Used-car lease can yield low-cost creampuff
By Lucy Lazarony • Bankrate.com

Leasing a used car can be a great deal for someone prepared to do both homework and haggling.

The biggest potential advantage is obvious. Because it's a lease, you get more car for that monthly payment.

Because it's a used car, you let the first driver absorb the big depreciation hit -- when the value of a car nosedives in its first two years. And with car warranties lengthening and manufacturing quality on the rise, cars today last longer with fewer problems.

"Leasing a used car can make a lot of sense if you do it correctly because a lot of depreciation has taken place already," says Remar Sutton, author of Don't Get Taken Every Time: The Insider's Guide to Buying or Leasing Your Next Car or Truck. "However, there are some very big dangers."

Consumers face the same complexities as with any lease -- and must prepare to dodge a few extra potholes.

Do your homework
Mark Eskeldson, an auto expert who runs CarInfo.com, a consumer information and advocacy Web site, warns: "I think you've got to be more paranoid and more educated, and do more homework on a used-car lease."

Here's why: Determining the current value of a used car and its residual value -- the value at the end of the lease -- can be tricky. Two cars that rolled off the assembly one after the other started out identical, but after a few years, they can have markedly different values, depending on their mileage, upkeep and even their colors.

Consult online sites such as CarWizard, Kelley Blue Book and Edmund's for used-car pricing information. But realize these are all guidelines and leasing companies are looking to maximize profits. Be prepared to negotiate.

"Everything's up in the air on a used car," Eskeldson adds. "No one really knows what it's worth."

Haggling? A capital idea
Sutton suggests people haggle down the current value -- a car's "capitalized cost," in lease-speak -- to near the car's wholesale value.

Also, be watchful of the residual value, the amount the car is expected to be worth at the end of the lease. In a lease, a person is paying the difference between the car's capitalized cost and its residual value, plus a monthly fee to the finance company. So the lower the capitalized cost and the higher the residual value, the better the deal is for the consumer.

That means cars that don't hold their value well in their first few years present the best used-car lease deals. With a car that holds its value well, you may as well lease the new one because the difference in monthly payments between a new-car and a used-car lease deal will be miniscule.

"When you're looking at a used car that maintains its value well, be sure to look at how much it would be to lease it new," says Michael Scott Kranitz, author of Look Before You Lease. "Often, there's not a huge difference in monthly payments."

Because the rate of depreciation is dictated in part by how popular a car is, with popular cars maintaining their value well, accept the fact that the most favorable lease deals usually won't be found on the hottest cars.

It's important to have a handle on all the ins and outs of leasing before setting foot on a dealer's lot. A consumer brochure on leasing is available from the Federal Reserve Board. The Florida Attorney General's Office also offers leasing tips.

Don't get a too-used car
A key concern with leasing a used car is making sure it isn't used up, either when you get it or when you turn it in.

Avoid leasing cars that were driven more than 15,000 to 20,000 miles a year by the previous owner. So it's a good idea to pass on leasing a 2-year-old car with more than 40,000 miles or a 3-year-old car with 60,000 miles.

"Mileage isn't the end-all, be-all, but you don't want excessive mileage on the car," says Jack Nerad, author of The Complete Idiot's Guide to Buying or Leasing a Car.

It's also important to make sure the mileage allowance on the lease matches your driving needs. Mileage allowances range from 10,000 to 15,000 miles per year. Those who go over the agreed-to mileage allowance should be prepared to pay 10 cents to 25 cents for each extra mile.

Don't use too much of the car up yourself, either. It's a good idea to limit the term of the lease to no more than three years.

Many cars coming off a typical two-year lease still will be covered by the manufacturer's warranty. At Ford, once the bumper-to-bumper warranty ends, a used car lease limited warranty kicks in, covering the car to the end of the lease or 80,000 miles. "Pay a lot of attention to the warranty situation," Nerad says. "Because if you're leasing and the car goes out of warranty, you're still on the hook for repairs."

Watch that warranty
An additional measure of safety comes from leasing pre-owned cars that have been certified by the car's manufacturer. These cars have been subjected to extensive inspections and reconditioning aimed at bringing them up to new car standards. These inspections may up the car's value by $1,500 to $2,000 but they may also include a lengthy warranty.

A warranty from the manufacturer is superior to one offered by a local dealer, because with a manufacturer's warranty, repairs can be made at any dealership nationwide.

Because conditions among used cars can vary, the safest bet may be to lease a car that was leased by its first driver. The car is likely to have low miles and be in fairly good condition. The dealer may also have details of the car's maintenance.

-- Posted: April 14, 1999