By Gayle SatoCan You Lease a Used Car?
Quick Answer
Yes, you can lease a used car. Leasing a used car could save you money on monthly payments and make an expensive car more affordable. However, finding a used car to lease can be a challenge, and you’ll want to make sure you understand all of your lease terms before you sign.
Yes, you can lease a used car. Like a new car lease, a used car lease can get you a lower monthly payment without a hefty down payment versus getting a loan to purchase a car. Used cars may be less expensive to lease than their new counterparts as well. However, there are challenges, including finding a dealer that offers used car leases and factoring in fees, warranties and mileage restrictions.
Here are the basics of used car leasing: how it works and what to know to negotiate a deal that works for you.
What Is the Cost to Lease a Used Car?
The cost of a used car lease is based on how much the car's value is expected to decrease over the lease term. Let's say you lease a car worth $25,000 today. In three years, the leasing company projects your car will be worth $17,000. Your lease cost is based on the $8,000 difference between the car's current value and its value at the end of your three-year lease.
Lease costs also include a "money factor" (similar to interest charges) and a variety of fees. Common fees associated with leasing a car include acquisition fees, registration fees, sales tax and—at the end of the lease—disposition fees, excess mileage penalties (if you've driven too many miles) and compensation for excess wear and tear.
Your monthly payment is influenced by these factors:
- Depreciation: Cars that hold their value may cost less to lease than cars that depreciate quickly.
- Money factor: The money factor acts like interest to increase the total cost of your lease. Like interest rates, your money factor may be negotiable.
- Lease term: A longer lease term lowers your monthly payments by spreading the total cost over more payments.
- Mileage: The higher your allotted mileage cap, the higher your lease costs will be.
- Add-on fees: Lease fees and additional charges for items like extended warranties increase your overall costs.
- Your down payment (or prepaid lease costs): The more you pay upfront, the less you'll owe in monthly payments.
- Your credit score: The most favorable rates typically go to lease applicants with the best credit scores, so good credit can help lower your monthly payment.
Because new cars tend to depreciate much faster than used cars, leasing a used car usually costs less than leasing a new one. However, dealers may be more likely to offer incentives for leasing or buying a new car.
Used car leases are also more difficult to find, giving you fewer options with less competition for your business. If you're thinking about leasing a used car, be prepared to do some shopping to find the right deal.
Learn more: How Much Does It Cost to Lease a Car?
How to Lease a Used Car
The basic steps to leasing a used car are similar to leasing a new one. Here are four steps to get you from early budgeting to a done deal.
1. Set Your Budget
Review your monthly inflow and outflow of cash and calculate how much you can spend on your lease. In addition to your lease payment, figure in monthly allowances for insurance, fuel, maintenance and repairs. Also estimate how much you have for a down payment. Although leasing typically requires less money upfront than buying a car, you may need to cover your first payment and drive-off fees at signing or make a significant down payment to qualify for the lease.
2. Find a Dealer
Finding a dealer may be the biggest challenge to leasing a used car. One potential source: dealerships that offer certified pre-owned vehicles, which typically have low mileage and no major defects, and may be more likely to be eligible for a used car lease. Before you head out to any dealership, call ahead and make sure they offer used car leases.
3. Weigh Your Options
Take your time to understand all the working parts of your lease deal, including your down payment, monthly payments, mileage cap and other restrictions. If you think you want to buy your car at the end of the lease term, you may want to negotiate a low residual value to keep your buyout cost low. Otherwise, a higher residual value can reduce your overall lease cost by minimizing depreciation.
If you can, try to develop multiple options so you can compare. This could mean getting more than one quote on leasing a used car, or it could mean exploring other options. What would it cost to purchase the used vehicle you're trying to lease? What if you leased the new version of the used car you're considering? Can you get a better lease offer elsewhere? Having more than one option gives you a bit of negotiating power and helps you determine whether the lease you're considering is worth signing.
4. Negotiate and Sign the Deal
Many aspects of your lease deal are negotiable, so don't be afraid to ask. You may be able to snag a more favorable money factor or remove extras that you don't want or need. When you're happy with the terms of your deal, you're ready to sign.
Learn more: Is Leasing a Car a Good Idea?
Pros and Cons of Leasing a Used Car
Leasing a used car has distinct advantages and disadvantages. Here's a short list of pros and cons to consider before you sign.
Pros
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Low lease payments: Because used cars depreciate more slowly than new cars, lease payments are typically lower on a used car lease than they are for leasing a new car.
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Greater affordability: Lower monthly payments may allow you to choose a more expensive car, such as an SUV or luxury brand vehicle.
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Potential insurance savings: A used car with a lower value may cost less to insure.
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Short-term commitment: For better or worse, leasing is not forever. Typical lease terms run two to four years.
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Less money down: Leasing generally doesn't require a large down payment. Some experts advise against paying too much upfront, since you might not recoup your money if your car is totaled or you end your lease early.
Cons
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Higher interest rates: A used car lease typically has a higher money factor than a new car lease. This can increase your monthly payments and overall costs.
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Use restrictions: Leases have mileage caps that restrict the number of miles you can drive (or charge you penalties for going over the limit).
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Warranty issues: The car's warranty may expire during the lease term, which could leave you on the hook for maintenance and repairs, or for the additional cost of an extended warranty.
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Insurance requirements: Leases often require you to carry comprehensive and collision coverage as well as minimum liability coverage, which can increase your insurance costs.
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No equity and less flexibility: You must surrender the car at the end of the lease term and begin a new lease without the benefit of a trade-in.
Learn more: Is Insurance Cheaper for Used Vehicles?
Should You Lease a Used Car?
Leasing a used car is a good option to consider. Whether or not it's the right choice for you depends on a variety of individual factors.
- Availability: Leasing a used vehicle is far less common than buying a used car or leasing a new one. Finding a lease option for the used car you want is the primary challenge here.
- Financial benefits: Focus on the financial benefits that matter most to you: a low down payment, an affordable monthly payment, a low residual value that allows you to buy your car at the end of the lease or a lower overall cost that makes a more expensive car attainable.
- Reliability: A new car is often under warranty for the entire lease term; a used car may run out of warranty during its lease. Maintenance costs may be higher for a slightly older car as well.
- Restrictions: Your lease terms will include a mileage cap. If you drive more than your allotted miles, you'll pay a per-mile penalty. Many leases have additional restrictions and requirements. For example, you may need to carry minimum levels of insurance.
- Long-term goals: Leasing doesn't help you build equity. At the end of your lease, you'll be back to the drawing board without a trade-in to use as a down payment on your next vehicle. This may not be a problem, particularly if you expect to lease your next vehicle, but it is something to consider.
Learn more: Is It Better to Lease or Buy a Car?
Frequently Asked Questions
The Bottom Line
Leasing a used car can help you get a car for less: less money down and lower monthly payments compared to a new car lease. But finding the right car and dealership is a legitimate challenge. Looking for certified pre-owned vehicles at dealerships that offer used car leases is one way to narrow your search productively.
Before you attempt to negotiate a used car lease, take a moment to research basic lease terms, look up used car values and look into what a new car lease might cost you. You may also want to investigate used car loans so you can compare the benefits of leasing versus buying. Checking your credit online can be helpful here as well, so you have an idea whether your credit score will qualify you for lease approval and favorable terms, and you can proceed with confidence.
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About the author
Gayle Sato
Gayle Sato writes about financial services and personal financial wellness, with a special focus on how digital transformation is changing our relationship with money. As a business and health writer for more than two decades, she has covered the shift from traditional money management to a world of instant, invisible payments and on-the-fly mobile security apps.
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