If you want to save money when shopping for a vehicle, both leasing new cars and purchasing used ones have long had their advantages. More recently, however, there’s been a growing trend to combine the two, and that’s led to a noticeable increase in the number of pre-owned vehicles available for lease.
But this raises an obvious question for customers: Do the savings here really add up or are you just multiplying your worries?
A Quick Look at Leasing Basics
The basic principles behind any automotive lease are fairly simple. The transaction is a bit like a long-term rental, with the individual monthly payments based on the difference between how much the vehicle was worth when it was new and what it will be worth at the end of the lease period. Of course, along with paying for that depreciation, you also have to factor in all the usual tax, title, interest and licensing fees, plus a certain amount of dealer profit and, often, a significant up-front payment.
A key for the leasing dealership is to make sure that the returned car’s residual value stays as high as possible so that the total amount of the customer’s payments at least covers the depreciation. As a result, dealerships usually charge extra if you drive too many miles in a leased car or truck, and needless to say, they usually expect you to pay for any damage incurred along the way. The dealership ends up with the vehicle, too, so you don’t have a trade-in resource when shopping for your next one.
On the positive side, lease payments can be impressively low. According to a study by Experian.com, the average monthly payment for a new car loan topped $500 last summer. Lease terms tend to be shorter than those for new-vehicle loans, which provides a bit more freedom. And when a lease is over, you simply return the car to the dealership, which is ideal if you don’t like the hassle of selling a vehicle yourself or haggling over what it’s worth during a trade-in negotiation.
The Pros of Leasing a Pre-owned Vehicle
Leasing in the pre-owned marketplace can squeeze a little more value out of nearly all of those advantages. Right off the bat, the starting cost of a used vehicle will be lower than for its new counterpart. A 2018 Toyota Camry SE, for instance, has an MSRP of $25,200, while a 2015 model can found on the used-car market for less than $15,000. Depreciation is a major leasing expense, and it can be a lot lower for pre-owned vehicles. That’s because used-car lessees don’t have to handle that cost during the first year or two a vehicle is on the road, which is when most depreciation actually takes place.
Similarly, leasing can make it much easier to get rid of a used car, since you merely turn the keys back into the dealership. After all, it might not be twice as hard to re-sell your used vehicle when you’re its second owner, but it sure won’t be any simpler. If you’d rather buy a used vehicle after leasing it, that can be arranged, with another benefit: a more affordable purchase price than you’d be faced with if you had leased a new car.
Customers who lease certified pre-owned (CPO) cars and trucks enjoy the peace of mind that comes with knowing their vehicles have been thoroughly vetted. CPO models are backed by exacting inspections and repairs that inspire confidence regarding their quality. Among the CPO dealerships currently offering lease deals are mainstream brands like Toyota and Chevrolet.
Keep in mind, though, that CPO programs can vary from brand to brand.
The Cons of Leasing a Pre-owned Vehicle
As is the case with the benefits, the disadvantages of leasing a pre-owned vehicle amplify the issues that come with leasing in general. Lessees are responsible for any non-covered repairs during the lease along with any remaining damage when the lease expires. If you’re leasing a used car whose warranties have expired, this can leave you stuck with maintenance and repair expenses. However, if you’re leasing a CPO vehicle, the good news is that these models typically come with extended warranty coverage that can shield you from certain repair costs.
As with all leases, you’ll face mileage restrictions when leasing a used car. If you go over the agreed-upon limit, you’ll have to pay a penalty.
A final point to consider relates to technology, which can change quickly in the automotive world. A leased pre-owned vehicle may offer less up-to-date technology than you’d get when leasing a brand-new car.
The Verdict on Leasing Used Cars
Some folks will always prefer leasing a car over buying one.
Leasing a used car is a good option for those who are working within tight budgets. Going this route may even enable you to drive home in a more premium model than you’d be able to afford if you were leasing a new car.