Car leasing deals have surely boosted the growth of new car marketing but it turns out that lots of industry experts are worried about the used vehicles. Personal Contract Purchases (PCHs) allow the drivers to avail the opportunity of buying the car at the end of the lease period but most of the cars are returned to the finance companies as the contract ends. You will be surprised to know that new car leases make up for more than 30% of all the financial transactions at the new car dealerships. After few years, most of the cars find their way back to the dealership.
Just imagine, what are the car dealers supposed to do with such a massive supply of used vehicles? Well, some of these cars are sold at auctions while others are prepared for lease. Yes, putting the used cars on a lease is one way of offloading them hence why you will see an expansion in the used car leasing trend.
Back in the 80s, it was hard to look for used car retailers. Some banks used to do used car leasing but the percentage was quite low. That was probably because it was difficult to calculate the lease of a new car and hence cyphering a used car lease was considered almost impossible.
Each used car is unique in a way that it comes with a unique payment and residual. Used car leasing has always remained an afterthought but since times and technology have changed, lots of car leasing groups have started to reconsider this option. In fact, it is becoming a growing trend in the self-financed areas of the market.
How does used car leasing work?
Now, let’s see how used car leasing works. The used cars that are available for lease may be certified pre-owned cars that are less than 4 years old. They may also have less than 48,000 miles on the odometer. The lease structure for a used car is almost the same as a new car. The lender determines the residual value of the vehicle and the lease payments are determined by the difference between the sale price of the vehicle and its residual value.
The lender also assigns a money factor, i.e. the interest rate—just like it’s done in a regular car lease. As interest rate is higher on used car loans, the money factor on a used car lease is higher too. But don’t worry, this higher money factor comes with a lower sale price and lower depreciation, which means that your overall lease payment will be low. Also, you will have the opportunity of buying the used car at the end of its lease contract. You can save from $40 to even $125 a month on your monthly payments on used car lease. Independent dealers also sell used car leases but their terms usually come with some strings attached so you must be careful about who you are dealing with.
How is it done?
Your next question of interest would be what are the steps to used car leasing? Here is the glimpse of the process:
- You first have to pick a brand that is offering used leases. Edmunds says that automakers such as BMW, Audi, Honda, Ferrari, Mazda, Porsche etc. are offering used car lease. You will have to do your own research on this.
- Once you have find the used car lease deals, it is time to compare them to find out if you are given a good value. It is recommended to get a quote for the new version of the car too so that you get the right benchmark at hand at to start shopping for the lease.
- You can even search for the used car leasing deals in the model you are interested in. You might not exactly get the car you are looking for so keep yourself open to other choices too.
- After finding the car that suits your needs, it is time to get a price quote. Also get the residual value of the car if you might be interested in buying the vehicle at the end of the lease.
How is used car leasing a favorable option?
- The first great thing about used car leasing is that the monthly payment is reduced. Since you are not dealing with car deprecation anymore and the selling price of the car is now reduced too, your monthly lease payment is reduced even though you will be paying a higher money factor.
- The residual value of a used car is reduced too just like everything else. This makes you a good candidate for lease buyout at the end of the lease contract.
- You will also enjoy a lesser insurance cost because the value of the vehicle has dropped.
Remember, used car leasing isn’t all fun
The maintenance cost of a used car is high since you will be leasing a car that already has miles on the odometer. Also, you may have to pay some maintenance visits for the car sooner than expected. Due to these reasons, many people don’t turn towards used car leasing. There is an alternative to it if you are still interested in saving money on the lease and that is car lease swapping. The car that you will assume in this case will be 1 to 2 years old. It’s going to be a semi-used car and you will be taking over the existing lease.