Many car shoppers choose to lease a new vehicle instead of buying one for the lower monthly payments. Because used cars come with significantly lower price tags, can leasing a used car offer the best of both worlds and the most affordable financing scenario? Used car leases are the proverbial unicorns of the car shopping world, but they are growing in popularity. Some dealers are willing to lease a used vehicle because they need to clear their lots of used cars, and they need to do so quickly. Leasing certified pre-owned vehicles coming off a previous lease provides a solution.
According to Cars.com, used car leases made up 4.14% of all used-car sales in the second quarter of 2019 which is up from 3.55% in the year-ago quarter. Despite the uptick, used car leases remain a well-kept secret. These types of leases will rarely be advertised or even mentioned by dealerships, so you'll have to do some legwork and then make the first move. We'll help you understand what types of used vehicles can be leased, the pros and cons of a used car lease, and how to approach the process.
What Types of Used Cars Can Be Leased?
Although not every dealership will offer used car leases, the ones that do will likely restrict leases to certified pre-owned (CPO) vehicles. What qualifies as a CPO varies between manufacturers, but generally, there is a requirement for the maximum age of the vehicle and the mileage. The vehicle must also pass a list of inspection criteria, come with a warranty, and vehicle history report. CPO vehicles are commonly newer, low-mileage models that are just coming off lease.
According to J.D. Power's NADA Guides options for used car leases include vehicles that are less than 4 years old and have fewer than 48,000 miles. The following manufacturers are known to offer CPO leases: Acura, Audi, BMW, Chrysler, Dodge, Ferrari, Fiat, Honda, Hyundai, Infiniti, Jeep, Kia, Lexus, Lincoln, Mazda, Mercedes-Benz, Mini, Mitsubishi, Nissan, Porsche, Ram, Toyota, Volkswagen, and Volvo.
Pros and Cons of a Used Car Lease
Just like buying a used car instead of new, there will be pros and cons to leasing a used vehicle. The most obvious reason to lease a used car is the savings that result in a lower monthly payment. Although it's possible to save thousands of dollars over the course of the lease, you should make sure to factor in additional costs like repairs and maintenance.
Lease payments are established by taking the difference between the vehicle's estimated value at the end of the lease and the sale price. Because used vehicles depreciate much slower than new, the difference between the vehicle's residual value at the end of the lease and the sale value is smaller. NADA Guides estimates that leasing a used vehicle can save customers an average of $100 a month compared to a traditional new car lease. In addition to the immediate savings, leasing a used vehicle can provide a more favorable buyout price if you choose this route.
Along with the lower monthly payments, a used vehicle lease can be a smart choice because the certified pre-owned status of the vehicle gives you peace of mind knowing it is in good condition. You may even score lower insurance rates which will add up to more savings.
It's important to weigh the potential savings of leasing a used car against the risks involved. The first consideration is the availability of this lease type. Not every dealership offers used car leases so there will be more legwork to find one for the vehicle you're interested in. Just like with buying used cars vs. new, interest rates will be higher on a used car lease.
Other disadvantages include higher upkeep and repair costs that come with the territory of used vehicles. A certified pre-owned vehicle usually comes with extended warranties to cover repairs but depending on the length of the lease, the warranty can expire and leave you on the hook for pricey repairs. This can quickly negate the financial benefits of choosing used over new.
You should also consider all your needs and wants for the vehicle you lease. Remember that used cars won't have all the latest safety and tech features that new vehicles offer, and even though certified pre-owned cars are inspected and should be in good condition, they are not brand new and may have minor damage like scratches and dings.
How to Lease a Used Car
Since the biggest advantage of leasing used is the potential savings, you will need to get a benchmark of what a similar vehicle will cost to lease new. Contact a dealership and get a quote for the same new vehicle you're thinking about leasing. This will give you a starting point to compare and make sure that leasing used is, in fact, a good deal.
Next, you'll need to contact franchised dealerships and ask if you can lease the specific certified pre-owned vehicle you're considering. Because used car leases are not yet mainstream, be prepared to talk to several dealerships and ask to speak with the leasing manager if you get a hasty "no".
Once you find a dealership willing to lease a used car, you'll need to get a price quote for the lease. Compare this quote to the new car lease quote you received and also to used car leases from other dealers. Finally, you'll need to consider all the additional variables that can drive up the cost of the lease including the warranty coverage, requirements for gap insurance, and any extra charges like overage miles, wear-and-tear, and early termination fees.
Skipping the fine print that includes these stipulations can cause repair fees and penalties to add up and cancel out any savings you were anticipating from leasing used. If you're comfortable with the monthly payments and terms and conditions, you can proceed with the lease contract.