Can You Lease a Used Car and Save Money?

Imagine driving a luxury vehicle without breaking the bank. Can you lease a used car? Leasing a used car might be the key to unlocking this possibility. In this blog post, we’ll explore the ins and outs of used car leasing, revealing the potential savings and benefits, as well as the challenges and drawbacks to consider.

Let’s embark on this journey to help you make an informed decision about whether leasing a used car is the right choice for you.

What to consider when leasing a used vehicle?

• Leasing a used car offers lower monthly payments and access to higher-end vehicles.
• Consider the money factor, mileage limits, maintenance costs, selection of cars available to lease and fees associated with transitioning from leasing to ownership before making a decision.
• Alternatives such as lease takeovers or car subscription services provide short-term vehicle solutions with added flexibility.

 

Understanding Used Car Leasing

 

While leasing a new car is a popular option, leasing a used car can provide similar benefits with potentially lower costs. In fact, around 4% of the leasing market consists of pre-owned vehicles. Leasing a used car is quite similar to leasing a new car, with the main distinctions being:

• Monthly payments
• Maintenance
• Use or mileage
• Ownership

However, it may be challenging to find dealerships that offer used car leases, as not all dealers provide this option.

Certified pre-owned (CPO) cars play a significant role in used car leasing. These lightly used vehicles undergo thorough inspections and often come with a manufacturer’s warranty. When contemplating leasing a used car, it’s beneficial to grasp the lease deal’s structure, which includes components like down payment, monthly payments, and residual value.

 

Certified Pre-Owned Cars in Focus

For a car to become a certified pre-owned car, it typically needs to meet specific criteria, such as being no more than five years old, having less than 60,000 miles, and passing a thorough multi-point inspection prescribed by the manufacturer. CPO vehicles come with a warranty that is usually valid for up to one year or 12,000 miles, whichever occurs first. Only franchised dealers are permitted to offer CPO vehicles for lease, making them a significant part of the used car leasing market.

 

The Structure of a Used Car Lease Deal

Used car lease deals share similarities with new car lease deals. Monthly payments for both types of leases are calculated based on the difference between the car’s purchase price and the estimated value at the end of the lease. The residual value is crucial in determining the buyout price and monthly payments. The down payment is typically determined by the lessor, taking into account factors such as the estimated resale value of the vehicle and the overall financing structure.

Factors that influence the monthly payments in a used car lease include:

• The money factor
• Residual value
• Taxes
• Depreciation

 

 

 

Finding Dealerships That Offer Used Car Leases

 

Finding dealerships that offer used car leases may require research and reaching out to multiple dealers. It’s recommended to start your search at franchised car dealerships. If the initial dealership contacted is unable to assist with a used car lease, it’s advisable to contact other dealerships.

Before negotiating a used car lease, it’s vital to follow these steps:

1. Study recent models you might be interested in leasing and compare prices on credible sites such.
2. Once you have a clear understanding of the vehicle you want and its market value, you can approach dealerships.
3. Negotiate a suitable lease deal.

 

Financial Considerations When Leasing a Used Vehicle

 

Leasing a used vehicle comes with various financial considerations, such as:

• Potential early termination fees
• Excess wear-and-tear charges
• Mileage fees
• Guaranteed Asset Protection (GAP) insurance, which covers the difference between the amount on the lease and the amount paid out by the auto insurance company in the event the car is stolen or totaled in an accident.

Let’s delve further into the personal finance aspects of used car leasing.

 

Comparing Costs: Lease vs Buy

When considering the purchase of a used car, it’s essential to compare the costs of leasing versus buying. Purchasing a used car is typically the more economically advantageous option. However, you can use an online calculator from a bank or auto insurance provider to determine the comparative costs of leasing versus buying a used car.

To provide some context, here are some average prices and costs related to used cars in America:

• The average price of a used car: $33.582
• The average amount paid by a buyer of a used car: $27.147
• Additional fees charged by dealerships (range): $50 to $600
• Average monthly lease payment for a pre-owned vehicle: $487

By comparing these costs, you can determine the best option for your budget and needs.

 

Down Payments and Monthly Payments

Down payments and monthly payments for used car leases may be lower than those for new car leases. However, factors such as the vehicle’s age and condition can impact these costs. For a used car lease, the down payment is usually about 10% of the car’s worth.

The age and condition of a vehicle can influence the down payment, with newer or better-conditioned vehicles possibly requiring a lower down payment than older or worse-conditioned vehicles.

The monthly payments for a used car lease depend on several factors, including:

• Money factor
• Vehicle price
• Capitalized cost
• Residual value
• Lease term
• Taxes

 

 

 

Negotiating Your Used Car Lease

 

Negotiating a used car lease might seem challenging, but with the right information, you can obtain a favorable deal. Understanding the money factor and mileage limits can help you negotiate a lease that suits your needs and budget. Let’s examine these key elements of lease negotiation.

 

Understanding the Money Factor

The money factor in a used car lease is calculated based on various factors, including:

• The customer’s credit score
• The lease term
• Lease charges
• Capitalized cost
• Residual value

A higher credit score is associated with a lower money factor, making it crucial to maintain a good credit score. The typical money factor for used car leases can range from 3-5% for a lessee with a satisfactory credit rating. Negotiating the money factor is possible by comparing offers from different lenders and dealerships and attempting to secure a lower rate. A reduced money factor will result in lower interest payments and a lower overall cost for the lease, ultimately leading to a lower monthly payment.

 

Mileage Limits and Their Impact

Mileage limits play a significant role in the cost of a used car lease. Leases typically come with a predetermined mileage limit, usually ranging from 12,000 to 15,000 miles per annum. Exceeding the mileage limit may result in a penalty fee of approximately 25 cents per mile over the limit. Therefore, it’s essential to consider your estimated mileage when negotiating a used car lease to avoid extra costs.

It is possible to negotiate the mileage limit in a used car lease. Leasing companies understand that different individuals have varying driving needs, so they may be willing to adjust the mileage allowance based on your requirements. Discussing your mileage needs with the leasing company and negotiating a higher mileage cap if necessary can help you avoid unexpected costs.

 

The Pros and Cons of Leasing a Used Car

 

Leasing a used car comes with its advantages and disadvantages. Lower monthly payments and access to nicer cars can make it an attractive option, while maintenance concerns and limited selection may deter some individuals. Let’s consider the pros and cons to assist you in making a knowledgeable decision about leasing a used car.

 

Advantages: Lower Monthly Payments and Access to Nicer Cars

One of the main advantages of leasing a used car is:

• Lower monthly payments compared to leasing a new car
• Used cars depreciate less quickly than new cars, resulting in lower lease payments
• Leasing a used car may provide the opportunity to negotiate a reduced purchase price, further lowering the monthly payments.

Leasing a used car also allows you to access higher-end vehicles at a more affordable price.

 

 

 

Honda Accord

 

Chevrolet Equinox

 

Ford F-150

 

Jeep Grand Cherokee

 

Disadvantages: Maintenance and Limited Selection

Leasing a used car comes with its share of disadvantages. One major drawback is the potential maintenance costs associated with used vehicles. Leasing a used car may require you to cover routine maintenance and minor wear-and-tear repairs, such as brake pads and new tires.

Another disadvantage is the limited selection of vehicles available for lease. The inventory of used cars available for lease is mainly limited to certified pre-owned vehicles, which typically are no older than four years and have undergone a comprehensive inspection process. The restricted selection can make it challenging to find the perfect used car to lease.

 

Transitioning from Lease to Ownership

At the end of your used car lease, you may consider transitioning from the lease to ownership. Knowing the steps to take and the factors to consider, such as lease buyout considerations and returning the vehicle, can help you make a smooth transition.

 

Lease Buyout Considerations

For those who wish to retain their leased used car, lease buyouts can be a practical option. The buyout price is determined by the residual value stipulated in the lease agreement, which includes the vehicle’s projected value at the end of the lease term, along with any fees, taxes, and outstanding payments.

When considering a lease buyout, it’s important to evaluate the residual value, the overall cost of the buyout, and any fees or taxes associated with the purchase. Understanding these factors will help you make an educated decision about whether purchasing your leased used car is the right move for you.

 

Returning the Vehicle and the Next Steps

Returning a leased used car might incur fees for excess wear and tear or mileage, so it’s necessary to comprehend your lease agreement’s terms. When returning a leased car, you can either turn in the car and depart or turn it in and purchase a new vehicle.

Before returning the car, a vehicle inspection may be necessary. You should also be aware of any fees you may be liable for, such as a lease disposition fee, which can range from $300 to $400, or a purchase option charge if you decide to purchase the car at the end of the lease. Understanding these fees and the process of returning your leased used car can help you avoid any surprises.

 

Alternatives to Traditional Used Car Leasing

Besides traditional used car leasing, there are other options such as new car leasing, lease takeovers, and car subscription services. These options provide flexibility and can cater to different needs and preferences. Let’s explore these alternatives and how they might suit your situation.

 

Lease Takeovers: A Path to Short-Term Use

Lease takeovers enable individuals to:

• Take over another person’s remaining lease terms
• Obtain a late-model vehicle with a short-term lease commitment
• Have lower payments compared to purchasing new

However, lease takeovers have their drawbacks, such as limited vehicle selection and potential higher mileage or deterioration of the vehicle. Despite these challenges, a lease takeover can be a suitable option for those seeking a short-term vehicle solution without the long-term commitment of a traditional lease.

 

Car Subscription Services: Flexibility and Convenience

Car subscription services offer adaptability and ease for those wanting vehicle access without the long-term commitment of a lease or purchase. With a car subscription service, you pay a monthly fee to access a vehicle without the commitment of a long-term lease or the hassle of buying a car.

Companies offering car subscription services include: Porsche Drive, Care by Volvo.

Subscription services offer flexibility by allowing you to switch cars frequently and providing a range of vehicles to choose from. While the startup costs for car subscription services can be minimal, they often come with mileage limits similar to traditional leases.

Car subscription services can be an attractive option for those seeking a flexible and convenient alternative to traditional car leasing or ownership.

 

Summary

Leasing a used car can be a cost-effective and flexible solution for those seeking access to a high-quality vehicle without the long-term commitment of a lease or purchase. With lower monthly payments, access to higher-end vehicles, and a range of alternatives such as lease takeovers and car subscription services, there’s an option to suit everyone’s needs and preferences.

By understanding the financial aspects, negotiating terms, and exploring alternatives, you can confidently navigate the used car leasing landscape and drive away with the perfect car for you.