Can You Lease a Used Car? Find Out Here
Ever see a beautiful car and think you could never be able to afford it? Between bills and saving for retirement, it can be difficult paying for a car in cash or taking on high car payments. And new car leasing usually requires a high credit score.
But have you thought of leasing a used car? Used car leasing is available at many dealerships, and it may be the cheapest way for you to get into a car that’s not old enough to vote.
Here’s how it works, how it compares with other options and how to get one.
A used lease works similarly to a new lease. You pick out the car, get approved by the lender, agree with the payment and terms and sign some paperwork.
Your monthly payment is calculated the same way as well. Over the life of the lease, you’ll pay the difference between the car’s sales price and its residual value (what it will be worth at the end of the lease based on depreciation). Add the APR the lender charges (which may be called the “money factor”), any fees, products, taxes; subtract any trade vehicle, discount and down payment.
If you’re seeking a used lease, the cars to choose from will be more limited. Many brands put constrictions on how old the car may be and how many miles it can have. Some only offer used leasing on certified pre-owned (CPO) cars, which have to meet strict age, mileage and qualify requirements. Some car brands may not offer used leasing, in which case you would want to look at a lease takeover.
An auto lease takeover is when a person who is currently leasing a vehicle signs the remaining time on the lease over to a new person who uses the car and makes the lease payments on it until the time’s up. The new person has the same rights as you would in any auto lease to turn the car in or to purchase it. For more information on that, see below.
The first difference you might notice between a CPO vehicle and a plain used vehicle is the sticker price. CPOs usually cost more because they have to meet extra qualifications in being certified by the original equipment manufacturer (OEM) and, in most cases, they come with an extended warranty.
Extra qualifications. To be certified, a car has to do more than just pass a safety inspection. It must be deemed in excellent condition. Everything has to be in working order, with low mileage and be only a few years old. For example, a Chevy CPO must have under 75,000 miles and be less than 6 model years old. In general, CPOs look newer with little wear and tear.
Only the OEM can certify a vehicle. You can only get a CPO car from a dealership of the same brand. You couldn’t get a Ford CPO from a Mini Cooper dealership, for example. That also means you can’t get a CPO vehicle from a used car lot.
Extended warranty. How much more time and many more miles a CPO warranty adds (compared with getting the car as a regular used vehicle) depends on the brand. Some brands don’t add much. Other brands do add significant time and miles, such as Cadillac. It adds either one year or 30,000 miles to its powertrain warranty.
The extended warranty is a big deal because you’re responsible for any repairs to the vehicle while you lease it. If the warranty doesn’t cover it, you’ve got to pay for it. And leasing a used car means that the car is more likely to have problems and that the warranty is more likely to run out and not cover it. If you’re interested in buying a warranty, check out this extended warranty guide.
Besides a lower monthly payment, some of the main reasons people like to lease are to get that new car smell, plus the reliability of a new car. For these luxuries though, you will pay more.
Here’s how a new car lease compares with a used car lease.
|New Lease||Used Lease|
|Costs||Higher overall cost due to:
High sticker price
Higher taxes, fees, insurance costs
|Lower overall cost due to:
Low sticker price
Lower taxes, fees, insurance costs
|Requirements||Strict credit requirements
Down payment or security deposit may be required
|Credit requirements may not be as strict
Down payment or security deposit may not be required
|Risks||Low risk of breakdown
Repairs covered by new car warranty
|Potentially higher APRs
Greater risk of costly repairs
Greater risk of breakdowns
Monthly payment. Leasing used will likely give you lower monthly payments than purchasing the same car used or getting it new (either through purchase or lease). As a used car, the window sticker has a lower price (and taxes come to a lower total as well) and the steepest drop in depreciation already happened.
Maintenance and repairs. Compared with getting a new car, you may need to cover bigger maintenance costs on an older vehicle. The warranty on a used car could also run out during the lease, so any expensive repairs might come out of your pocket.
If you’re not careful by either getting the car from a dealership or having it inspected by an independent mechanic, you could inherit problems. By leasing a used car, you’re taking on a risk similar to that of buying a used car. If the car has problems that aren’t covered by the warranty, you will be expected to fix them. If you do not repair, you could be charged for them when you turn the car in.
To avoid these roadblocks, get the car inspected and check out its vehicle history report. Most dealerships provide the report for free. You can buy a single vehicle history report on your own as well if you’re looking to lease a used car from a car lot or do a lease takeover.
Fees. At the beginning of a used lease from a dealer or car lot, you may have to pay an acquisition fee. For a lease takeover, you may have to pay application, commission and lease transfer fees (that is, if you can’t negotiate to get the current leaseholder to cover all or some of them for you). These could add up to hundreds of dollars. Some fees are unavoidable, but if you’re curious about which fees on your paperwork might be bogus, you can read dealer fees to watch out for.
At the end of a lease, if you decide to turn in the car, you’ll probably have to pay the regular fees, such as the disposition fee and any fees for mileage overage, dents and dings or wear and tear. If you keep the car, however, you could avoid all of those fees. For more information on that, learn how to do a lease buyout.
Credit score. In any case of car leasing, new or used, you have to be approved by the lender. To lease a new vehicle, finance companies usually require customers to have high credit scores. But leasing an older car means you are effectively borrowing less money and, if the current leaseholder is in danger of default, the lender might be more flexible with credit requirements in a lease takeover.
Insurance. Most leases require customers to have a high level of complete coverage auto insurance throughout the whole lease. Of course, this can increase your insurance premium. One of the factors that go into determining your insurance cost is how much the car is worth. An older car usually translates to a lower insurance payment. So even though you’ll have to maintain a high level of auto insurance on a leased car, leasing a used car means it might be less expensive.
Lease terms. In a new car lease, the shorter the term, the more expensive the monthly payments. A conflicting factor is that people lease because they don’t want to have the car for a long period of time. This results in the most common lease term being 36 months.
Leasing a used car, however, could give you more options. Shorter terms are available through lease takeovers, and they’re more affordable.
Incentives. A new lease often comes with incentives such as discounts and rebates. You don’t have to miss out on them if you lease a used car. If you do a lease takeover, those incentives are passed on to you by virtue of the decreased monthly payment. And some people are willing to provide an incentive of their own to a new lessee in order to get out of their lease. A used lease from a dealership or a car lot though, will probably not have such incentives.
Yet no matter the type of lease, you may be able to qualify for the usual incentives if you decide to turn the car in and get a new one. Many manufacturers offer loyalty incentives, such as Lexus, which may waive the disposition fee that might be $350 to $500.
Possible damage. Besides inheriting potential mechanical problems, the car might have been damaged in an accident or a storm. If it was repaired, you might not notice. Dealerships have to disclose any major damage (repaired or not) that the car suffered. Individual sellers do not. So if you do a lease takeover from a person, make sure you check the vehicle history report.
Any major damage takes away from the car’s value. But if you do a takeover, in the complicated fine print of most lease contracts, it wouldn’t change how much you pay for it during the lease, nor if you wanted to buy it after the lease. In both cases, you would probably be overpaying. If you’re interested in buying the car after the lease, you can consider a car lease buyout.
From a dealership.
This is the most well-known method for both new and used car leasing. Dealerships usually have the largest range of local vehicle options, whether you want to lease new, CPO or used. And a car from a dealership would be covered by your state’s lemon law.
Some people need or want to end their car lease early due to just not liking the vehicle or needing to leave the country for work. Instead of paying the huge fees that come with early lease termination, they may try to find someone else to take over the lease.
The potential benefits for you include: a lack of upfront fees (you shouldn’t have to pay an acquisition fee, for example) and having the current leaseholder putting money down toward the lease to lower the payments for you as an incentive.
There are a few websites where people sell and buy current car leases, such as swapalease.com, leasequit.com, and leasetrader.com. Each site has photos, and some offer inspection and delivery services. Be aware that the website you use may charge a subscription fee for you to contact current leaseholder, and a commission fee if you do a takeover.
From a used car lot.
With this one, you might want to take a mechanic (and maybe a lawyer!) with you. You’ll want to be sure the vehicle is in excellent condition and that you agree to all costs and fees. Call ahead to make sure the business offers used leasing and research ahead of time to make sure it has a good reputation.