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Buying a Used Luxury Car: What to Know
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If you’re looking for a nicer vehicle — perhaps with leather seats or a sporty suspension — but can’t afford to get a new one, buying a used luxury car could be a smart option as long as you understand the pros and cons.
By buying used, you may be able to choose a luxury brand like Lexus or Audi if you’re able to do so financially. Many luxury cars are leased – usually for 36 months – so there’s a supply of vehicles with around 36,000 miles as these leases end.
Buying a used luxury car: Pros and cons
Choosing a used luxury car is almost always going to be less expensive than buying a new luxury vehicle. A used luxury car that still has a swanky interior and high-tech gadgets could save you thousands of dollars. However, there also can be downsides when compared to buying a comparably priced new vehicle from the middle of the pack.
Because of depreciation, you can get more car for your money by choosing a used luxury car. New vehicles, on average, depreciate 30.5% in the first year of ownership, 7.7% in the second and 6.8% in the third, according to Edmunds. Some luxury vehicles lose more than 70% of their value after five years. You could buy a three- or four-year-old BMW 5 Series for nearly the same price as a 2020 Toyota Camry.
Style and performance
A used luxury car — depending on how old it is — may still have the latest technology, an upgraded interior and better performance than a new car from a lower-priced brand. Luxury cars typically are quieter to drive and have understated styling. You could drive a car you’ve always dreamed of for a reasonable payment by going the used route.
Technology and safety
High-end cars typically get new safety features and technology before that trickles down to less expensive cars over the years.
You’ll be buying a used car with miles — possibly many — already on it. It’s not uncommon for a luxury car to rack up 150,000 miles or more, but not all those miles will be yours. If you buy a car with 30,000 to 50,000 miles, it might be time for an oil change, brakes, tires and other expenses before you start driving it.
Luxury cars cost more to maintain and repair. Parts can be expensive, and luxury dealer labor rates may be higher. Even basic maintenance like an oil change service can be costly at the dealer. The failure of expensive parts like the engine control unit or the transmission can cost thousands of dollars to repair.
For example, here are estimated repair costs (including parts and labor) for a power steering pump on a variety of vehicles:
- 2016 BMW 3 Series: $606 to $692
- 2016 Cadillac ATS: $558 to $640
- 2016 Toyota Camry: $502 to $576
The average yearly cost of ownership for a 2010 BMW model in year 10 is $910, compared with $291 for a 2010 Toyota Model in year 10, according to Consumer Reports.
Safety and technology change rapidly, so a three-year-old luxury car may not have some of the features that can be found in a less expensive new car. For instance, the older car may not have a rear cross-traffic alert system or adaptive cruise control that you may find on a new car.
Car insurance for a used luxury vehicle can be costly due to the higher purchase price, cost of repairs and theft risk. We suggest you consider these coverages:
- Liability insurance
- Collision and comprehensive insurance
- Personal injury protection or medical payments insurance
- Gap insurance to cover the value of the car compared to the remaining loan balance in case it’s totaled or stolen
What kind of used luxury car should I buy?
The sweet spot is luxury vehicles coming off 36- or 48-month leases. You could save 30% to 40% off the sticker price for a car with 30,000 to 48,000 miles on it, said Michael Harley, Kelley Blue Book executive editor.
Research what luxury car you should buy, especially if you’ve never owned one before. Perhaps your heart is set on a used BMW convertible or a sporty Audi sedan or a used Mercedes-Benz SUV. There are plenty of resources to guide you:
- Kelley Blue Book and NADAguides highlight pricing and reviews.
- J.D. Power ranks luxury cars and SUVs; it also conducts the Initial Quality Study of owners who’ve had their vehicles 90 days and the Vehicle Dependability Study, which polls original owners of 3-year-old vehicles.
- The Insurance Institute for Highway Safety rates cars based on crashworthiness, as well as crash avoidance and mitigation.
For the used luxury car with the best value, start with how you’ll use the car. Do you need a used BMW SUV? A used Mercedes sedan? A used Audi sports car? Perhaps you’ve yearned for a particular brand or model. A convertible might just fill the need to feel the wind in your hair.
Certified pre-owned options
Harley recommends looking for a certified pre-owned (CPO) vehicle at a dealer. CPO vehicles, which must meet the manufacturer’s requirements for age, mileage and condition, are thoroughly checked out.
They typically come with a factory-backed warranty that extends coverage beyond the original factory warranty for several years. In some cases, you could get unlimited-miles coverage depending on the manufacturer.
CPO vehicles may have been previously leased and turned in, or they could be other low-mileage cars. Used vehicles on a dealer’s lot that aren’t CPO certified may still be a good deal, but they won’t have the CPO warranty coverage. Keep in mind that CPO cars are available only from a franchised new car dealer. If you want a CPO Lexus, you have to go to the Lexus dealer.
Used Lexus cars are usually a good value, as well as the European vehicles such as BMW, Mercedes-Benz and Audi, Harley said. Cadillac also offers a domestic luxury experience in sedans and SUVs.
Legacy British vehicles such as Jaguar and Land Rover experience steep depreciation when new and may be available at attractive prices as used cars.
For many European cars, the models with smaller engines like a four or six cylinder often have the same amenities as versions with more powerful engines but tend to cost less, Harley noted. That’s one way to move up to a luxury level yet keep your budget in mind.
Financing a used luxury car
You can finance a used luxury car through a bank, credit union or online lender. Or, you can also take advantage of financing through the dealer. Banks and credit unions may also finance the purchase of a used luxury car from a private party.
Generally speaking, a luxury used vehicle loan will be similar to a regular auto loan. The loan amount and APR that you can qualify for will mainly be based on your credit score. (You can check your credit score for free through My LendingTree.)
Typically, used car loans have higher interest rates than new car loans. Some banks and credit unions have a limit on the age of the car or the mileage of a vehicle they will finance. They may also limit the length of the loan for a used car. For example:
- PenFed Credit Union limits the maximum term to 60 months if your vehicle is older than model year 2015. But 72-month terms are available if your vehicle is from 2015 or newer.
- Launch Federal Credit Union limits the maximum term to 36 months if your vehicle is from 2013 or older. But 96-month terms are available if your vehicle is from 2018 or newer.
With LendingTree, you can fill out an online form and get up to five potential auto loan offers from lenders, depending on your creditworthiness. You can also work directly with banks, credit unions and online lenders.
Can you lease a used luxury car?
Yes, it’s possible to lease a used luxury car. A lease provides you with fixed costs if all the maintenance is covered under warranty. But don’t lease a car for longer than the remaining warranty coverage, Harley said.
Online marketplaces can be a good way to find the best used luxury cars from people who want to get out of their leases. Some examples:
Leasing a used vehicle may make sense for someone who wants to keep a car for three years or so, said Scot Hall, senior vice president of operations at Swapalease. Leases through dealers may come with extended warranties and maintenance contracts.
“Most people like the short-term nature of leasing, but if you’re planning to keep a car for five or six years, then a loan is the way to go,” Hall said.
Is it worth buying a used luxury car?
Harley said buying a certified pre-owned used luxury car is the smart way to go. You can get good value after letting someone else absorb the depreciation hit when the vehicle is new. You’ll get a high quality, comfortable, stylish vehicle that may fit your lifestyle better. It will likely last well over 100,000 miles, so you can keep driving it long after it’s paid off.