We’ve all heard the advice that buying a new car is a better deal than leasing one, right? But what about when it comes to used cars? Before you start hurling insults in the comments—know that yes, you can, in fact lease a used car.
Lately more and more companies (like Toyota, Porsche, BMW and Scion) are starting to get into the used car leasing game. Mainly because, according to the Wall Street Journal, “Inventories of used cars in good condition are soaring in the U.S., and companies and dealers are scrambling to offer leases as a way to make payments affordable for people who don’t qualify for cheap deals on new cars or those looking to save cash.”
In fact, even big banks like Ally are behind them, offering up special lease rates for used cars that have come into a dealer off an earlier lease. But does it make sense to buy or lease a new-to-you car?
First let’s consider the pros of buying a used car. For starters, someone else has already taken the big depreciation hit of driving that once-new car off the dealer lot. That means that the residual gap has narrowed significantly and that you won’t be paying a bunch of money upfront. Second, whether you choose a big bank or a credit union, you can finance a used car through traditional methods, if you find you’re short on cash. Finally—at the end of the whole transaction you own something outright—an asset that in theory (and in good working condition) can be resold for cash down the line.
The pros of leasing a used car are a little more convoluted. First, someone else has already paid off a good portion of the depreciation through their lease. Because of that, your payments could be significantly lower. Second, you could still be covered by a warranty at the dealership. Lexus, in fact, offers a six-year unlimited mile warranty from the original service date. Finally, you could end up with a cheaper payment. Take the example that the Wall Street Journal uses—a dealer near Philadelphia, PA has a 2014 Jeep Wrangler on the lot for $544 a month for a five-year-loan. If you leased it for a shorter term, that payment would become $364 monthly—a considerable savings.
So where are the cons? Well—with leasing a used car there are a few restrictions you’d have to be ok with. Often these include mileage restrictions and restrictions to what you can do to your car (cough, cough, that means, no you cannot turbocharge it). You could also void your lease if you, say, change the radio system to an aftermarket version that isn’t supported by the dealer. There’s also the fact that you could potentially be stuck paying for higher cost maintenance like out of warranty repairs. That is a risk factor in purchasing a used car as well. The issue with leasing a used car, however is that if you get into financial trouble, you still have to pay the lease, but you can’t sell the car for cash. It’s technically not yours to sell. The other issue—which is more of a macro concern—particularly after we all lived through the banking collapse and the Great Recession, is that the bottom could very well fall out of the used car market and leave banks like Ally holding the bag.
Weigh all these factors carefully before you decide whether you should lease or buy your next new-to-you car—and know that at this point, you can’t go to any old bank and decide to lease a privately sold car. The only way to lease a used car is to visit a dealership and work through their systems. For more on making savvy car decisions check back here at Instamotor for the latest in new-to-you car news.
Digital media content producer/consultant & former CNN senior producer, now running CN'TRL : Cars, Tech, Real Estate & Luxury.