An Inside Look at Used Car Leasing – Yes, That’s a Thing

September 26th, 2016 by

used car lease

When shopping around for used cars in Cincinnati, it’s important to understand your options. Consumers who hear the term used cars might think you only have two options: buy a non-certified one, or buy a certified pre-owned. But, there’s actually a third option. That option is leasing. “But, how is that possible? Only new cars have that option” is probably the thought that’s running through at least half of readers’ heads right now. Well, it’s possible, and it’s a third option when it comes to used cars that provide amazing perks. It’s not just any used car that’s up for lease. You can’t walk into a dealership and pick a $4,000 beater sitting on the lot and say I want to lease it. Typically, leasing (trustworthy leasing, I’ll explain that later on) is only offered on true certified pre-owned vehicles from a franchised dealership. In fact, consumers are able to shave anywhere from $40-$125 per month from their monthly payments by opting to lease used instead of new.

Interested? Read on to learn more about this relatively unknown goldmine of car buying.

How is it Possible?

Since I know a lot of you had an immediate “Uhhh what?” reaction to the title of this article, I’ll answer this question for you first.

How was this idea conceived? While I might not know the origins behind the decision for franchised dealerships to start leasing used vehicles, I can tell you how it works. As a rule, certified pre-owned vehicles that are less than four years old, and feature fewer than 48,000 miles on the odometer are the ones that can be considered for leasing.

Used car leasing follows the same basic structure as new car leases. Therefore, the lender who is 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, along with its residual value. This lender will also assign a money factor (interest rate) to the deal, just like a new car lease. Since the interest rates on new car loans tend to be higher, the money factor found on a used car will instead be higher than the money factors on a used car lease.

But, here’s where it works out in your favor. Combining that higher money factor with the used car’s lower sales price and lower rate of depreciation, you’ll typically have a lower overall payment. Just like a new car lease, you can buy the vehicle at the end of the term.

Only Lease Used from a Franchised Dealership

It’s crucial to only lease a vehicle from a franchised dealership, since they are the only ones that are able to offer true CPO cars. Used car leases from independent “buy here, pay here” dealerships do happen, but they come with a lot of extra baggage on the contracts. On top of that, you have to scrutinize the terms cautiously with these contracts.

Advantages of Used Car Leasing

Apart from having a lower overall payment (which I’ll expand on), there are also plenty of other advantages offered when you decide to lease used vs. new.

Lower Monthly Payment

To recap and expand, the CPO vehicle has a lower selling price than the new model. Combine that with the higher money factor results in lower monthly payments. On top of that, you are able to avoid the steep curve of depreciation. Since the vehicle is four years old, it’s already gone through the bulk of its depreciation. Even if you lease a vehicle that’s only a year old, you still avoid taking that big hit to value that new cars incur as soon as you first drive off the lot.

Longer Powertrain Warranty

It’s not a surprise that CPO vehicles and exceptional warranties often go hand in hand. Especially for a company Chevy, which has one of the best and most comprehensive powertrain warranties on the market: six years or 100,000 miles. When leasing, you still get the warranty on the vehicle, which means not only are you saving money by leasing, but you’re also getting extensive coverage for your vehicle. Since most leases last for three or four years, that means you’ll still have a powertrain warranty on your used Chevy if you decide to buy it at the end of the lease term.

(Potentially) Lower Auto Insurance Costs

This one is relatively obvious and straightforward: since you are purchasing a vehicle that’s cheaper than a new car, that means you are likely to have auto insurance rates that cost less.

Better Value if you Buy it at the End

Speaking of buying a vehicle at the end of your lease term, you’ll be getting a lot more value if you buy it at the end compared to a new car. Since they are worth less than their new counterparts, and have a lower residual value, they are a great vehicle to own. Make sure before you buy it out though, you check the market prices and factor in costs like maintenance and future extended warranty costs that come when buying an older vehicle.

After all, even though it’s certified pre-owned, it is still not in that shiny new condition, like a 2016 model.

Concluding Thoughts

If you don’t mind losing out on that new car smell, feel, and not seeing the odometer reading a virtual 0, then this is an awesome alternative to the conventional route of leasing a new car that provides unique benefits. It’s a great way to get a like-new car experience, while avoiding the negative drawbacks that come with either buying or leasing a new car, like rapid depreciation. I understanding that if you don’t plan on buying the new car at the end of your lease term — a lot of people don’t — then you have the opportunity to simply trade into a new vehicle and avoid depreciation all together. However, you’ll still miss out on drastically lower monthly payments, and great powertrain warranties.

Those two advantages combined with the better value if you buy the lease vehicle at the end of the lease term are only found on a leased certified pre-owned. Then again, it’s not surprising that a niche market like this has perks that are unique.