Leasing a Used Car: Is It Possible? Should You Do It?

Used car leasing is an option, particularly when the car is certified pre-owned (CPO). Leasing a used vehicle can save you money because the car already has significant deprecation, which will reduce its residual value and the monthly payments required for a lease.
 
Leasing a used car has many benefits, including lower monthly payments, lower insurance, and more. However, there are some important caveats to consider before leasing a used car.
 
At Credit Union of Southern California (CU SoCal), we make getting an auto loan easier.
 
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all of your banking needs.
 
Read on to learn how to lease a used car.


How Does Auto Leasing Work?

Leasing a car involves taking possession of it for a fixed period (term) and for a fixed amount of money which will be paid back to the leasing company in monthly payments. Leasing is offered by car dealerships as an alternative to purchasing a car.
 
The main difference between leasing and purchasing is that leasing is like renting the car, while purchasing means the car will become entirely yours once the car loan is paid in full. With a lease, when the term ends, the car has to either be returned to the leasing company or purchased for its residual value.
 
The advantage of a used car lease vs. a new car lease, is price — you will generally pay less to lease a used car because much of the depreciation has already taken place, so you benefit from lower monthly payments that are based on the residual value of the car (the amount it will be worth at the end to the lease term).
 
Lease payments are generally based on the difference between the sale value and the residual value, so leasing a used car will save you money.
Learn more in our article, How Does Leasing a Car Work and Is it Ever Worth it?
 

Can You Lease a Certified Pre-owned Car?

Most used cars that are leased are Certified pre-owned vehicle (CPO). This means the dealership has thoroughly inspected it and certified that it is in good working condition.
 

Benefits of Leasing A Car

Why lease? Many people prefer to lease because leasing allows them to have a brand new car at the end of every lease term, which is generally two to three years. Plus, you don’t have to worry about costly maintenance and repairs that happen more frequently as a car gets older.
 

Benefits of leasing include:

Lower Monthly Payment: Because the lease term is short (two to four years), most leases can (and should) be done with a low down payment.
 
Nicer Car: Leasing a vehicle comes with lower monthly payments than buying, because you’re paying for depreciation, not interest on a low amount. This means your money goes further and you can drive a better car for less money.
 
Longer Warranty for Certified Pre-owned: According to the experts at Caranddriver.com, manufacturer programs often rename a car’s bumper-to-bumper warranty as the “CPO limited warranty.” It won’t be as comprehensive as the bumper-to-bumper plan that the original buyer received, but it should cover things like the electronics, the HVAC system, navigation and audio, and maybe even the suspension (excluding components designed to wear, like the brakes and tires).
 

Things to Consider When Leasing A Used Car

Like with all car purchase options, there are pros and cons to each. Here are some things to be aware of as you consider leasing a used or certified pre-owned vehicle:
 
The Car May Not Be Under Warranty: According to Cars.com, no matter how many miles are on the odometer, you’re closer to the end of the car’s basic bumper-to-bumper and powertrain warranties than with a new vehicle. Once the warranties end, you are responsible for all repairs but on a vehicle you don’t own.
 
Even if the warranties are in effect on a leased CPO vehicle, you still will be responsible for maintenance. On a vehicle that is more than three years old, that can include replacing the battery, tires, brake pads and rotors, and even replacing the audio head unit (which could wipe out Bluetooth and the electronic climate controls if it fails).
 
Wear and Tear: Since the vehicle is older it will come with more wear and tear, which could result in unexpected repair bills, even if the vehicle is certified pre-owned.
 
Higher Interest Rates: Used vehicle payments will be calculated based on a higher interest rate (or money factor) than new vehicles. Before you sign a lease agreement ask the dealership if the money factor is negotiable, then shop and compare.
 
Maintenance Costs: As the “owner” of a leased vehicle you are responsible for all maintenance costs.
 
Limited Inventory: Over the past year, good used cars are getting harder to find due to the disruption of production in 2020.
 
Restricted Mileage: All car leases have mileage limits/allowances. Before you sign a lease agreement, you’ll be asked to choose the limit that works best for you. These limits are typically 10,000, 12,000 or 15,000 miles. The more miles you need, the more you’ll pay. And if you exceed the miles in your agreement, you could pay anywhere from $.15 - $.30 per mile for the excess miles.
 

Used Car Leasing vs. New Car Leasing

Leasing a used car or certified pre-owned car can save you money in monthly payments, however, this benefit is offset by potential mechanical problems that come with driving an older car and higher costs like paying a higher finance rate and paying more for auto insurance.
 
Talk to the car dealer about your options and compare the “out the door” cost of leasing a used car compared to leasing a new car. If you time it right, you could find manufacturer incentives and promotions that make leasing a new car a better and less expensive option.
 
Think about why you are considering leasing a used car. Is the make and model you want not available as a new lease or new car purchase? Is a used car lease just more affordable for your budget? If you only need the car for a year or two, leasing used could work in your favor and save you money while you save up for a new car lease or new car purchase.
 

Is It Worth It To Lease a Used Car?

As mentioned above, used car leasing has pros and cons: the monthly payments could be low, but you’ll pay in other ways that could cost you more in the long run.
 
The dealer should be able to calculate costs for you, so you know which option is better for your budget. For example, you can ask them to give you the price difference between a new lease and a certified pre-owned lease on the same make, model, and year vehicle.
 
If an “apples to apples” vehicle comparison isn’t possible due to lack of inventory, then you’ll need to decide which is best based on considerations such as which car you prefer to drive, the number of years you plan to keep the car, and what the overall monthly payment will be when all things are added up.
 
We also suggest calling your car insurance company in advance to get a quote on what the insurance will cost for the specific used car you’re considering.
 
Only you will be able to decide if used car leasing is the right choice.
 

How Do You Lease a Used Car?

Here are some quick tips for leasing a used car:

Create A Budget: Before leasing a used car, create a budget to save for your downpayment and other fees (e.g., registration, title, tag, insurance, etc.).
 
Check Your Credit Score: Knowing your credit score ahead of time can help you negotiate a better deal. If you have a low credit score, you may be asked to make a down payment. Check your score for free at Freecreditscore.com. CU SoCal offers free credit scores and credit reports to all Members through Credit Score and More in Digital Banking.
 
Shop Different Dealers: Car dealers have different inventory and promotions. If you’re flexible on the make and model car you want, then shopping around is a good idea and can save you money. If you have a particular make and model in mind that you just have to have, then you may be limited in where you can shop.
 
Negotiate The Terms: This includes the price, money factor (interest rate), warranty, and add-ons link to our article "How To Negotiate A Car Lease" once it's published: https://www.cusocal.org/blog/how-to-negotiate-a-car-lease
 
Evaluate Warranty Options: Not all warranties are created equal. Ask the dealer to tell you all of the options and ask what is NOT covered under the warranty.
 
Check the Allowed Mileage: While you don’t want to pay for miles you may not use, it is safer to have too many miles than not enough. If you exceed the mileage limit you agreed to, you’ll pay for overage miles when it’s time to turn in the vehicle. If you choose the lower mileage limit, ask what the mileage penalty for overage would be (just in case).
 
Review Fees: Unlike buying a new car, leasing a vehicle has many more fees. These can include acquisition/bank fee, disposition fee (owed at the end of the lease), mileage penalty fee, early lease termination fee, doc fees, dealer add-ons, etc.
 

CU SoCal Auto Loans

If leasing isn’t right for you and you decide on purchasing a new or used car, CU SoCal can help with car loan financing! We offer:
  • Up to 120% financing for new and used vehicles.
  • Competitive rates
  • Quick pre-approvals.
  • Extended terms up to 84 months for the lowest possible monthly payment.
  • A personal auto-buying concierge service.
  • Low-cost loan protection add-ons.
  • No application or funding fees.

Why Savvy Consumers Choose CU SoCal

For over 60 years CU SoCal has been providing financial services, including car loans, personal loans, mortgages, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
 
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with one of our auto loan experts.
 
Apply for a vehicle loan today!
 

Building Better Lives

Credit Union of Southern California (CU SoCal) is a leading financial institution empowering those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County to reach their goals and build strong financial futures. CU SoCal provides access to convenient money management services and offers competitive rates and flexible terms on auto loans, mortgages, and VISA credit cards—turning wishing and waiting into achieving and doing.

 

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