Car Buying Tips

Pros and Cons of Leasing Used

When it comes to new luxury cars, leasing is an extremely popular choice. For some luxury brands, more than half of their new car sales are actually leases. The short-term options can put drivers in a new car every few years and helps ensure that they are always in the hottest new car. But what if you're looking at used models from those same brands?

A new-car lease can also make buying your next car easier. 

Is leasing that four-year old luxury car still an option? Is it still a good idea? Here is some information and some tips that might help you make a decision.

The large volume of three- and four-year old luxury cars coming off lease from brands like BMW, Mercedes-Benz, and Audi means that dealers have lots of those cars sitting on their lot. Because leasing is so popular with new cars, some of these brands offer leasing on those pre-owned cars too. Leasing a used car can come with many of the same benefits as leasing a new car, but it comes with some extra concerns as well.

With a lease, you're only paying for the car for part of its lifespan. New cars last longer than ever before, which means that a four-year-old car coming off lease, then going on another three- or four-year lease is less likely than ever before to be completely worn out after the entire eight-year term.

First, a brief recap of how a new-car lease works: You're only paying for the depreciation of the car during your use of it. That means that instead of paying the full retail price, you only pay for the original price minus the expected resale value at the end of the term. On a 2017 BMW 340i, the retail price is $52,750, and the end value on a four-year lease is $21,100. That means that instead of $52,750, you are paying $31,650, plus freight, tax, finance costs and fees. That lower amount makes the car more affordable. About a $700/month payment instead of over $1,300 if you bought the car over the same term.

A new-car lease can also make buying your next car easier. After the term, you drop off the car and that's it. No dealing with trades, time to get a new one. And unless you get a very long lease, the car will be under warranty for the entire period. That means you aren't paying for repairs for a car you have to give back.

So back to used leasing. Currently, Audi, BMW, Mercedez-Benz, and Lexus offer leasing on certified pre-owned cars. They offer lease rates as low as 0.9 percent, but the rates are generally slightly higher than for new cars. 

So how much would a used luxury car lease for? I'll use the same BMW as an example. On a four-year lease of a new model, the payments are about $700/month, plus taxes. That's based on depreciation of $31,650. A 2014 BMW 335i retails for around $38,000. The expected value of that car in another four years is around $14,000. That's a depreciation of $24,000. That's much less, and could result in a payment of around $500/month. The payment to buy that four-year-old car would be over $800/month, before adding taxes, finance charges and any other fees to both.

So leasing used can save you money on a nicer car, but what are the downsides? The first is at the service bay. Some of those luxury car companies include scheduled maintenance for free on new cars. The rest offer prepaid maintenance contracts that can save you money. On a used lease, you're on your own.

That extends to the warranty. Most manufacturers add some warranty to their pre-owned cars, but it could cover as little as two years. That can leave you with a long period of time that the car you're paying for could break. And if it does, you might face expensive repairs on a vehicle you have to give back. If you're looking at leasing a vehicle that will be out of warranty, consider purchasing an extended warranty from the manufacturer. Most will sell you a warranty that will last until the end of the lease, but it will cost more.

Used car leasing has the same distance restrictions as a new car lease. If you drive more than about 20,000 km per year, then leasing might not be the best choice for you. Higher mileage options are available, but they will cost more money.

You save money by only paying for the car for the length of time you use it. You also get the same "drop it off and you're done" end of term as a new car lease. But if there are any repairs, you might find yourself on the hook and footing the bill.

Only a few manufacturers offer leasing on used cars, but what if you want one that's not on that list? There are other leasing options out there. Many large dealer chains offer their own leasing. That way you can get nearly any car they sell. Just be aware that the terms might not be as good as from the manufacturers.

So if you want that like-new luxury car for less, leasing used might be an option for you. Just be aware of possible warranty and repair costs before you sign on the line.