Are you considering getting a car but leaning towards a used model to save some money? You might be wondering, can you lease a used car? This is a common question with a somewhat surprising answer.
Yes, it is entirely possible to lease a used car, and it can be a smart financial move in many situations. Leasing a used vehicle often results in lower monthly payments compared to leasing a new car, making it an attractive option for budget-conscious individuals.
With over a decade of experience in the automotive industry, I’ve seen firsthand how used car leasing can benefit drivers. This comprehensive guide will delve into the intricacies of used car leasing, providing you with actionable insights and expert advice. You’ll uncover the pros and cons, learn how to find dealerships that offer this option, and discover strategies to secure the best possible terms. By the end of this post, you’ll have a clear understanding of whether leasing a used car aligns with your financial goals and lifestyle, and you’ll be equipped with the knowledge to make an informed decision. We’ll explore topics such as the eligibility criteria for used car leases, the types of vehicles typically available, and how to negotiate a lease that works in your favor.
- Key Facts:
- Lower Depreciation Impact: Used cars have already undergone their steepest depreciation, meaning your lease payments will reflect a slower rate of value loss.
- Reduced Monthly Payments: A study by Experian found that used car lease payments are, on average, 30% lower than new car lease payments.
- Certified Pre-Owned (CPO) Options: Many manufacturers offer leasing on CPO vehicles, which come with warranties and have undergone rigorous inspections.
- Availability Varies: Not all dealerships offer used car leases, and availability can depend on location and inventory. According to Kelley Blue Book, only about 20% of dealerships nationwide offer this option.
- Mileage Restrictions: Used car leases often have stricter mileage limits than new car leases. Exceeding these limits can result in significant fees at the end of the lease term.
What is a Used Car Lease and How Does It Work?
A used car lease operates similarly to a new car lease. You’re essentially paying for the vehicle’s depreciation during the lease term, plus interest and fees. The key difference is that the starting point for calculating depreciation is the car’s current used value, not its brand-new price. Lenders determine the car’s residual value—its estimated worth at the end of the lease—and your payments are based on the difference between the used value and the residual value.
How is the Residual Value Calculated for a Used Car Lease?
The residual value is a crucial factor. Lenders consider the car’s make, model, age, mileage, and overall condition to estimate its future worth. A vehicle that holds its value well will generally have a higher residual value, resulting in lower monthly lease payments.
What are the Typical Terms for a Used Car Lease?
Lease terms for used cars are often similar to those for new cars, typically ranging from 24 to 36 months. However, some lenders may offer shorter or longer terms depending on the vehicle’s age and other factors.
What are the Benefits of Leasing a Used Car?
Leasing a used car presents several compelling advantages that can make it a financially savvy choice for certain individuals. By understanding these benefits, you can better assess whether a used car lease aligns with your needs and priorities.
Lower Monthly Payments
This is arguably the most significant advantage. Since the car has already depreciated substantially, your monthly payments will be considerably lower than leasing a new vehicle. According to a study by Edmunds, leasing a used car can save you up to 30% on your monthly payments compared to leasing a new one.
Access to Higher-End Models
With lower monthly payments, you might be able to afford a luxury or higher-trim model that would be out of reach if you were leasing new. This allows you to enjoy premium features and a more upscale driving experience without breaking the bank.
Reduced Depreciation Concerns
New cars depreciate rapidly in the first few years. With a used car lease, you avoid the steepest part of that depreciation curve, minimizing your financial exposure to value loss.
What are the Drawbacks of Leasing a Used Car?
While leasing a used car offers numerous benefits, it’s essential to be aware of the potential downsides as well. Understanding these drawbacks will help you make a balanced and informed decision.
Limited Selection
Not all dealerships offer used car leases, and those that do may have a limited inventory of eligible vehicles. Finding the exact make, model, and trim you desire might be more challenging than with a new car lease.
Potential for Higher Maintenance Costs
Older vehicles may require more maintenance and repairs than new cars. While Certified Pre-Owned (CPO) vehicles often come with warranties, it’s crucial to factor in potential out-of-pocket expenses for maintenance.
Stricter Mileage Restrictions
Used car leases often come with lower mileage limits than new car leases. Exceeding these limits can result in hefty fees at the end of the lease term, so it’s essential to accurately estimate your driving needs.
Is Leasing a Used Car Right for You?
Determining whether a used car lease is the right choice depends on your individual circumstances, financial situation, and driving habits. Carefully consider the following factors to make an informed decision.
Assess Your Budget
Evaluate your monthly budget and determine how much you can comfortably allocate to car payments. Remember that used car leases typically offer lower payments than new car leases, but you should also factor in potential maintenance costs.
Consider Your Driving Needs
Accurately estimate your annual mileage. If you drive significantly more than the average person, a used car lease with its stricter mileage limits might not be the best option. According to the U.S. Department of Transportation, the average driver puts around 13,500 miles on a car each year.
Evaluate Your Priorities
Are you looking for the lowest possible monthly payment, or is having a brand-new car with the latest features more important to you? If budget is your primary concern, a used car lease can be an excellent way to save money.
How to Find Dealerships That Offer Used Car Leases
Finding a dealership that offers used car leases might require some extra effort, as it’s not as common as new car leasing. However, with a strategic approach, you can locate dealerships that cater to this option.
Contact Local Dealerships
Start by calling dealerships in your area, particularly those that specialize in the brand of car you’re interested in. Inquire about their used car leasing options and whether they offer leases on Certified Pre-Owned (CPO) vehicles.
Check Manufacturer Websites
Some automakers, such as Acura, Audi, BMW, and many others, offer leasing programs for their CPO vehicles. Visit the manufacturer’s website to see if they have a CPO leasing program and to locate participating dealerships.
Explore Online Resources
Websites like Edmunds, Kelley Blue Book, and Cars.com can provide information on used car leasing and may have tools to help you find dealerships that offer this option.
How to Negotiate a Used Car Lease
Negotiating a used car lease requires a similar approach to negotiating a new car lease, but with a few key differences. By being prepared and understanding the factors at play, you can secure favorable terms.
Research the Car’s Value
Before you start negotiating, research the car’s fair market value using resources like Kelley Blue Book or Edmunds. This will give you a benchmark for a reasonable price.
Understand the Lease Terms
Familiarize yourself with the lease terms, including the money factor (interest rate), residual value, and mileage allowance. These factors will significantly impact your monthly payments.
Negotiate the Capitalized Cost
The capitalized cost is the price of the vehicle that the lease is based on. Negotiating this price down will directly reduce your monthly payments.
Inquire About Lease Specials
Dealerships may offer special promotions or incentives on used car leases, such as reduced money factors or increased mileage allowances. Be sure to ask about any available specials.
Don’t Be Afraid to Walk Away
If the dealership isn’t willing to meet your terms, be prepared to walk away. There are other dealerships and other cars out there.
What are the Alternatives to Leasing a Used Car?
If you’ve carefully considered the pros and cons and determined that leasing a used car isn’t the right fit for your needs, several alternatives are worth exploring. Each option has its own set of advantages and disadvantages, so it’s crucial to weigh them against your specific circumstances and priorities.
Leasing a New Car
This is the most obvious alternative. While new car leases typically have higher monthly payments, you’ll enjoy the benefits of a brand-new vehicle with the latest technology and a full manufacturer’s warranty.
Buying a Used Car
Purchasing a used car outright or financing it with a loan gives you ownership of the vehicle. While you’ll have higher upfront costs or loan payments, you won’t have to worry about mileage restrictions or lease-end fees. According to Investopedia, buying a used car is often the most cost-effective option in the long run.
Lease Swapping
If you’re looking for a short-term commitment, consider taking over someone else’s lease through a lease-swapping website. This can be a way to get into a lease with a shorter term and potentially lower payments.
What Should You Do at the End of a Used Car Lease?
As you approach the end of your used car lease, you’ll have several options to consider. Understanding these options in advance will help you make a smooth transition to your next vehicle.
Return the Car
You can simply return the car to the dealership. Be prepared for a lease-end inspection, where the dealership will assess the vehicle’s condition and check for excess wear and tear or mileage overages.
Purchase the Car
If you’ve grown attached to the car, you may have the option to purchase it at the predetermined residual value. This can be a good option if the car’s market value is higher than the residual value.
Extend the Lease
Some lenders offer the option to extend your lease for a few months. This can be helpful if you need more time to decide on your next vehicle.
Lease or Buy Another Car
You can choose to lease another used car, lease a new car, or buy a car outright.
What are Some Examples of Cars that Hold Their Value Well for Used Car Leasing?
When considering a used car lease, it’s wise to choose a vehicle that is known for holding its value well. Cars with high residual values typically result in lower lease payments. Here are a few examples of vehicles that tend to retain their value exceptionally well:
Honda Civic
Known for its reliability and fuel efficiency, the Honda Civic is a popular choice for used car leasing. According to a study by Car and Driver, the Civic retains approximately 60% of its value after three years.
Toyota Camry
The Toyota Camry is another excellent option, renowned for its durability and resale value. Kelley Blue Book reports that the Camry retains around 55% of its value after three years.
Subaru Outback
The Subaru Outback, with its standard all-wheel drive and reputation for safety, is a popular choice among those seeking a reliable and versatile vehicle. According to Edmunds, the Outback retains approximately 58% of its value after three years.
FAQs About Can You Lease a Used Car
Can you lease a used car with bad credit?
While it may be more challenging to lease a used car with bad credit, it’s not impossible. Some lenders specialize in working with individuals with lower credit scores. However, you should expect to pay a higher interest rate and potentially a larger down payment.
Is there a mileage limit on a used car lease?
Yes, used car leases typically come with mileage limits, similar to new car leases. These limits are often stricter than those for new cars, so it’s crucial to accurately estimate your driving needs before signing a lease.
Can you negotiate the residual value on a used car lease?
No, the residual value is set by the lender and is not negotiable. However, you can negotiate the capitalized cost, which will impact your monthly payments.
What happens if you go over the mileage limit on a used car lease?
If you exceed the mileage limit, you’ll typically be charged a per-mile fee at the end of the lease. These fees can range from $0.10 to $0.25 per mile, so it’s essential to be aware of the limit and the associated penalties.
Can you return a used car lease early?
Returning a used car lease early can be costly. You may be responsible for paying the remaining lease payments, plus an early termination fee. It’s crucial to carefully review the lease agreement to understand the penalties for early termination.
Are there any hidden fees in used car leasing?
While used car leases are generally straightforward, there can be some fees to be aware of, such as acquisition fees, disposition fees, and potential excess wear and tear charges. Be sure to ask the dealership about all potential fees before signing the lease.
Can you lease a used car from any dealership?
No, not all dealerships offer used car leasing. It’s more common to find this option at dealerships that sell Certified Pre-Owned (CPO) vehicles or those that specialize in leasing.
What is the difference between a used car lease and a new car lease?
The primary difference is that a used car lease is based on the car’s current used value, while a new car lease is based on the car’s brand-new price. Used car leases typically have lower monthly payments but may come with stricter mileage limits and a more limited selection of vehicles.
Is leasing a used car better than buying?
Whether leasing or buying is better depends on your individual circumstances and priorities. Leasing generally offers lower monthly payments and less commitment, while buying provides ownership and no mileage restrictions. According to a study by LendingTree, buying a used car is often more cost-effective in the long run.
What credit score do you need to lease a used car?
While there’s no set minimum credit score, most lenders prefer borrowers with a credit score of 620 or higher. However, some lenders specialize in working with individuals with lower credit scores, but you should expect to pay a higher interest rate.
Conclusion
Leasing a used car can be a smart financial move for those seeking lower monthly payments and reduced exposure to depreciation. By carefully considering the benefits and drawbacks, researching dealerships, and negotiating favorable terms, you can enjoy the advantages of leasing without the higher costs associated with new vehicles. Remember to assess your budget, driving needs, and priorities to determine if this option aligns with your lifestyle. Ultimately, the decision of whether to lease a used car rests on your unique circumstances and what you value most in a vehicle. Do you think leasing a used car might be the right path for you? What factors are most important to you in making your decision?
