Learn about the risks before signing the lease
Used-car leasing is a small segment of the used-car market, but with modest payments and the ability to lease “certified” used cars, some people find leasing a used car appealing.
All the benefits of leasing, such as comparatively low payments and a hassle-free return at the end of the contract, apply to a used-car lease as they do to a new-car lease. And since most of a leased car’s monthly payment goes to anticipated depreciation, which is less severe as a car ages, monthly payments could be lower. The financial risk with a used-car lease, though, can be substantially greater.
Leasing risks. Foremost is the chance of service problems. Consumer Reports’ reliability data suggest that on average, a three-year-old car has more than twice as many problems as a one-year-old car does. Bear in mind that any repairs you must make that are not covered by a warranty come out of your pocket, even though you do not own the car. For that reason, it may be a good idea to purchase a comprehensive, bumper-to-bumper warranty for the full lease term.
Another risk with used-car leasing is that it’s difficult to predict what that car will be worth when it’s, say, five years old. There is a great deal of variation in the five-year-old market. But that knowledge is necessary because your monthly payments hinge on its supposed retained value. If the dealer sets it too low, your payments will be higher than they need to be. If he or she sets it too high, it gives him or her latitude to push up the car’s initial price while offering what seem to be acceptable monthly payments.
The best vehicles to lease, therefore, are those that hold their value very well. Those tend to be luxury cars, sports cars, and some SUVs. As a result, used-car leasing has become largely the province of luxury makes such as Audi, Lexus, and Mercedes-Benz.
Assuming a lease. It’s not only car dealers who handle leases. When a private party wants to get out of a lease early, he or she might look for someone willing to take over the lease payments. You can find lists of offerings on the Internet, where sites found at www.swapalease.com. www.leasetrader.com. and www.leasecompare.com act as brokerages where people looking for a lease assumption can see what’s on offer. The original lessee will sometimes offer a cash rebate, which effectively lowers the monthly payment on the vehicle.
The benefit of assuming a lease is that you save the up-front fees, such as a down payment and other “due at inception” fees. Bear in mind, though, that when you assume someone else’s lease you also assume their responsibilities. For instance, you’ll have to pay for any existing damage, “excess wear and tear,” or over-the-limit mileage charges at lease-end.
Tips for used-car leasing
- If you are working with a dealer, bargain the price down as if you were buying the car.
- Check that any warranty is comprehensive and lasts the duration of the lease.
- Make sure you can live with the mileage limits spelled out in the lease contract. Over-limit miles can cost you as much as 25 cents each.
- Check the vehicle’s history, which might reveal that it was in a major acci-dent, wrecked and salvaged, or had its odometer rolled back. Vehicle-history reports are available for about $20 (or unlimited reports for $25) from two companies, CarFax and Experian AutoCheck. Keep in mind, however, that a clean report doesn’t guarantee that a vehicle doesn’t have hidden problems.
- Before signing the lease, have the vehicle inspected by a qualified mechanic, who can put it on a lift for a full diagnostic check.