Warranty included
Many cars bought after a typical two-year lease will still be covered by the manufacturer's warranty. New cars from Acura, BMW, Cadillac, Volvo, Saab, Mercedes, Lincoln, Lexus and Jaguar all have four-year or 50,000-mile warranties. Cars from Infiniti have four-year or 60,000-mile warranties.
In addition, dealers for most major manufacturers sell certified previously driven vehicles, which have been subjected to extensive inspections and reconditioning aimed at bringing them up to new car standards.
Spinella said certification typically ups the price of a used car by $1,500 to $2,000 and sometimes even higher. Is it worth it?
"If it's certified by the manufacturer, it's probably a really good deal," he said. A better deal than if it is warranted by anyone else.
Leasing vs. buying
So, what about leasing a used luxury car?
"You can get more car for the monthly payment that way," Nerad said. "The downside is you don't get any equity in the car. At the end of the lease you get zip."
Experts say much of the buy/lease decision depends on how long a person plans on keeping a car.
"If it's two or three years, you're better off leasing," Spinella said. "If it's longer than three years you're better off buying."
--by Bank Rate Monitor for CNNfn
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