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September 7, 2013

Car prices hit record as buyers load up on options

(Continued)

It's also a dream for people like Zachary Bier, a 26-year-old engineer and sales representative in New York City who just leased a $52,000 BMW 335i to replace a 3-Series with an expiring lease. He set out to match his old $650-per-month payment with hopes of getting more features.

For the same payment, he got metallic black paint, upgraded leather seats with red trim and stitching, Bluetooth technology to link his phone to the car, a heads-up display that projects his navigation system and other data onto the windshield, and electronic blind-spot detectors, he said.

"I guess I was surprised based on the sticker price that this car has so much more," he said. "For everything that comes on this, I feel like it's a better car."

The reason car companies can offer cheap leases is because used car values are expected to remain high for the next several years. A company will offer an attractive lease rate now if it feels confident that when the lease is over, it can then sell the returned vehicle for a healthy price on the used-car market.

Those who buy instead of lease also get more for their money because low interest rates can bring lower payments. On average, four-year new-car loan rates are just over 4 percent this year, according to Bankrate.com. Back in 2007, before the Great Recession, that figure was 7.68 percent.

That's a big difference for someone buying a loaded-out $31,000 Ford Fusion with a package that includes heated leather seats, premium audio system and 18-inch polished aluminum wheels. Say the buyer trades in a car worth $10,000 and borrows $21,000. At 4 percent interest for four years, the monthly payment would be $474. But if interest rates return to pre-recession levels, the payment jumps to $510, raising total costs by $1,728. That could cause a buyer to cut features to keep the price down.

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