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Most people associate leasing with new cars. While it's less common, it is possible to lease a used car. Although leasing a used car is similar to leasing a new car, there are some key differences. Let's take a closer look at how leasing used cars works and what to consider if you decide to go this route.
How Used Car Leasing Works
Most used cars that are available for lease are certified pre-owned (CPO) vehicles that are less than four years old and have fewer than 48,000 miles. If you lease a used car, you'll pick out your car, get approved by the lender, agree to the payment and terms, and fill out some paperwork. Over the life of your used car lease, you'll pay the difference between the car's sales prices and its residual value, which is what it will be worth at the end of the lease based on depreciation.
What to Consider When Leasing a Used Car
Before leasing a used car, it's important to consider the following benefits and downsides.
Benefits of Leasing a Used Vehicle
- Lower monthly payments: When you lease a used car, you'll likely have lower payments than you would if you purchased the same car used or got it new by buying it or leasing it.
- Lower car insurance costs: Since car insurance rates depend on the value of a car, you may be able to save on car insurance by leasing used.
- The chance to drive a luxury car: Luxury cars are expensive when you buy or lease them new. If you lease a used car, you may be able to afford driving a luxury vehicle.
Downsides of Leasing a Pre-Owned Car
- Outdated technology and features: If you lease a pre-owned car, it may not have the latest and greatest tech and safety features seen on newer vehicles.
- Expensive maintenance: As vehicles age, their maintenance costs increase. You may be forced to pay for expensive maintenance out of pocket.
- Mileage restrictions: Leasing a used car comes with restrictions on how many miles you can drive each year. This may be an issue if you drive frequently or often travel far distances. If you go over the mileage limit, you may have to pay an excess mileage penalty.
Credit Score Required to Lease a Used Car
Most auto leasing companies look for FICO® Scores☉ of 700 or better when deciding whether to approve someone for a lease. If your score is below 700, you may have a difficult time securing a lease. In the event you do get turned down for a used car lease because of your credit, focus on improving it to increase your chances of approval the next time you apply. Avoid late or missed payments, pay down high credit balances, and don't open new credit accounts unless you really need them.
How to Lease a Used Vehicle
Here's a brief overview of what you'll need to do if you'd like to lease a used car.
- Check your credit score: Find out whether your credit score is high enough for you to get approved for a used car lease. If it's not, spend some time improving it.
- Find a dealer: Not all car dealerships offer used car leases. Call around to find out which ones in your area do lease used cars to customers.
- Negotiate: Do your research on used car values to help you negotiate a good deal. Keep in mind that just because you're leasing a used car doesn't mean a dealer won't try to overcharge you.
- Get a warranty: Since leasing a used car means there is a higher chance that the car will have problems down the road, consider investing in an extended warranty. It can save you a great deal of money on maintenance and repairs.
- Insure the lease: You'll need to insure your used car lease before you can drive your vehicle. Shop around to find the best rate on a car insurance policy.
- Make timely payments: By making timely payments on your lease, you can build your credit and avoid financial issues.
Alternatives to Leasing a Used Car
If you decide leasing a used car isn't right for you, consider these alternatives.
- Try a used car subscription service: A used car subscription service can give you access to a variety of vehicles for a flat fee. This can offer you more flexibility than a traditional lease. You'll have more vehicle choices and can swap out the car you choose for a different one at any time.
- Swap a lease: When you swap a lease, an auto lease gets transferred to you from another driver, and you take over the same payments and terms as the previous driver. Swapping a lease can give you a feel for whether a certain car suits your needs before you take out a new lease.
- Buy a used car: If you buy a used car, you may be able to save money in the long run. Also, you can sell or trade in your car whenever you'd like.
Before leasing a used car, be sure to consider the pros and cons of doing so and determine whether an alternative option makes more sense for your particular situation.