Sarah and Tyler Hudson, a dual-income couple in their late 20s, want to replace their 7-year-old car, which has 90,000 miles on it and needs some expensive repairs. After reviewing their budget, the Hudson’s conclude that they can afford auto payments of not more than $450 per month and a down payment of $2,000. They enthusiastically decide to visit a local dealer after reading its newspaper ad offering a closed-end lease on a new car for a monthly payment of $345. After visiting with the dealer, test-driving the car, and discussing the lease terms with the salesperson, they remain excited about leasing the car but decide to wait until the following day to finalize the deal. Later that day, the Hudson’s begin to question their approach to the new car acquisition process and decide to reevaluate their decision carefully.

1. What are some basic purchasing guidelines that the Hudson’s should consider when choosing which new car to buy or lease? How can they find the information they need?

2. How would you advise the Hudson’s to research the lease-versus-purchase decision before visiting the dealer? What are the advantages and disadvantages of each alternative?

3. Assume that the Hudson’s can get the following terms on a lease or a bank loan for the car, which they could buy for $17,000.