As the average price of new cars continues to creep up, many car shoppers are turning to buying used or leasing in order to reduce their monthly payments. While leasing doesn't leave you with any equity in the vehicle unless you buy out the lease, buying used lets you sidestep the new car price tag and the high depreciation that comes with it. Thanks to the rise in the popularity of leasing, there is now a record number of vehicles coming off lease which offers used car shoppers a compromise between expensive new cars and older used cars.
More Leased Cars Mean More Used Car Options
According to Carfax, leasing has seen a boom in recent years. In 2017, the leasing market share was 29% of new vehicles and that number has grown to 34% in 2019 (or about a third of all new vehicles on the road). Leasing, which was once only popular among premium vehicles, is now common across all mass-market brands. The reason for the spike is likely due to the lower monthly payments compared to buying new. In 2019, the average monthly lease payment was $487, compared with $548 for a new-car purchase.
As a result of the leasing boom, there was a record 4.3 million leases that ended in 2019, giving used car shoppers more options for gently used cars, trucks, and SUVs in good condition. Because most leased cars are kept for 2-4 years and are largely damage-free, they give shoppers a good alternative to buying an older, less reliable used car. Over half of the off-lease cars on the market are certified pre-owned vehicles which adds another layer of protection for the buyer.
Pros and Cons to Buying an Off-Lease Vehicle
Whether you choose to buy new, lease, or buy used, you'll encounter benefits and drawbacks to your decision. The pros of off-lease cars are similar to those of buying a certified preowned vehicle, while the risks resemble those of any other used car purchase.
Buying an off-lease vehicle will let you avoid the high price tag of buying a brand new car and will also let you sidestep the depreciation of new cars. According to Autotrader, off-lease vehicles can come in with around 20,000 miles but will offer potential savings of $15,000 to $25,000 compared to buying new, with the depreciation hit already taken for you.
In addition to the lower price, off-lease vehicles also come with reduced risk. Not only is the vehicle just a few years old, but the previous driver was required to keep it in good condition. Ally Financial outlines a list of common requirements for cars coming off lease including penalties for surpassing the mileage limit (usually 12,000 miles per year) and any damage larger than the size of a credit card on the exterior. If the vehicle is certified pre-owned, it must also pass a list of inspection criteria and come with a warranty and vehicle history report.
Unlike buying a new vehicle, an off-lease car may be missing some of the safety or infotainment technology you're looking for. If the vehicle model was redesigned or updated in the last 2-3 years, you will likely get more advanced features by buying new. Another drawback is that the vehicle's condition may not be perfect. Although major damage on a leased car will result in fees, minor scratches and dents are not penalized.
Finally, if the off-lease vehicle is certified pre-owned, the savings may not be as dramatic as you hoped for. According to U.S. News and World Report's pricing data, you can expect to pay about 17.5% more for a certified pre-owned car than you would a comparable used car.
Which Off-lease Vehicles Yield the Best Deals?
The key to getting the best deal on an off-lease used car is looking at its resale value. Vehicles with the highest depreciation may be a poor choice to buy or lease new, but they offer a good value to used car shoppers. Premium vehicles, imports, and passenger cars tend to have the highest depreciation and therefore are the best bargains to buy used.
According to Forbes, the best off-lease deals will be found in mid-size or full-size luxury sedans. Their higher initial price tags mean they will lose more value over time. The popularity of SUVs and trucks has also caused demand for passenger cars to dwindle, meaning you can find the best value shopping in this segment.