Yes, You Can Lease a Used Car — Here’s How to Do It
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When shopping for a car, it’s easy to fall in love with a vehicle that breaks your monthly budget. Buying or leasing a brand-new car might require a hefty down payment, too. Used-car leasing, however, is an alternative that gives you a near-new vehicle at a lower price with the peace of mind of a factory warranty.
The downside is that leasing typically winds up being more expensive in the long run than simply buying a used car. It might be right for you if you’re looking for a low monthly payment and a car you’ll keep for just a few years.
How to lease a used car
You can lease a certified pre-owned (CPO) car through many franchise dealerships. What was once hard to find is now more common, but used-car leasing does limit you to certain vehicles. You can only lease a Honda from a Honda dealer, a Ford from a Ford dealer — you get the picture — and only vehicles that meet the manufacturer’s standards for a CPO-worthy car. CPOs are used cars under a certain age and mileage limits that the dealer has inspected and reconditioned.
The other way to find a used-car lease is to take over a lease from a current leaseholder. Their leasing company would have to approve you for the lease transfer and likely charge a transfer fee. You can find leaseholders through a matchmaking service like Swapalease or LeaseTrader where outgoing leasees list their vehicles. Some offer cash incentives that make up the cost of the transfer fee and more. Unlike a traditional lease, you’ll avoid any down payments and upfront acquisition fees, and simply make monthly payments.
Used-car leasing vs. new car leasing
When you go through a dealer, used-car leasing works the same way as a new car lease:
You may have to make a down payment and pay an acquisition fee to get started. You’ll then make monthly payments, which are based on the difference between the car’s purchase price and the estimated value at the end of the lease, or the residual value. The money factor, like the interest rate on a loan, is added to the monthly payment. Used lease rates are typically higher than new, although manufacturers may offer incentive rates.
At lease end, no matter how you obtained your used-car lease, you may have to pay a disposition or turn-in fee plus any penalties for exceeding the lease’s mileage limits and wear-and-tear policy.
Is it a good idea to lease a used car?
It depends. One reason why leasing a used car is smart is that you can likely get a lower monthly payment than a new-car purchase or lease, but if you plan to hold on to a car past its lease term, it may be better to buy it from the start.
“If you want to keep a car for five or six years, it makes sense to buy it, but if you want to drive it only two to three years, leasing is probably the way to go,” said Scot Hall, executive vice president of operations at Swapalease.com.
Here’s a closer look at the benefits and drawbacks of used-car leasing.
Pros and cons of leasing a used car
Lower payment: A used vehicle costs less to lease or buy than a new one.
Nicer car: By leasing a vehicle that’s a few years old, you may be able to afford a nicer car or a higher trim level than leasing or buying the newest model.
Longer warranty: A CPO vehicle comes with a manufacturer’s warranty, something other used vehicles don’t have.
Lower insurance: Because the vehicle’s value is lower than a new car, the certified pre-owned lease will cost less to insure than a new car lease.
Higher interest rate: Used vehicles usually have a higher interest rate, or money factor for a lease, than new cars. Manufacturers do offer CPO lease deals like they do for new car leases and purchases, but they’re typically for luxury brands.
Wear and tear: Certified pre-owned cars have been inspected by the manufacturer, but they’re still used cars with some degree of wear and tear. They also might lack the latest safety features or technology.
Maintenance costs: CPO warranties typically don’t cover things like brake pads and tires — you may have to pay for some maintenance out of pocket.
Limited inventory: Used-car leasing is relatively rare — it accounts for about 8% of vehicle leases each year.
5 steps to finding a used-car lease
Find a dealer that offers it
About 24 car manufacturers offer leasing on used cars, so check with your local dealer or the financing company of the brand you’re interested in to make sure it’s available.
Negotiate your best deal
You can negotiate a used lease deal just like a new lease or any auto loan. Start with the price of the car, and then negotiate the down payment amount or trade-in value, mileage limits and purchase options. You may also have to pay taxes and title and license fees like you would with any car. There may also be acquisition fees, dealer fees and other costs added to the lease.
Decide on a warranty
In addition to the CPO warranty included by the manufacturer, the dealer may also offer an extended warranty. Also known as a vehicle service contract, extended warranties are an extra cost. It may be worth the additional peace of mind, but check for overlapping coverage — it doesn’t make sense to pay for coverage you’re already receiving under the CPO warranty and, possibly, the vehicle’s original warranty.
An extended warranty or vehicle service contract can cost anywhere from $1,200 to $2,500 or more. Compare the dealer’s offer with those from independent companies, your auto insurance provider, even some credit unions and car clubs.
Consider other add-ons
Unlike an optional extended warranty, the leasing company may require leasees to buy guaranteed asset protection (GAP). GAP covers the difference between the amount on your lease and the amount your auto insurance company pays in case your car is stolen or totaled in a car accident. Ask whether it’s required for you and if it’s a cost that’s rolled into your monthly payments or one you could shop around.
Understand your obligations
Before signing the lease, make sure you understand any early termination fees, excess wear-and-tear charges and mileage fees. There may be an option to purchase additional miles upfront or within a certain period at a lower price than paying the penalty at the end of the lease. If you’re interested in buying the car, ask about purchase options at the end of the lease. The purchase price, based on the residual value, should be spelled out in the lease agreement. If the car is worth more than the residual value, it could be a good deal.
Compare car leasing and buying options
Used-car leasing isn’t the only way to get a car. Here’s a look at how it compares to alternatives.
|Used-car leasing vs. alternatives|
|Used-car lease||New car lease||Lease swap||Used car purchase||New car purchase|
|Cost||Lowest monthly payment and money down||Lower monthly payment vs. buying, $116 less on avg||Depends on the deal Transfer fees can be steep but incentives are possible||Lowest long-term costs||Highest cost option|
|Requirements||Good credit score; down payment possible||Good credit score; down payment possible||Good credit||Good credit for a better rate; down payment possible||Good credit for incentive rates; down payment possible|
|Risks||Higher money factor||Expensive to end early||Can’t negotiate rates||Reliability varies; expired warranty possible||Owing more on your car than it’s worth|
|Best for||Low-payment seekers who want short-term car ownership||Those who want a new car every 2-3 years||Risk takers, luxury car shoppers||Buyers seeking long-term ownership||Drivers who run up high mileage, family wear-and-tear|