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Ask Dr. Don

Leasing a used car

Dear Dr. Don,
I heard that very few (like only two in the nation) banks offer used-car lease financing. Is this true? If not, where can I find banks that finance used-car leases? I'm having trouble finding these lenders.
Yola Yugo

Dear Yola,
What's your goal in leasing used: low monthly payments, less depreciation? Depending on the car you're shopping for, the monthly payment when leasing a used vehicle can be close to what you would pay for leasing a new vehicle. That's because the residual value on the used-car lease is harder to estimate and the money factor (financing cost) on a used car is usually higher than that of a new vehicle.

The Bankrate feature, "Used-car lease can yield low-cost creampuff," discusses how to find a good candidate to lease used and how to negotiate a used-car lease.

If you're stuck on the idea of leasing used, you'll have your best luck working with the lease finance companies that are leasing new cars. When those cars come off lease, the finance company owns them and will often write a second lease on the vehicle. Going this route also lets you lease certified off-lease vehicles. An alternative to that is to consider online providers, such as LeaseCompare or LeaseSource, for lease financing.

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When leasing or buying a car, you wind up paying for the depreciation on the car over the time you drive it. Buying is a bigger cash commitment because you pay off the car over the life of the loan, while with a lease you only pay the difference between the capitalized cost and the residual value.

-- Posted: May 7, 2004

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See Also
10 auto-leasing booby traps
Tips for those who lease and lease again
Leasing lesson
Financial advice glossary
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