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Can You Lease a Used Car?

Since the bubble burst in the 2008 financial crisis, car leasing has been regaining momentum once again with lease penetration approaching 1 in 3 of all new car deals. But when leasing a brand new car isn’t feasible for everyone, is it possible to save money by leasing a used car?

Is It Possible to Lease a Used Car?

Used car leasing is a viable alternative for drivers seeking to avoid the high cost of vehicle rentals and the commitment of car ownership. However, the main obstacle to used car leasing in Canada is that it’s limited to a small number of speciality and luxury brand dealerships.

If you can find a used car lease, it might be the ideal option depending on your circumstance, but there are some drawbacks to consider too. Let’s look at some of the ins and outs of leasing a used car to help you determine if it’s the right way to go.

Is It Worth It to Lease a Used Car?

Compared to leasing a brand new car, the obvious advantage of leasing a used car is lower monthly payments. Also, if you have no credit, little credit, or bad credit, a lender may more readily approve you for a car that’s depreciated in value as opposed to a brand new one. But what about when you compare a used car lease to car finance? A few perks for leasing a used car (versus getting a car loan) include:

  • Lower monthly payments. Since you’re only paying for the depreciation of your car during your use of it, there’s a good chance that your lease payments will be lower than with a car loan.
  • More Optionality. At the end of your lease, you have the option to give the car back without any ongoing payments.
  • You can get more car for your money. If you can’t afford a brand new luxury car, you might be able to lease a pre-owned luxury vehicle (BMW, Audi, Mercedes) within your budget.

If you do choose to pursue used car leasing, there are a few drawbacks to keep in mind too:

  • No equity. Typically, you won’t own the car at the end of all those payments– you’ll be starting from square one again. However, you might get the chance to buy the car at the end of the term.
  • Wear & tear penalties. Like leasing a new car, any excessive wear and tear is your responsibility, and you could be charged for it at the end of the term. If you do choose to lease a car, get into the habit of routine maintenance. Remember, you do not own a leased car, and it needs to be returned in the pre-agreed condition. Also, if you don’t have the car under warranty, repairs are on you. So make sure you know what terms you’re signing up for before you put pen to paper.
  • Early termination fees. If you think a used car lease means less commitment, you might want to reconsider that notion. Leases usually come with hefty fees if you want to end your term early.
  • It’s difficult to find a dealership that offers them. Whether your credit is good or bad, it can be challenging to find a local dealership that can offer you a used car lease. A lease takeover might be easier to find and worth exploring.

What About Certified Pre-Owned Leases?

If you can find a dealership that offers to lease for certified pre-owned cars, it’s an option worth exploring. In these cases, the lease usually works through the manufacturer’s own finance house, and not a third-party institution. CPO leases typically have access to lower interest rates, similar to advertised leases on new cars, called subvented interest rates. For example, BMW Canada’s special offers for pre-owned leases have been as low as 0.99%.

Unfortunately, CPO leases are rare and usually reserved for luxury brands. If you do find one, a good credit rating is normally required.

What About Short Term Used Car Leasing?

If you’re looking at renting a car while on an extended vacation, attending school, or while posted away from home for work, the costs can add up quickly.

Short-term car leasing is a worthy alternative to consider. But whether you’re looking at a 3-month, 6-month, or one-year lease, you will likely face higher monthly payments than a long-term lease. However, your payments will surely be lower than renting a car, so a short term used car lease might be a good option to pursue—if you can find one!

How Leasing a Used Car Works

Aside from the vehicle itself, the process of leasing a used car is strikingly similar to a new vehicle.

  • The vehicle’s ‘sale’ value is broken down between the leased portion and the residual value – the estimated vehicle value at the end of the lease.
  • You’ll be required to complete a credit application to qualify for leasing. The interest rate and terms for the used car lease will normally depend on the details of your income and credit report.
  • When the lease maturity date comes near, you’ll usually have the option to return the car to the dealership in reasonable condition or pay the residual value and keep the car.

Can you lease a used car with bad credit?

Generally, you need to have good credit to secure a car lease, but you might have a better chance of getting approved for a used car lease. However, some companies that offer used car leases ask for weekly or biweekly payments to offset their risk of working with bad credit customers.

If having bad credit is a concern for you, used car financing might be a better option. There is a growing number of dealerships with special financing departments that make it easier than ever to get approved for a car loan with bad credit.

Used car lease vs. used car finance

As mentioned, used car leases are hard to come by. However, in the world of car financing, the used car market is extremely robust. Why not finance your next car purchase? Maybe you don’t want the long term commitment of car ownership, or maybe you think you can’t afford it. But a car loan might be more affordable than you think, and it offers:

  • No money down options.
  • Ownership at the end of the term.
  • Easier approval for bad credit customers (compared to leases).

Sep 24th, 2019