5 things to know about used-car leasing

Young man leasing a used car and changing the radio stationImage: Young man leasing a used car and changing the radio station

In a Nutshell

Used-car leasing is less common in the leasing market, but it’s an option, particularly if you’re hoping to save money on your monthly auto payments. The risk is committing to a car that’s more likely to need repairs — so proceed with caution.
Editorial Note: Intuit Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. Information about financial products not offered on Credit Karma is collected independently. Our content is accurate to the best of our knowledge when posted.

Used-car leasing may help you save money on monthly payments — but there are risks you should be aware of.

Leasing a car is one way to drive a new car for monthly payments that are often cheaper than those you’d make on a car loan. Of all the vehicles financed or purchased in the fourth quarter of 2018, about 21% of new vehicles were leased, according to Experian data. Only about 4% of the leasing market was made up of used cars.

Should you consider leasing a used car? We’ll go over five things to know to help you decide if the benefits outweigh the risks for your situation.

  1. Your monthly lease payments may be less
  2. You should shop around
  3. The car may not be under warranty
  4. Remember, you’re still leasing a car
  5. A used-car lease might not be right for you

1. Your monthly lease payments may be less

When you lease a car, most of your monthly payments go toward the vehicle’s expected depreciation (the rate your vehicle loses value over time). A car can depreciate by 20% or more after the first year of ownership alone. Used cars tend to depreciate less swiftly than new ones, which means you’ll likely pay less each month to lease a used vehicle compared to a new one.

But the amount of your monthly payment will depend on the particular car you want to lease and your lease terms. Before you go car shopping, it’s a good idea to set a budget to figure out what you can afford to pay each month.

2. You should shop around

Because leasing a used car is far less common than leasing a new car, you may have to search a bit to find car dealerships that lease used vehicles.

Deciding which type of used car to lease comes down to your goal. Are you trying to lease a luxury car like a Lexus or Audi or something more standard, like a Honda Civic or Toyota Camry? Once you’ve narrowed that down, you can start calling dealers to compare leasing terms.

Be aware that many used leases will be for “certified pre-owned” vehicles. And most will have fewer than 48,000 miles, according to Edmunds.

Car dealerships aren’t the only place you can lease used cars. You can also use leasing services, like SwapALease.com or LeaseTrader, to take over a car lease from someone who wants out of theirs. Since the other person wants out, you might be able to negotiate enough concessions from the person transferring the lease to make it a better deal for you.

You’ll want to avoid “lease-here, pay-here” dealerships that lease older used vehicles. While you may be able to get a lease this way even if you have credit problems, you may have to make weekly or biweekly payments and cover high leasing charges — which can make these leases very costly.

3. The car may not be under warranty

Depending on the age of the car, its manufacturer’s warranty might expire before your lease ends. In this case, you might be on the hook for any repairs that are necessary to keep the car in working order, not only to keep it running but also to avoid any wear-and-tear charges at the end of your lease.

But you may be able to avoid costly repairs by leasing a certified pre-owned car that comes with some kind of warranty from the dealership.

If you can’t lease a certified pre-owned car, you can usually buy an extended warranty — also known as a service contract — on your own to cover certain unexpected expenses. Just be aware that all extended warranties are not created equal. Make sure you know exactly what is and isn’t covered so you aren’t surprised if you eventually need to make a claim. 

4. Remember, you’re still leasing a car

While leasing a used car may come with lower monthly payments, keep in mind that at the end of the lease, you don’t own the car. If your need for a vehicle hasn’t changed when your lease ends, you can purchase the vehicle (if that’s an option), lease another car, or buy a new or used vehicle.

When you return your vehicle to the dealer at the end of the lease, you can be charged for excessive wear and tear if the car isn’t in good shape. And by leasing a used car, you’ll likely be returning the vehicle at a more advanced age than if you’d leased a new car. So you should make sure the car stays well-maintained to avoid any unnecessary fees at the end of the lease. 

5. A used-car lease might not be right for you

Used-car leases aren’t for everyone. If you love leasing a brand-new vehicle with the latest technology and that new-car smell each time your lease expires, used-car leasing may not be worth the cost savings to you. A new-car lease may be a better fit.

Similarly, if you don’t want to deal with the hassle of extended warranties and potential maintenance expenses that may be more likely to pop up with used-car leasing, you’re probably better off sticking with leasing new cars.

You should also consider whether it makes more sense to buy a used car if you’re considering leasing a used vehicle.

Bottom line

Leasing a used vehicle could save you money on your monthly payments. Just make sure you’re prepared to find a used-car lease that fits your needs and budget.

And don’t forget that the cost savings of leasing a used vehicle comes at a price. Potential maintenance costs and other risks associated with leasing a used car may not be worth it for everyone.

Whatever you decide, make sure you do your homework by preparing a budget and comparison shopping for the best used-car lease for your situation.

About the author: Lance Cothern is a freelance writer specializing in personal finance. His work has appeared on Business Insider, USA Today.com and his website, MoneyManifesto.com. Lance holds a Bachelor of Business Administration in … Read more.