If you’re in the market for a car, whether it’s for your daily commute or family weekend adventures, you’ll need to decide between one that’s used or new. Once you’ve made that decision, you’ll need to either purchase or lease the vehicle. Each has its advantages and disadvantages. If you’ve decided to lease, can you lease a used car?
Purchasing vs. Leasing
You’ve found the used car of your dreams, and to drive it home from the dealership, you need to decide between purchasing or leasing it. What’s the difference?
If you choose to buy a vehicle, you can either pay for it with cash in hand or take out a traditional car loan. The loan process is straightforward: You find a credit union, bank, or other lending institution that will provide the money for the vehicle upfront and set up a repayment plan. Factors involved in the process include checking your credit score and credit history to determine your lending terms, including the interest rate. Once you’ve made the final payment on the loan, you own the car outright.
Leasing is another option for obtaining a vehicle. You still have a monthly payment, but you’re not paying off a principal, so it’s often lower than a traditional loan. When you lease a vehicle, you’re making payments on finance charges and the car’s value or capitalized cost versus the residual or expected value when the lease ends.
Can You Lease a Used Car?
The short answer is yes, but it can be more complicated than leasing a new car. One way to lease a used car is to take over a preexisting lease from another person. You can use services like Swapalease, LeaseTrader, or LeaseQuit to locate leases other drivers wish to get out of by selling their lease to a new driver.
Many dealerships only offer leases on certified pre-owned (CPO) vehicles. A dealership will refurbish late-model vehicles to provide an extended warranty, which purchasers view as a premium when buying used vehicles. Even if a dealership offers leases on CPO vehicles, they might not advertise that fact, leaving it up to the purchaser to approach the dealer to determine whether leasing is an option.
Leases on used cars often require third-party financing options, because dealership financing typically only applies to new vehicles. Leasing a used car lowers the capitalized cost because it’s valued lower than a new vehicle and raises the residual cost because the car has already lost much of its value in the first year or two. Thus, leasing a used car is an appealing option for many drivers.
Advantages of Leasing a Used Car
Advantages to leasing a new car, in addition to its lower capitalized cost and higher potential residual value, include:
- Shorter lease. If you participate in a lease swap or take over someone else’s lease, you’re entering the lease in the middle of its terms. You could have as little as a year or two left, allowing you to try a vehicle for a much shorter period.
- Get more car. You might afford a vehicle with more bells and whistles or one that falls into the luxury category that wouldn’t normally fit into your budget. These high-end vehicles are ideal used cars to lease, as they typically maintain their value.
- Trade it in. When you own a vehicle, you either need to sell it to a private party or negotiate a trade-in value with a dealership when you decide to upgrade your ride. With a lease, the terms have already been negotiated. When your lease is up, it’s easy to trade it in on either another leased vehicle or toward a purchased vehicle.
Disadvantages of Leasing a Used Car
Also consider the disadvantages of leasing a used car, including:
- Expensive warranties. Adding a warranty to a used vehicle is always tricky, and adding a warranty to a leased vehicle can be even more challenging. Warranties are one reason it’s more common to find CPO vehicles available for lease from dealerships.
- Fees. Leasing a vehicle has additional fees such as dealer-prep fees, acquisition fees, a security deposit, and disposition fees. You might avoid some or all these fees with the right dealership and financial institution, but be prepared to spend upward of $800 on fees.
- Car issues. When purchasing or leasing a used vehicle, you risk having more car issues because the vehicle already has miles on it. The more miles it has, the higher the potential for wear and tear.
- Future value. Leases are based on the capitalized cost versus the residual value, which is typically estimated. It can be difficult to determine a leased vehicle’s future value, and if the residual value turns out to be lower, then you’re stuck paying the difference.
Other Factors To Consider
On a leased vehicle, you’re counting on the residual value to be as close to the estimate as possible to avoid paying extra fees when the lease is up. One way to reduce repair costs and help your vehicle maintain its value is to purchase the best warranty possible. A bumper-to-bumper warranty is ideal but might be harder to acquire on a used vehicle. Talk with the dealer to ensure you’re getting the best warranty possible on the vehicle you’re leasing.
You also want to insure your vehicle. While nearly every state requires auto insurance on leased vehicles, you’ll want to have the correct coverage. You’ll need to have liability, comprehensive, and collision to protect your investment fully. Comprehension coverage protects you against theft, vandalism, hitting an animal, and storm damage. In the event of hitting another vehicle, building, or inanimate object, your collision coverage will take care of related costs.
If you’re in the market for your next vehicle, contact New Jersey State Auto Used Cars. A team member will be happy to answer your questions about leasing used vehicles or set you up for a test drive in one of the options on our lot.