Leasing a car remains a stellar option for some buyers who want to drive a new vehicle every three or four years. Leasing has pros and cons, but the lower payments have reignited car buyer’s interest in auto leasing. Our 2022 SlashGear survey reveals only 16.61% of potential car buyers are most likely to sign a new lease agreement, whereas 54.92% prefer buying instead of leasing. The remaining 28.47% of respondents were looking to buy a used vehicle.
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The tides are changing in 2024 and beyond. Experian has reported that auto leasing has risen to 25.35%, up from 21.14% in the same period last year. Moreover, Edmunds has reported that the average price gap between a new and used car has surpassed $20,000 (the average price of a new vehicle is around $47,500, while a used car is $27,100 as of Q3 2024), which makes the used car market more enticing to budget-wary consumers.
However, is it possible to enjoy the merits of lower used car pricing with lower monthly car lease payments? As it turns out, it is possible to lease a used car, but it’s not as easy as heading to the dealership and scribbling your John Hancock on a lease agreement.
Used car leasing: How it works
Leasing a used car is no different from leasing a new vehicle, but the variables are somewhat mixed. Used car leasing will come with even lower monthly payments since most second-hand car leases are certified pre-owned vehicles (CPO) from a dealership. As you may know, CPO vehicles have lower MSRPs than brand-new ones.
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However, leasing a used car will have higher interest rates than leasing a new vehicle. Lenders typically assign a higher money factor (interest rate) to higher-risk investments like used cars, which are more likely to break down or need repairs than a new car. But then again, the lower MSRP and depreciation rates will most likely offset the higher interest, which still means lower monthly payments than leasing a new vehicle.
Moreover, the insurance rates are more affordable since used cars are worth less, and most certified pre-owned (CPO) vehicles come with a factory warranty or an extended warranty program. Since used cars are more likely to have issues, having a factory warranty is one of the benefits of leasing a used car.
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Pros and cons of a used car lease
The advantages of leasing a used car are lower monthly payments, a lower downpayment, and a manufacturer-backed vehicle warranty. Most CPO used cars available for leasing at dealerships would be less than three to four years old and have less than 48,000 miles on the odometer.
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On the other hand, a used car lease will come with similar drawbacks as leasing a new vehicle. This includes mileage restrictions (and penalties for breaching the annual mileage limits, typically 10,000 to 15,000 miles), outdated vehicle features, and no equity at the end of the lease. However, some lenders offer buyouts when the lease expires, and it usually comes with lower figures since used cars have lower residual values.
Auto leasing, whether new or used, is not for everyone. However, for car buyers with stretched budgets or a low credit score, used car leasing could be the key to driving the car of your dreams without spending absurd money.
How to lease a used car
The catch is that finding a used car that is available for lease might be challenging. Not all dealerships have used cars for lease, but it doesn’t hurt to browse their inventory of certified used vehicles and call the lender to ask if the car is available for leasing. It also helps to have a point for comparison when negotiating the lease deal. You can obtain a lease quote for the newer version of the car you want and use that to your advantage.
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After finding your car of choice, the next step would be to obtain a vehicle history report to know if the car has been in an accident, the service history, and the previous owners. If you find out the vehicle has been wrecked or was involved in an accident, it’s best to walk away and search for a more viable candidate. Some dealerships will provide the vehicle history report at no additional cost. But if there’s none, you can get your own via Carfax or Autocheck.
Before signing the dotted line, double-check with the dealer or lender all the fees and costs associated with the used car lease. The downpayment may include taxes, insurance, etc. After commencing the lease, stay prudent with the mileage limits and periodic maintenance to avoid excessive wear and tear. Remember that the lender will charge extra if you exceed the allotted mileage, have scratches or dings on the paint, or if the tires have bald spots when the lease expires.
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