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Used cars depreciate at a slower rate than new cars, making them an excellent choice if you want a low-cost lease. They’re harder to find, though, and limited used car inventory has further shrunk the market. In addition, you may not recoup the amount you spend on the down payment — which you won’t get back at lease end.
Still, you could end up saving quite a bit each month. If you are in the market for newer vehicles that haven’t seen a lot of wear and tear, a used car lease could be right for you.
3 steps to lease a used car
Leasing a used car is similar to leasing a new car. You’ll have to research the vehicle and negotiate with the dealer. But since they are rarer, there is a little more legwork involved in finding a good deal.
1. Research lease options
Not every dealer offers leases on used cars. You are more likely to find leases on certified pre-owned (CPO) cars, which are generally only available at a franchise dealer. You will also want to call or email ahead of time to ensure the dealer sets up used car leases.
Do your research on recent models that you might want to lease. And, most importantly, comparison shop. Even if you aren’t buying the car, check what they are selling for on sites like Edmunds and Kelley Blue Book. This gives you a good starting point during negotiation.
2. Negotiate with the dealer
Once you have found a dealer that offers used car leases and you have price shopped, it’s time to start negotiating. Like a new car lease, the cost of a used car lease is based on a money factor — similar to the interest rate on a loan.
You will be able to negotiate this along with mileage limits and residual value. The negotiation process is similar to buying a car. You want to ensure you’re getting a fair price on the overall cost, including fees, taxes and the money you are putting down.
3. Pay attention to the contract
Your contract will include fees, mileage limits, what maintenance is or isn’t covered and a purchase option. Keep an eye out for any add-ons that you don’t want included. Extended warranties can be useful in some circumstances, but most CPO cars come with a manufacturer warranty.
It will also include the expected depreciation and residual value at the end of the lease. Confirm these match your negotiated numbers before signing.
Drawbacks of leasing a used car
Beyond limited inventory, many of the drawbacks of leasing a used car are the same as leasing in general.
- A leased car will still cost less per month than buying, but it won’t save you as much as leasing a new car. Just like with buying new versus used, a used lease will have a higher rate factor than a new lease.
- You are also responsible for any wear and tear beyond what the dealer considers “normal.” This will depend on your contract but expect to pay extra for any dings or scratches once your lease is up.
- Maintenance costs are another big one. Oil changes, mechanic visits and anything not covered by warranty will be your responsibility.
- Used car leases are uncommon, so it will take extra work to find a dealer that offers them. And since there is also a shortage of semiconductors, there is less inventory overall, which could mean another hurdle to finding a good deal.
- Mileage limits are one of the bigger drawbacks if you have a long commute or enjoy drives. Your lease contract will limit you to 12,000 to 15,000 miles per year — and come with extra fees if you go over.
How car loans and leases differ
Car loans involve an upfront cost followed by installment payments over a fixed period. Leases involve a lower upfront cost, and the lessee is only responsible for the depreciation of the car over the lease term. Both leases and loans have their fair share of pros and cons. The key differences are in terms of monthly payments, maintenance, use or mileage and ownership.
- Monthly payments: Monthly payments for car leases are typically lower because you only pay to use the car. With a car loan, you pay to own the car.
- Maintenance: Maintenance is typically covered for leased vehicles, but buying a car makes you responsible for all maintenance requirements and fees.
- Use and mileage: Leases have mileage restrictions and other fees associated with the lease. Buying a car has no mileage limit but excessive mileage affects the car’s resale or trade-in value.
Alternatives to leasing a used car
You have two main alternatives: buy the car outright or look into lease swaps.
The most financially sound option is generally to buy instead of lease. You will own the car at the end of your contract, which gives you the option to either sell it or drive it until the end. It opens you up to depreciation and the potential of being upside down on your loan. But for many, it’s the easiest way to get an affordable ride.
Of course, if you fall in love with your leased car, you will likely have the option to buy it at the end of the lease term. So, leasing used could be a good way to get in a few cheap monthly payments before committing to a car.
Lease-trading sites like LeaseTrader can help you find good deals from people looking to end their lease contract early. The cars you find may not necessarily be considered “used” by dealer standards, but they will have seen some action from another owner.
Prepare to research recent models and dealers in your area. It’s not impossible to find a used car lease, but in the current market, it can be difficult. And once you do find a used car to lease, ensure it is a budget-friendly option that suits your driving style.