Lease a Used Car

Most car deals made at new car dealerships can be neatly lumped into one of three categories: new car purchases, used car purchases and new car leases. However, there is an often overlooked fourth category: used car leases.

Used car leases are a bit of a secret in the franchised car dealership world. Not all dealerships offer them, and it’s unlikely you’ll see them advertised on television, on a dealership website or in the Sunday paper.

You can get a used car lease, although it takes legwork. If you put in the time to find a franchised car dealer that can execute a used car lease, you’ll likely be rewarded with a significantly lower monthly payment than that of a new car lease.

How Does Used Car Leasing Work?
Used cars available for lease from franchised car dealerships will, as a rule, be certified pre-owned (CPO) vehicles less than four years old, with fewer than 48,000 miles on the odometer.

Used car leases follow the same basic structure as new car leases. The lender writing the lease will determine the vehicle’s residual value, and the lease payments will be determined by the difference between the vehicle’s sale price and its residual value. In most cases, the lender will be an automaker’s “captive” financing company. Think Toyota Financial at a Toyota dealership.

The lender writing the lease will assign a money factor (interest rate) to the deal, just as in a new car lease. And just as interest rates tend to be higher on used car loans, a used car’s money factor will likely be higher than the money factor for a new car lease. Even so, the higher money factor is coupled with the used car’s lower sale price and lower rate of depreciation, usually resulting in a lower overall payment. Shoppers who lease used cars are able to buy out the vehicle at the end of lease, just as they can with new leased cars.

During my 12 years selling and leasing cars, I saw buyers shave anywhere from $40-$125 per month from their monthly payments by opting to lease used instead of new.

A note of caution: This story only deals with used car leases done by franchised dealerships, which are the only ones that can offer true CPO cars. You may hear about used car leases from independent “Buy Here, Pay Here” dealerships. Such leases frequently come with a lot of strings attached and you should scrutinize the terms very carefully.

How To Do a Used Car Lease, Step by Step
Pick a brand that does used car leases: According to Edmunds data, these automakers’ captives financed used car lease deals in 2015: Acura, Audi, BMW, Chrysler (which includes financing for vehicles from Dodge, Fiat, Jeep, Ram and SRT), Ferrari, Honda, Hyundai, Infiniti, Kia, Lexus, Lincoln, Mazda, Mercedes-Benz,Mini, Mitsubishi, Nissan, Porsche, Toyota, Volkswagen and Volvo.

The exceptions are Ford Credit and  GM Financial, which finances vehicles from Buick, Chevrolet, Cadillac and GMC, according to spokespeople from those captive finance companies.

Have a point of comparison: To effectively judge if a used car lease is a good enough value to bypass a new car lease, you have to have something to compare it to. If you don’t already have a lease quote for a new version of the car you want, get one. With that benchmark in hand, you can start shopping.

Find the car: Edmunds.com has plenty of tools to help you find the right used car. Search for the model you’re most interested in and remember to home in on CPO vehicles. Because you are shopping in the used market, you may not readily find your preferred color combination or mix of features. Be flexible. Select a few cars from different dealers. That way, if the first dealership you talk to isn’t able to help with a used car lease, you’ll have other choices.

Find a dealer who’ll do the deal: Since used car leasing is not the norm in the car business, finding a dealership that can help you will likely take some time and patience. You may have to call a few dealerships to find one that is set up to lease used cars.