Leasing a used car may not be as common as leasing a new one, but it is entirely possible. It can be a strategic decision for those looking for lower monthly payments, reduced depreciation costs, and the flexibility to drive a newer model without a long-term commitment. This article will help you understand the ins and outs of this process.
Understanding Used Car Leasing: Can you Lease a Used Car from a Dealership?
Leasing a used car may be less common than leasing a new one, but some dealerships and manufacturers do offer leasing options for used vehicles. Usually, these are just a few years old, have low mileage, and meet quality standards. Just keep in mind that not every dealer or brand does this. Leasing a used car is a smart and effective way to save money if you want lower monthly payments without committing to a purchase.
Can You Lease a Certified Pre-Owned Car?
You can lease certified pre-owned cars through certain manufacturers and dealerships. In contrast to regular used cars, CPO vehicles go through thorough inspections, adhere to strict standards, and often come with extended warranty coverage.
Brands like BMW, Mercedes-Benz, and Toyota may offer leasing programs for CPO cars, but the terms can vary, often featuring shorter lease periods or slightly higher rates. Check with your dealership for availability, review lease details such as mileage limits, and ensure the contract aligns with your financial and driving needs.
How Used Car Leasing Works
The process is similar to leasing a new car. Dealerships usually offer leases on certified pre-owned cars that are up to 6 years old and have fewer than 85,000 miles. These cars then undergo thorough inspections and often include extended warranties. The leasing procedure includes negotiating the car's capitalized cost (the agreed-upon price), establishing a money factor (essentially the interest rate), and determining the residual value (the car's projected worth at the end of the lease).
The good news is that monthly payments tend to be lower for used-car leases than for brand-new ones, thanks to lower depreciation rates. At the end of the lease period, lessees generally have the choice to buy the car, return it, or lease another one. It’s important to keep in mind that not every dealership provides leases on used cars, so be sure to ask directly at dealerships that feature certified pre-owned programs.
Differences Between New and Used Car Leasing
- Cost: Used car leases have lower monthly payments, but interest rates may be higher.
- Availability: New-car leases are more widely available, while used-car leases are limited to specific dealers or CPO programs.
- Warranty Coverage: New cars come with full manufacturer warranties, while used cars may have partial or remaining warranties.
- Vehicle Condition: Used cars, even CPO, may show minor wear, though they’re inspected for quality.
- Depreciation: Used cars depreciate more slowly, leading to a lower residual value.
- Customization: New-car leases allow factory options, while used-car leases are limited to the vehicle’s existing features.
- Lease Terms: Used car leases often have shorter terms compared to new car leases.
Pros and Cons of Leasing a Used Car
Benefits of Leasing a Used Car
- Lower monthly payments
- They come with shorter terms—think 2 to 3 years
- If you’re leasing a CPO vehicle, you’re getting a car that’s been well-inspected.
- They often come with a decent warranty still attached.
- You don’t need to worry about selling or trading in the vehicle.
Drawbacks to Consider
- Your options are limited
- Interest rates can be higher
- They can have some minor wear or lack the latest tech and features.
- Mileage limits still apply, and going over can lead to hefty fees.
- If the car’s residual value is set too high, buying it at the end of the lease might not feel like a great deal.
- If the warranty is limited, you can face some unexpected repair costs.
Who Should Consider Leasing a Used Car?
If you enjoy driving a relatively new vehicle while keeping your monthly expenses low, this option might be perfect for you. It's also great for those who prefer not to commit to long-term car ownership or deal with the hassle of reselling later.
If your annual mileage is below 15,000 and you properly maintain your car, you can avoid excess fees. Just be sure to explore the nearby dealership's inventory and thoroughly review the lease agreements to ensure they fit your budget and lifestyle.
How to Lease a Used Car
Let’s break down what you need to know before leasing a used car.
Eligibility Criteria
Leasing a used car isn’t that different from leasing a new one. You will need a decent credit score, preferably 620 or higher. Remember that the higher your score, the better the lease terms. So if you have a shaky score, you can still lease, but with higher interest rates. You will also need to show that you can make the monthly payments, so prepare a bank statement or pay stubs to support this.
Lease terms
Leases for used cars typically last shorter durations than those for new cars (24 to 36 months instead of 36 to 48 months). “As the car has already been used, the lease typically reflects its remaining useful lifespan.”
There will also be mileage restrictions, typically between 10,000 and 15,000 miles per year. Exceeding these limits will result in a per-mile charge at the end of the lease.
Also, some leasing agreements allow you to purchase the vehicle at the end of the term, but not all do, so be sure to read the details carefully. Be prepared to pay fees such as a security deposit, the first month's payment, and, sometimes, a down payment.
Where to Lease a Used Car
- Dealerships with Certified Pre-Owned (CPO) Programs
- Independent Leasing Companies
- Online Platforms
- Local Credit Unions or Banks
Steps to Leasing a Used Car
- Check Your Credit and Budget: Pull your credit report and figure out what you can afford monthly, including insurance, gas, and maintenance.
- Research Available Cars: Not every used car is leasable. Look for CPO vehicles or check with leasing companies for their inventory.
- Find a Leasing Source: Check out dealerships, online platforms, or leasing companies. Call ahead to confirm they offer used car leases.
- Review, Sign the Lease, and Drive Off: Read every line of the contract. Make sure you understand the mileage limit, maintenance requirements, and what happens at the end of the lease. Once you sign, you’ll likely pay the upfront fees and get the keys. Keep the car in good shape, and avoid penalties when you return it.
Cost Considerations: Leasing a Car vs. Buying a Used Car
Deciding between leasing a used car and buying one can be difficult. Both have their perks and pitfalls, and it really comes down to your lifestyle, budget, and how you feel about car ownership. Let’s do a quick cost comparison.
Leasing a Used Car:
- Monthly Payments: About $200-$400/month for a reliable used vehicle. You’re only paying for the car’s depreciation during the lease term.
- Upfront Costs: Expect a down payment, first month’s payment, security deposit, and fees.
- Long-Term Costs: You’ll pay mileage overage fees (typically 15-25 cents/mile) if you exceed the limit.
- Hidden Costs: Gap insurance (optional) and maintenance costs are on you, though CPO leases might include some maintenance.
Buying a Used Car:
- Monthly Payments: About $300-$600/month for a $15,000-$25,000 car over 4-6 years.
- Upfront Costs: Down payment, plus taxes and fees.
- Long-Term Costs: Once paid off, you can sell or trade it later. Depreciation is less of a hit since used cars have already taken their biggest value drop.
- Hidden Costs: Maintenance and repairs are all on you. No mileage limits, though.
Hidden Fees to Watch Out For
- Acquisition Fees: These can range from $100 to $500.
- Disposition Fees: Charged at the end of the lease.
- Mileage Overages: Exceeding the agreed-upon mileage limit.
- Excess Wear and Tear Charges: Any damage beyond normal wear and tear.
- Sales Tax and Registration Fees: These can add up to several hundred dollars.
Tips for Leasing a Used Car Successfully
Negotiating a Fair Lease Agreement
Begin by researching the market value of your desired car using tools such as Kelley Blue Book. This gives you an understanding of its approximate price and a solid benchmark for evaluating lease terms.
Don’t accept the dealer’s first offer right away. Be prepared to negotiate for a lower capitalized cost (the agreed-upon price used to calculate lease payments) or better lease terms, especially if the vehicle has high mileage or visible wear. And if the lease doesn’t align with your budget, don’t hesitate to walk away.
Checking Vehicle Condition and Warranty
- Inspect the vehicle thoroughly, either yourself or with a trusted mechanic.
- Look for signs of wear like dents, scratches, or tire tread issues
- Test-drive it to check for odd noises or handling problems.
- Ask for the car’s maintenance history and a vehicle history report (like Carfax)
- Clarify what’s covered under the warranty. If the warranty is limited, factor in potential maintenance expenses when making your decision.
Understanding Lease-End Options
Before signing the lease, it’s important to understand your options at the end of the term. You can return the vehicle, purchase it outright, or sometimes extend the lease. If you’re considering a purchase, ask about the residual valuein advance and whether there’s room for negotiation.
Should you decide to return the car, familiarize yourself with the dealer’s policy regarding wear and tear. Knowing these details early helps you avoid surprises and plan for what’s next.
Is Leasing a Used Car Worth It?
Leasing a used car is a great option for anyone looking to drive a reliable, newer model without the price tag of buying or leasing a brand-new one. When you choose to lease used cars, you can benefit from lower monthly payments, making it easier to fit a quality car into your budget.
Whether it’s through a dealership or a manufacturer, there are a lot of opportunities to find a car that fits your needs. Just be sure to take the time to investigate what’s offered, compare lease agreements, and confirm that the terms match your driving requirements.