Leasing a car is a popular option for a number of reasons. Lease payments are generally cheaper than financing payments, you can get a new car every few years, and you don’t have to deal with a lot of the hassles of car ownership when you simply lease. But what if you don’t have your heart set on a new car? Is it possible to lease a used car and save yourself some money?
Here’s everything you need to know about leasing a used car.
Is it better to lease a new or used car?
While some people love to buy new cars so that they have an asset at the end of their payment period, there are a lot of benefits to leasing a car instead.
- You will have lower monthly payments. Your monthly payments will be lower when leasing as opposed to buying.
- You don’t have to worry about selling your car when you want a new one. When your lease is over, you can just hand your keys back to the dealership and walk away.
- You can get a new car every few years.
- You can maximize tax deductions if you are a business owner.
But how do you decide between leasing a new car and leasing a used car? Leasing a used car has one main advantage: it’s a lot cheaper. Not only will your lease payments be cheaper, but your insurance will most likely be cheaper. But it’s not without its downfalls.
Leasing a used car has a few downsides:
- Your car may not be under warranty anymore, so you may be on the hook for all repairs.
- Used cars typically have higher interest rates (money factors) than new cars.
- You may have limited options due to today’s used car market.
- Your car will have wear and tear, as opposed to a new car.
- You will still have mileage usage restrictions.
But all that being said, it is still cheaper to lease a used car. Although the interest rate may be a bit higher, the car will have a much lower residual value. Residual value is what the car is expected to be worth at the end of the lease period. Since a used car will have already gone through its biggest depreciation period, the car will be worth much less (therefore your monthly payments will be much less).
How do you lease a used car?
If leasing a used car sounds like a good option for you, it’s pretty easy to do. Here are our steps for leasing a used car.
Determine your budget.
Whether you are buying or leasing, determining a realistic budget is the most important step. Look at your monthly budget and see how much you can afford in car lease payments. Experts recommend spending no more than 20% of your total monthly income on transportation expenses. This includes car payments, gas, maintenance, parking, tolls, and any other expenses that may come with owning or leasing a car.
Make sure your credit score is in tip top shape.
Having a good credit score will help you to secure the best interest rate for your car lease. To make sure your credit score is in the best shape possible, be sure to do the following:
- Commit to making full, consistent, and on time payments to all of your lenders.
- Request higher credit limits on your accounts.
- Request a copy of your credit report and check for any errors or inconsistencies.
- Avoid opening any new lines of credit.
- Become an authorized user on a friend’s account.
- Pay down debts with high credit utilization ratios first.
Shop around to different dealers.
You will need to find dealers that lease certified pre-owned cars, but they are relatively easy to find. It’s good to be a little flexible in what you are looking for, as this will give you the most room to explore and find good deals. There is a lot of demand for used cars in today’s environment, so there will not be as many options for used car leases as you may be hoping. But being flexible and shopping around will help you to find what you are looking for.
Negotiate your used car lease.
There are a lot of terms that you will be able to negotiate in your car lease.
- The Capitalized Cost. This is the agreed upon value of the car (essentially the sale price). This is a great place to start negotiating, especially when it comes to how much a used car is worth. A lower cap cost will reduce your lease payments significantly. Sites like Kelley Blue Book and Edmunds are great places to start when determining a fair capitalized cost.
- The Money Factor. This is essentially the APR on the lease. They are expressed as decimals rather than percentage points, so you may not be as familiar with what a good money factor is. To make it easier to understand you can multiply the money factor by 2400 to give you an approximate APR. For example if the money factor is .00275, you can multiply it by 2400 to get an approximate APR of 6.6%. Some dealers say that this is non-negotiable, but it doesn’t hurt to ask. There may be wiggle room, and you should certainly be aware of what the prevailing rates are before they coerce you into accepting a money factor.
- The Lease Term. While not necessarily a negotiation, you will have to decide how long of a lease term you want. They typically range from 36-72 months. Keep in mind that if you are leasing a used car, the longer the lease term is, the more likely it is that something will go wrong on your car.
- Mileage Allowance. As with any lease, there will be a limit to how many miles you can drive per year on your lease. It will be cheaper for you to negotiate this term ahead of time rather than dealing with the overage fees.
- The Fees. Look to see what fees are listed in the contract. They may vary greatly from lease to lease, but try to negotiate any fees listed.
What are the three options at the end of a lease?
When your used car lease is over, you will have three options.
- Return your lease and walk away.
- Return your lease and get a new lease.
- Buy your leased car.
Lease Turn In
If you are done with your lease and have other plans for your transportation needs, you can simply return your leased car and walk away. You will be responsible for any fees (wear and tear, mileage overages, etc) but once you pay them you will be done with your lease.
Get a New Lease
You can also decide to return your used car lease and get a new lease. This allows you to get another vehicle (new or used) and start over with new terms. This is what most dealerships prefer; they can then sell or lease your old car while getting you into a new lease that you will make payments on.
If you really like your car, you can choose to buy your leased car from the dealership. This may be an especially good idea now given how hard it can be to find a new car right now. A lease buyout may make sense if any of the following apply to you:
- You really like your car.
- You have excessive wear and tear that you will be responsible to pay.
- You have gone over your allotted mileage and will be responsible to pay additional fees.
- Your car is worth more than the buyout price (in which case you can make a profit by buying it and selling it privately). This may be especially true right now. In 2022 the average trade-in value for a leased 2019 car was 33% higher than the residual value of the car listed in the contract.
If a car lease buyout sounds like a good idea, you may need to secure a car lease buyout loan. At Auto Approve, we can help ensure you get the best car lease buyout rates possible. We have relationships with lenders all across the country, so we can help you shop around and compare. Lease buyout loans are one of our specialties, so we know a thing or two about getting you the best deal.
A used car lease is a great option for many people, and if you chose to buy out your used car lease at the end of your lease period, Auto Approve can help.
If you love your leased car, whether it’s a new car or a used car, a car lease buyout may be a great option for you. And when you use Auto Approve, you know you are in good hands. With a 96% would-recommend rating on LendingTree and an A+ rating from the Better Business Bureau, we’ve helped tens of thousands of people finance the cars of their dreams. So don’t wait–contact Auto Approve today to get started!