Leasing a car is one way to drive a vehicle without the costs of purchasing and financing. New cars dominate the leasing market, but you can lease a used car. Pre-owned car leasing remains a relatively niche market, but it is expanding as dealerships struggle to sell a growing number of new car lease returns in top-notch shape and boast low mileage. Approximately 30% of new cars that leave dealers are leased. Used-car leasing offers dealers another channel to remarket those cars when they return from their initial leases.
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Can You Lease a Used Car?
Yes, you can lease a used car. If you can locate the car you want at a dealership that is proficient at used-car leasing, you potentially can save a substantial amount of money or get behind the wheel of a luxury car for the cost of a new non-luxury model.
How Does it Work?
As a rule of thumb, used cars available for lease from dealerships are certified pre-owned (CPO) vehicles less than four years old and fewer than 48,000 miles on the odometer. Used-car leases work the same way as new leases. The lender determines the vehicle's residual value and payments depending on the difference between the vehicle's residual value and sales price. Automobiles depreciate at different rates, so residual values vary. Most of the time, the lender is an automaker's "captive" financing company: Think Subaru Financial at a Subaru dealer.
Shoppers who lease used cars can buy the vehicle out when the lease ends, just like with new autos. The lender writing the lease assigns the deal a money factor, which establishes the interest rate, just like a regular lease. Just like how interest rates are typically higher on used-car loans, the money factor will also probably be higher than a new-car lease. The lower sales price, a higher money factor, and a lower depreciation rate generally mean a smaller overall payment.
The Pros of Leasing a Used Car
Below we describe some advantages of leasing a used car.
Drive a Better Car
Leasing a used car can help you get behind the wheel of your dream car. Rather than leasing a new Toyota sedan, you might be able to drive a used Lexus. Instead of leasing a new Honda Civic, you might scoop some excellent deals on used BMWs.
It's Affordable
When you purchase a car, you have to pay the entire purchase price, while car lease customers only have to pay the predicted amount of depreciation during the contract term, on top of some fees and interest. Vehicles rapidly depreciate in the first few years of service, and the depreciation slows down during the car's middle age. After the max depreciation is over, leasing the car can pay for a substantially smaller decrease in value, which means less due at signing and lower monthly payments.
Good Candidates for Lease-End Purchase
When a used-car lease is over, the car's buyout price is probably fairly reasonable. Unlike most used vehicles, you'll have a decent idea of its service history, whether it had issues, and how hard it's been driven. If any problems occur during the lease term, you can quickly get rid of it. You just drop it off at the dealership, pay any lease-end fees, and you're in the clear.
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Well Cared For Vehicle
Most used vehicles up for leasing begin their leasing careers as leased new vehicles. This means that used vehicles for leasing typically feature low mileage, proper maintenance, and no accidents. Most used vehicles you can lease are certified as pre-owned cars, which offer warranty coverage and other perks to reduce your overall costs.
Less Sales Tax
Generally, dealers are required by their jurisdiction to collect sales tax on transactions involving used vehicles. Since you are only paying for the depreciation that happens when a car is leased, the sales tax is much lower than purchasing the same vehicle new.
Cheaper to Insure
Due to the car's age, auto insurance premiums on a leased, used car typically are lower than for a leased new vehicle. This cuts your overall costs and makes used vehicles more affordable to insure and lease.
Looking for new or used Subarus? Visit Walker’s Renton Subaru today!
The Cons of Leasing a Used Car
So what are the disadvantages of leasing a used car? Below we discuss some reasons why you may reconsider leasing a used car.
Check the Warranty
The majority of certified used cars you can lease will feature some extended warranty coverage, but you still have to evaluate what portion of your lease term is covered carefully. If the warranty doesn't cover the entire span of the car lease, you'll be responsible for significant expenses if some major problems occur.
Not in Perfect Condition
You are leasing a used car, so you can't expect perfection. Though it probably has been somewhat refurbished by the dealer, it will probably still have some scratches, interior wear, and dings. There won't be that "new-car smell" some people love.
Possible Expensive Maintenance
As vehicles age, regular maintenance costs also increase, as significant tasks need to be accomplished. Issues like differential maintenance on all-wheel-drive vehicles, transmission service, and belts can start adding up as automobiles tick up to the 40,000 to the 50,000-mile range. You can't put these items off with a leased car since you'll have to prove that you've kept up with service intervals when you turn the car in.
Older Technology
Many people lease cars to enjoy the newest technology and features. Used vehicles are typically two to three years old and may not feature advanced safety systems or the latest infotainment.
Mileage Limits
When you purchase a used car, you can drive it until it falls apart. With a leased car, the car lease agreement will have a mileage cap. You never want to enter a lease without knowing the mileage limit and how that fits with the amount you drive.
Unpredictable Value
Vehicle values often vary substantially with the age of a car, so it's more challenging to predict a car's value five or six years after it's entered service compared to a new-car lease. That prediction may be used to create the leased vehicle's residual value, meaning that the lease will be more expensive for you if they set the residual value on the low end.
You Need Good Credit
Most leasing companies won't do business unless the customer has good credit. Customers with excellent credit scores get the best lease deals, and it's a good plan to check your credit score and credit reports before you lease to ensure you get the best deal.
Find the Right Dealer
Though the popularity of used-car leasing is expanding, you'll need to do a little digging to find a car dealer that leases used cars. Even when you find a dealership, typically, only a few people are authorized to write up a used-car lease. You will need to talk to the finance manager to see if the dealership will put one together for you. Moreover, only some manufacturers have a program with finance companies to provide leasing on CPOs. Most luxury brands offer used-car leasing, but you should check with your dealer if you're thinking about leasing a CPO car from a major brand.
Find the Right Lease
Not every used car is right for leasing. You'll want to lease a vehicle that holds its value well, such as most luxury cars, high-end SUVs, and sports cars. Luxury manufacturers typically boast some of the top certified pre-owned vehicle programs. Most feature fantastic factory warranty coverage on top of extras like trip interruption reimbursement, roadside assistance, and loaner cars. Some of these benefits may be included in the CPO programs from big brands, but you'll need to check the details.
Related: The All-New 2020 Subaru Outback
The Last Word on Leasing a Used Car
Leasing a used car may be a good option for drivers looking to test a used luxury vehicle out before buying. Walker's Renton Subaru is a top New, Used, and Certified Pre-Owned Subaru dealership in the Greater Seattle Area. Please browse our extensive inventory of new and used Subaru. Walk-in today to enjoy quality customer service and trustworthy contracts.
Looking for new or used Subarus? Visit Walker’s Renton Subaru today!
