One way to get behind the wheel of a car without the high cost of purchasing and financing it is to lease, rather than buy. The leasing market is dominated by new cars, but you can lease a used car. Pre-owned car leasing is still a niche market, though it is growing as dealers struggle to sell an increasing number of new car lease returns that are in excellent shape and have low mileage. About three out of every 10 new cars that leave dealers are leased. Used-car leasing gives dealers another channel to remarket those cars when they return from their first leases.
If you can find the car you want at a dealership that knows how to do used-car leasing, you can potentially save a tremendous amount of money or get into a luxury car for the price of a new nonluxury model.
Here’s what you need to know about leasing a used car:
- Advantages to Leasing a Used Car
- Disadvantages to Leasing a Used Car
- Finding the Right Pre-Owned Car to Lease
- Not Every Dealer Knows How to Lease Used Cars
- Negotiating Your Lease
- Maintaining a Leased Used Car
- Other Options for Leasing a Used Car
It’s Affordable: To understand the most significant advantage of leasing a used car, it helps to understand how leasing works. When you buy a car, you are responsible for paying the entire purchase price. Car lease customers only have to pay for the amount of depreciation that is expected to occur during the contract term, plus some interest and fees.
Vehicles depreciate rapidly during their first few years of service, before slowing during the car’s middle age. That means the first lease customer or owner will pay for much of the car’s depreciation. The consumer who leases the car second will have to pay for a much smaller decrease in value. Because there’s less depreciation with a pre-owned vehicle, you can expect used-car leases to require less due at signing, have lower monthly payments, or both.
You Can Get a Better Car: Leasing a used car can also allow you to get your dream car. Instead of leasing a new Toyota sedan, you might be able to get a used Lexus. Instead of a new Honda SUV, you might find great deals on used Mercedes-Benz SUVs.
The Vehicle Should Be Well Cared For: Many of the used vehicles available for leasing start as leased new vehicles. To avoid excess wear and mileage fees as the end of their first leases, you can count on the vehicles having low miles on the odometer, no accidents, and proper maintenance. Most used vehicles available for leasing are certified pre-owned cars. CPO vehicles come with additional bumper-to-bumper warranty coverage and other perks that can make your cost of driving more predictable.
Good Candidates for Lease-End Purchase: At the end of a used-car lease, the car’s buyout price will likely be pretty reasonable. Unlike most used vehicles of that age, you'll have a good idea of its service history, where it had issues, and how hard it has been used. If the car is experiencing any problems during the lease term, it’s easier to get rid of as a leased car. You just drop it off at the dealership you got it from, pay any lease-end fees, and walk away.
Cheaper to Insure: Because of the age of the car, auto insurance premiums on a leased used car will likely be lower than they would be on a leased new vehicle. You can explore the types of insurance you will need in our car insurance guide.
Less Sales Tax: Most jurisdictions require dealers to collect sales tax on used vehicle transactions. Because you are only paying for the depreciation that occurs during a car lease, the sales tax is much less than it would be on the purchase of the same car.
Aging Technology: One of the top selling points of leasing is that you’re in a brand-new car with the latest features and technology. When you lease a used vehicle, that’s not the case. You’ll find that most used-car leases are available on two- to three-year-old vehicles. The cars you find may not have the most up-to-date infotainment or advanced safety systems.
Don’t Expect Perfection: You will be leasing a used car, and you can't expect it to be perfect. Though it will likely have had some refurbishment at the dealer, it will probably show some interior wear, scratches, and dings. The new-car smell will be long gone. Even CPO vehicles will have some wear and tear.
Watch the Warranty: While many of the certified used cars available for leasing will have some extended warranty coverage, you’ll need to be careful to evaluate how much of your lease term is covered. If the entire span of the car lease is not protected by a warranty, you’ll be exposed to significant costs if something major goes wrong. You’ll have no choice but to get it repaired, as you have to return the car in good condition at the end of the lease. If a major component fails, such as a transmission, you can face massive out-of-pocket expenses.
Potential Expensive Maintenance: Normal maintenance costs also increase as vehicles age, with significant tasks needing to be accomplished. You might see such issues as transmission service, differential maintenance on all-wheel-drive vehicles, and belts requiring attention as automobiles approach the 40,000 to 50,000-mile range. With a leased car, you can’t put those items off, as you’ll need to show that you kept up with the service intervals when the time comes to take the car back.
Unpredictable Value: Vehicle values can vary significantly as a car ages, so predicting a car's value four, five, or six years after it enters service is more difficult than with a new-car lease. That prediction is used to create the leased vehicle’s residual value. More often than not, a leasing company will set the value toward the low end of the range on used-car leases, so that they're not stuck with an overvalued vehicle to sell at the end of the contract. Setting the value on the low end of a car’ predicted residual value means the lease will be more expensive for you.
Expensive Fees: While the cost of depreciation and interest will generally be lower with a used-car lease, many of the lease expenses will be just as high as they are when you lease a new car. Take a look at our guide to lease fees to see what charges you should expect to pay.
Mileage Limits: When you buy a used car, you can drive it until the wheels fall off. With a leased used car, there will be a mileage cap stated in the car lease agreement. If you exceed that limit, you can expect a bill at lease end for every mile that you have exceeded the cap. You never want to go into a lease without knowing the mileage limit and how that compares to how much you drive each year.
Higher Money Factors: Just like financing the purchase of a car that’s pre-owned, you’ll pay a higher interest rate when leasing a used car. Interest for leases is called the money factor. To convert the money factor to a more easily understood interest rate, you simply multiply it by 2,400.
No Ownership Interest: When you lease a car, its title is held by the leasing company, and you have no ownership interest. It's like your renting the car from them for the term of the lease. When the lease is over and you turn the car back in to the dealer, you cannot expect to get any money back to put toward a down payment on your next vehicle.
You Need Great Credit: Leasing is the land where having an awesome credit score pays dividends. In fact, most leasing companies won’t do business with you unless you have good credit. The best lease deals are reserved for customers with excellent credit scores. It’s a good plan to check your credit score and the credit reports behind them several months before you lease. That gives you time to correct any errors and work to improve your score a few points.
Not just any used car is a good candidate to be a pre-owned lease vehicle. You want to find a vehicle that holds its value very well over its middle age. That includes many luxury cars, sports cars, and high-end SUVs. You can use our used car rankings to see how vehicles you are considering hold their value over time.
No matter how great of a price you get on your lease, it’s not a good deal unless the vehicle fits your needs, budget, and is a good long-term value. Our used car rankings and reviews are based on the consensus opinion of America’s top automotive journalists, quantifiable data on reliability and safety, plus information about the cost of ownership.
Luxury manufacturers also have some of the best certified pre-owned vehicle programs. Most feature excellent factory warranty coverage plus extras such as roadside assistance, trip interruption reimbursement, and loaner cars. Some of those benefits have made their way into CPO programs from mainstream brands, but you’ll want to check into the program offered by the brand of used vehicle you’re considering to see its details.
Don’t always assume that a used-car lease is the more affordable option compared to leasing a new car. You can find great deals from automakers on our lease deals page that might bring the cost of leasing a new vehicle closer to the price of the lease on a pre-owned auto.
Check It Out Before You Fall in Love
When you have found a pre-owned car you are interested in leasing, you have a couple of extra steps you would not have to take if your car lease was on a new model. First, you will want to get a vehicle history report from a company such as Carfax or AutoCheck. The report will show you the vehicle’s title history, whether any collision damage has been reported, its service history, its in-service date, and how many owners it has had.
In most cases, you will also want to have the vehicle inspected by an independent mechanic. They can help identify issues that don’t show up on Carfax or AutoCheck vehicle history reports, tipping you off to things that they see failing or that they have seen fail on cars from the same model years. They can give you an idea of the costs you are facing for maintenance or repairs that need to be done beyond the coverage of a factory warranty.
The only time it is OK to skip an independent inspection is when the vehicle is a manufacturer certified used car and the warranty coverage exceeds the length of the lease.
Not every car dealer leases used vehicles. Though used-car leasing is growing in popularity, you’ll have to call around to different dealerships to find one that understands the process. Even within a dealership, you’ll likely find that few people are authorized to write up a used-car lease. You may need to talk to the finance manager to determine if the dealership will put one together for you.
In fact, not every manufacturer has a program with their finance companies to offer leasing on certified pre-owned vehicles. Most luxury brands do, but you’ll have to check with your dealer if you are looking at leasing a CPO car from a mainstream brand.
A word of caution: Some “buy here pay here” car dealerships have gotten into used-car leasing. Often the dealerships of last resort for car shoppers with terrible credit, buy here pay here dealers typically charge exorbitant interest rates and will move aggressively to repossess your car if you are even slightly late in delivering a payment to them. Rules applying to usury interest rates and the protection of assets when a consumer goes bankrupt don't usually apply to leased cars.
When you buy a vehicle that's pre-owned, it's natural to negotiate the purchase price. The same goes for a pre-owned lease. While it is important to find a deal with monthly lease payments you can afford, you’ll want to look at the total cost of the lease, including any fees you have to pay. Most salespeople will want to keep you focused on the monthly payments, so you'll want to have a calculator to do the math yourself.
The price of a leased vehicle is called its capitalized cost. You can lower your monthly payments and the amount due at signing on your contract by negotiating the capitalized cost.
The way to figure the total price of a lease is to multiply the monthly payment by one less than the number of monthly payments and add the amount you have to pay up front. You subtract one because the first payment is usually included in the amount due at signing. Let's say you found a three-year lease with payments of $200 per month, plus $2,000 due at signing. Multiply $200 by 35 monthly payments and add $2,000 to find the total lease cost. In this case, it's $9,000.
You should also look at the money factor being charged and convert it to an equivalent interest rate by multiplying it by 2,400. Most consumers find it easier to compare a more common interest rate than a money factor.
The vehicle’s residual value – its expected value at the end of the lease – is rarely negotiable. The same goes for the acquisition fees, registration, license, tag, and title costs. You may be able to negotiate the documentation fee (or doc fee) and other fees assessed by the dealer. You can learn more about the charges you'll see when you lease a vehicle by looking at our guide to lease fees.
Whether it is a car lease or purchase, it is critical to read each of the documents put in front of you before you sign. Make sure they accurately reflect the deal you agreed to and that no spaces are left blank. If you find errors or incomplete forms, insist that they are corrected or completed before you sign on the dotted line. It’s much better easier to take the time to get them right before you sign than to try and get a signed document changed later on.
Watch out for costly extras, including extended warranties, protection packages, and gap insurance. We'll get to gap coverage in the next section, but in general, before you buy anything you are offered, you should compare prices with sources outside of the dealership.
There are a few more things you’ll want to do if you choose to lease a used car. Fortunately, because you’ll be getting your vehicle from a dealer, all of the registration and title paperwork will be taken care of.
Gap Insurance: Most lease contracts will require you to carry gap coverage on any car you lease, whether it is new or pre-owned. Gap insurance protects both you and the leasing company should the vehicle get totaled or stolen. It funds the difference between the lease payoff and the market value of the car you’ll get from your auto insurance company if something terrible happens. A gap policy ensures that the lessor receives the amount of money they were expecting from the contract, and it protects you, the lessee, from having to make payments on a car that was destroyed or stolen.
While you will almost certainly be offered gap coverage by the dealership where you lease your vehicle, you’ll want to do some comparison shopping before you commit to buying it. Most auto insurers offer gap policies, but so do many financial institutions. Even if you don’t have a car loan from your bank or credit union, they can still sell you gap coverage.
Auto Insurance: It’s not just a great idea to carry auto insurance on your vehicle, it’s required by most states and lease contracts. You are legally required to carry liability insurance that protects those you might injure or whose property you might damage in an accident. Lessors will require you to carry collision and comprehensive insurance to protect the value of your leased vehicle.
You can explore your insurance options and learn about the various coverages available in our car insurance hub.
Paying for Your Used Lease: With any lease, it is critical to make your monthly lease payments on time. Failure to do so can trigger penalties, lease defaults, and eventual repossession of your ride. You have to have great credit to lease a car, but you put that standing in jeopardy if you make late payments.
An easy way to make sure you’re never late on a lease payment is to set up automatic payments, or autopay, with your bank or credit union. Setting the transactions to be made a few days before the due date each month ensures that weekends or holidays don’t cause you to be a day or two late with your payments.
Damage and Maintenance: At the end of the lease, the vehicle needs to be returned to the dealer in the condition it left the lot at the beginning of the contract, less a certain amount of wear and tear. Many lease agreements specify a credit card test at lease end to determine damage. If the damage can be covered by a standard-sized credit card, you won’t be charged. If it shows outside the edges of the card, you’ll have to pay to repair the damage.
Not only do you have to protect the car from excess wear and damage, but you also have to ensure that it is properly maintained to the manufacturer’s specifications. Be sure to keep all documentation when you get the vehicle serviced so you can prove that it has been done.
Leasing a used car from a dealer isn’t the only way to get behind the wheel of a new-to-you ride. Another option is assuming the lease of someone who needs to get out of their contract. At one time, it was tough to find the perfect match of the vehicle you want and one that someone wants to get away from, today it’s hassle-free.
Online firms, such as SwapALease.com and LeaseTrader.com act as matchmakers between lessees seeking to dump their leases and consumers wanting to get into an affordable contract. Current lessees advertise their cars on the sites and pay a fee for the companies’ assistance in transferring the contract to the new customer. You’ll see vehicles with lease terms ranging from around three years to those with just a few months left.
More Shopping Tools From U.S. News & World Report
Getting into a new or new-to-you used car can be a lot of fun, but it can also be a lot of work. The experts at U.S. News Best Cars are here to guide you through the process of finding, buying, and caring for your dream car.
Our new car rankings and used car rankings are based on the consensus opinions of the country's premier automotive journalists blended with quantifiable data on safety and predicted reliability. Our used-car rankings add information about cost of ownership to ensure you get a car, truck, minivan, or SUV that's affordable for the long haul. We don't accept expensive gifts or trips from automakers, so you can be assured of our impartiality.
Not only will we help you find the right car, but we'll also help you find a great price. We track the most affordable automaker incentives on our new car deals page, our used car deals site, and lease offers page. The U.S. News Best Price Program connects purchase and lease customers with local dealers offering guaranteed savings. New car buyers save an average of more than $3,000 when they take advantage of the program.
Our consumer advice helps take the mystery out of car buying and leasing. We’ll help you decide whether to buy or lease, walk you through the ins and out of how to buy a car, teach you how leasing works, and explain the car financing process. Our car insurance advice shows you the coverages you need and how to find insurance discounts when it comes time to buy it.