Leasing a used car is possible although not many people are aware of it. In fact, doing so can save you thousands of dollars. The thing with used-car leases is not all dealers offer them and they’re a bit of a secret. You won’t see them being advertised anywhere. Even those who work at car dealerships may not know that leasing a used car is an option. But yes, you can lease a used car.
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If you are willing to do the extra effort and legwork to land one, you’ll reap more than just savings. You can get big savings when you leased a used car and that would allow you to afford a nicer car and still save money compared to leasing a new car.
How Used-Car Leasing Works
As a rule, used cars that can be leased from dealerships should be certified pre-owned (CPO) vehicles with less than 48,000 miles and less than 4 years old. Used-car leases adhere to a similar basic structure as leasing a new car.
The lender will calculate the car’s residual value and calculate the payments based on the difference between the car’s sales price and its residual value. Residual values vary since not all vehicles depreciate at the same rate. Mostly, the lender will be the car manufacturer’s “captive” financing company (for instance, Toyota Financial at a Toyota dealer).
The interest rate (a money factor of the deal) will be assigned by the lender writing the lease which is the same as a regular lease. Interest rates are more likely to be higher on used-car loans so expect that the money factor will also be higher than in a new-car lease.
But despite the higher money factor, you will still have a lower overall payment since the money factor is paired with a lower sales price and lower depreciation rate. Those who availed of the used-car lease are able to buy out the car at the end of the lease, the same way they can with new vehicles.
You can see buyers get $40 to $125 savings from their monthly payments by opting to lease a used car. Those who are looking to lease used luxury cars particularly can get larger savings.
Note: Be wary of used leases from independent “Buy here, Pay here” dealers. More often than not, they come with lots of strings attached and you must thoroughly check the terms. Best to deal franchised dealers as they are the only ones that can truly offer certified pre-owned vehicles.
Step by Step Guide to Leasing A Used Car
- Give the lender a call. If you already have a car in mind from a particular automaker, try calling the captive lender of that brand and ask if they offer leases on used CPO vehicles. You should be able to get the customer service number by searching the brand’s name followed by “finance phone number”. For instance, a shopper wanting to lease a used Chevy would call GM Financial.
- Have a benchmark. For you to know if a used car lease is a good value, you need to have something to compare it to. If you still do not have a lease quote for a new model of the car you are eyeing on, get one. Before you begin shopping for a used car lease you must have that benchmark in hand.
- Find the vehicle. Search for the car you are most interested in and be sure to look for a certified pre-owned vehicle. Since you are shopping in the used market, expect not to readily find the color combination and/or mix of features you wanted. Best to be open for options. Be flexible. Pick a few from various dealers. This way, if the first one does not work for you, you’ll have alternative options.
- Find your dealer. To lease a used car is not the norm so searching for a dealership that can help you will probably take some time and patience. It may take you to call a few dealers before finding one that can do used car lease deals. Once you find a car you like, call and talk to an internet manager or sales manager. Tell the manager you have found a CPO car in inventory and you’d like to know if it is available for leasing. If you get a quick negative response. Do not be scared to ask the manager to check with a higher-up for confirmation. Used leases are still relatively rare so there is a chance that the person you speak with may not know that this option exists. Do not be surprised if the manager tells you that he would have to call you back. Still not going anywhere, move to the next dealer on your list.
- Get a quote. Now that you find a dealership that is open to giving you a used-vehicle lease, it’s time to ask for a price quote. The usual shopping rules apply. Negotiate a fair price using an appraisal calculator available. Determine the residual value in the event you would want to buy the car at the conclusion of the lease. Finally, find out the total down payment and total monthly payment (including fees and taxes).
- Make a comparison again. Check the price of the used car lease against the new car lease. If you can get significant savings, then it might be ideal to schedule a test drive and even make a deal.
Does it make sense to lease a used car?
We’ve mentioned previously that you get to save money for choosing a used car to lease. This time we take a closer look at the advantages and disadvantages of used-car leasing for you to determine if leasing a used car is the best option for you.
Advantages of leasing a used car
- Lower monthly payment – The CPO car, as expected, has a slower selling price than its comparable new vehicle, and that is the reason you would avoid the steep new vehicle depreciation curve. These two factors contribute to the lower monthly lease payment even with a higher money factor (interest rate).
- Easier to buyout – Because used cars are less expensive than its brand new cars counterpart, their residual values will be less too. This makes them good candidates for a buyout at the end of the lease. But make sure you do your due diligence. You need to check your market prices and factor in maintenance costs and future extended warranty costs that come with purchasing an older car.
- Longer powertrain warranty – A CPO auto will usually have a powertrain warranty with a 100,000 mile-coverage. That is a big plus for buyers who plan purchasing the car at the conclusion of the lease.
- Potential lower car insurance costs – The insurance would cost less because of the vehicle’s reduced value.
Disadvantages of Leasing a Used Car
Maintenance costs: You’ll have maintenance visits sooner than you’d have in a new car as expected in having a used car with miles on the odometer. Prepare to spend more on upkeep costs.
No brand new car scent: The car is new to you, but it ain’t fresh from the factory. You cannot expect it to be flawless so you might find some ding or scratch.
May not come with the newest features: A brand new, most recent model year car may have safety and technology features that an older model may not. If you choose to lease a certified pre-owned vehicle, be sure it comes with all the bells and whistles you need.
Note: It is important to know that leasing a used car is not the only option for shoppers who are on a budget. There are aggressive incentives on some new cars such as cash back rebates, end of model year incentives or low money factors which makes leasing a new car better than leasing a used car that’s a couple of years old. However, if you want to lease a car without any crazy special deal on it then maybe it is a hot seller that doesn’t require any factory incentives to sell it and in this case, to lease a used car can be a good way to get a vehicle that’s very close to what you want for a lot less money.
What's the best lease deal on cars?
If you change your mind on leasing a used car and decide on leasing a new one instead, make sure to find the best new car lease. Lease buyers in general can get lower monthly payments than those who are going to buy a new car because they are only paying for the depreciation expected to happen during the lease on top of interest and fees.
Getting a good lease deal can make leasing a new vehicle even cheaper. Special lease deals are subsidized by car manufacturers, creating lower monthly payments, requiring less cash at the signing of the lease, or both.
Before deciding to lease, you have to be sure your job is secure in the continuing economic turbulence since lease contracts are difficult to break without causing a major impact on your credit score.
The best lease deals are typically only available to shoppers with excellent credit scores and stable work histories. It is also important to know how many miles you drive each year as this will matter in your car leasing decision with the imposed strict mileage limits.
Lease deals are typically offered on specific trims and the stock may be limited. Here are some of the best deals you can get for September:
2020 Honda Fit – Honda is offering two lease deals for September on the Fit LX hatchback. First is a typical lease deal with payments of $168 per month and a down payment of $1,999 at signing. The second deal is a zero-down lease at $210 per month which is a cheaper deal in the long run. Both deals have a 30,000-mile limit. You would have to pay excess mileage charges if you exceed the limit. The deal expires on November 2.
2020 Toyota Camry – This September Toyota is offering excellent lease deals on the 2020 Camry LE with monthly payments ranging from $179 to $229 depending on location. Down payments range from $1,999 to $3,498. For those looking for hybrids, Toyota is also offering a lease deal for its highly efficient 2020 Toyota Camry Hybrid with prices matching the non-hybrid’s deals in some locations and about $10 per month higher in others. Deal expires at the end of September.
2020 Chevrolet Bolt EV – Looking for an affordable electric vehicle? You might want to look into 2020 Chevy Bolt EV with a lease deal of $239 per month for 36 months with $1,629 due upon signing. This lease deal is available to the Bolt EV LT and comes with a 30,000-mile limit. This deal will expire at the end of September and require an excellent credit score to be eligible.
2020 Cadillac CT4 – In some regions, Cadillac is offering a great lease deal on the new 2020 Cadillac CT4. This new compact luxury sedan comes with a much-improved version of the Cadillac User Experience Infotainment System and a 237-horsepower turbocharged four-cylinder engine paired with a 10-speed automatic transmission. The offer is at $379 per month for 36 months with $3,189 due upon signing. The deal expires at the end of September and has a 30,000 mile-limit.
2020 Dodge Durango – In some locations, the 2020 Dodge Durango SXT Plus equipped with AWD has a lease deal with a monthly payment of $269 per month and $4,329 due at signing. In other regions, the Durango comes with a lease deal of $323 per month and $3,999 due at signing for an SXT Plus with rear-wheel drive. The deals have a cap ranging from 10,000 to 12,000 miles per year. These deals will expire at the end of September.
In recent years, traditional new car leases have made up around 30 percent of all finance transactions at new car dealerships. Most of these cars will eventually find their way back as lease returns after a few years. Dealers will find ways to offload them which includes offering to lease a used car.