How to lease a used car

Used car leases are gaining popularity thanks to certified pre-owned (CPO) car programs and lease-swapping websites. Because they offer the same flexibility as new car leases at a fraction of the price, you may be able to get behind the wheel of a low-mileage or luxury vehicle without breaking the bank. But they don’t always come with a warranty, and you’ll have fewer cars to choose from. If you’re thinking of leasing a used car, here’s our step-by-step guide on how to get it done and what to expect with the process.

Can you lease a used car?

In short, yes, you can lease a used car. While they’re not as commonplace as leasing new vehicles, used car leases are a viable option in Canada. It’s just that they’re not as readily available across dealerships, and if they are, they aren’t heavily promoted.

Used-car leases are a great way to test out a vehicle you’ve had your eye on without breaking the bank. They’re usually gently used cars that are less than five years old and with lower mileage clocked.

If this sounds like an appealing option for you, it’s worth doing your homework to secure a used car lease on a nicer car while saving thousands of dollars in the process.

How do you lease a used car?

A used car lease works just like a regular lease — you pay to drive a specific vehicle for a predetermined period and number of kilometres. But unlike leasing a new car, you’ll face a much lower buy-in cost and lower monthly repayments. This type of lease is ideal if you’re on a budget or want to drive a luxury car without having to pay thousands out of pocket.

Follow these steps to get behind the wheel of a leased used car:

1. Contact a few dealerships that offer used car leases and explore their selection of vehicles available. If you have a particular vehicle in mind, you can zero in on it by asking dealerships if they have the specific car in their inventory of pre-owned vehicles on offer for leasing.

2. Request quotes from multiple dealerships based on your chosen lease term and mileage limit. Comparison shopping is a must whether you’re shopping for a new car or a used car. When you have a few quotes in hand, you’ll have a good grasp of how much you should be paying to lease your vehicle.

3. Choose the lease deal that benefits you most, whether you’re looking for a low APR, minimal down payment or cashback bonus. In this case, because not all dealerships offer used car leases, you may be able to narrow down your search to those that can offer this deal.

4. Discuss your lease-end options, and if you’re happy with the terms, sign your lease agreement. Make sure you’re aware of all of the terms and conditions that apply to your lease. It’s likely that you won’t be able to make customizations to your car and you will have to stick to a mileage limit, which is the case for leases on brand new cars, too.

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New car lease vs. used car lease

If you’re opting for a used car lease versus a new car lease, it’s a given that you’re driving home a vehicle without the new car scent. You’re also choosing a car that isn’t the most recent model with all the bells and whistles with technology and features. Just make sure you’re happy with the used car you’re leasing and it has the features you want in a car for the next few years.

The main difference between leasing a new and used car is in the monthly payments. Because used cars are worth a fraction of the price of new cars, you won’t have to pay as much when you opt for something that already has a few thousand miles on it.

Here’s an example to see the differences in cost between leasing a new versus used car:

Cost of leasing a new car

For example, let’s say you’re ready to lease a brand-new $32,000 car. Over the course of a four-year lease, it can depreciate in value by about 48%, leaving you leasing a car worth only $16,640. Your monthly lease payment will be based on the amount your car will depreciate in value — $15,360 — as well as any leasing fees. This would leave you with a monthly payment of around $320.

Cost of leasing a used car

Looking at the same car after those four years of depreciation, you’ll start by leasing a car worth $16,640. Using that same four-year lease term, your car could further depreciate in value by another 50%, giving the car a residual value of $8,320. In this case, a $8,320 depreciation would give you a much lower lease payment of around $173 a month — around half the cost of leasing a brand-new model.

Where can I find a used car lease?

Used car leases aren’t the easiest to find, but there are a few good places to begin your search:

• Manufacturers. Some car manufacturers — especially luxury automakers — offer used car leases through their CPO program. If you have a specific car in mind, check with the manufacturer first to see what kind of deal you can get.
• Dealerships. Although it’s still somewhat uncommon, dealerships are beginning to offer leases on used cars. Reach out to a few in your area to see if any offer this option.
• Lease swaps. Some online companies have started offering people the ability to swap leases. Basically, you take over someone else’s lease — including the payments and maintenance. This is ideal if you’re looking for a shorter lease term or want to avoid the large down payment required by some contracts.

What are the benefits of leasing a used car?

From lower monthly repayments to more competitive insurance rates, there are a few perks that come with leasing a used car:

• Pay less overall. Monthly payments tend to be lower, and you don’t risk losing as much with a used car if the market shifts and car values plummet.
• Easy to upgrade. When you lease, you won’t have to go through the hassle of selling a used car. Instead, you’ll have already agreed upon a set buyback price, making it that much easier to switch to something new when your lease is up.
• Competitive insurance rates. Insurance premiums tend to be lower for used cars simply because the overall value is lower. This means not only are you paying less overall, but you also won’t have to budget as much for insurance.
• Luxury cars at a more affordable price. Although it may not have the most up-to-date technology, leasing a used car gives you the opportunity to get behind the wheel of an Audi or Lexus without having to pay the hefty price tag — and depreciation — that comes with new luxury vehicles.

Finder survey: What do Canadians of different ages think are the main benefits of car leasing?

What are the disadvantages of leasing a used car?

Just because used car leases are generally less expensive doesn’t mean they’re the right choice for everyone. Consider these potential drawbacks before making a decision:

• May lack a warranty. Unless you opt for a CPO car or you choose a manufacturer that covers used cars under its initial warranty, you’ll have to pay for an extended warranty on your lease.
• Responsible for maintenance. Not all leasing companies cover maintenance costs, which means you could be responsible for oil changes, tire rotations and other expenses to keep your car running smoothly.
• Less selection. Because used car leases aren’t common — although that is changing with lease swaps — you’ll likely find that you have much less selection than you would if you opted for a traditional new car lease. Your search may be narrowed down to the dealerships that offer used car leases and their inventory.
• Could be previously damaged. If the car you choose to lease was damaged by its original owner, it can impact the aesthetics of your ride. While most reputable leasing companies should have fixed any major mechanical issues, you should still check the vehicle history report before signing a contract.
• No equity. Whether you’re leasing a brand new car or a used one, you won’t own the car at the end of your years of monthly payments. You may have the option to buy the car at the end of the term. If this is something you may want, make sure you speak to your dealer at the start of your contraction to understand what this may look like at the end of your term.
• You’re on the hook for wear and tear penalties. When you lease a car, new or used, you have to keep the car in a good condition upon return and stick to a mileage limit. This means you’re responsible for any excessive wear and tear, which could crop up when you’re leasing a used vehicle.

Bottom line

Used car leases often come with lower monthly payments and more competitive insurance rates — making them ideal for drivers on a budget. But they aren’t as common as new car leases, meaning you’ll have fewer vehicles to choose from.

Before you commit, learn more about the difference between leasing and buying a car or compare your car loan options to see if you can afford to finance your own ride.

Frequently asked questions

• How do I know if I can afford a specific lease?

  Just like when you buy a car, you’ll want to calculate your monthly lease payment based on the APR and terms of the contract. The exact amount you can afford will depend entirely on your personal financial situation.

• Would I be better off just buying a used car?

  It depends on your needs. Any type of lease allows you to switch vehicles frequently without the hassle of selling the car yourself. On the other hand, even buying a used car can be considered an investment and is typically more cost effective than leasing in the long run.

• Is a used car lease similar to a car subscription service?

  Yes and no. You won’t own the car if you lease or use a subscription service, but a lease is still a long-term contract. With a car subscription service, you may be able to change cars within a few days’ notice, giving you more flexibility. But you won’t be able to negotiate down the price and may face more restrictions than with a lease.

• Can I lease a used car with bad credit?

  Yes, you should be able to. Keep in mind that lenders and dealerships often offer financing options for people with less-than-perfect credit or no credit history at all. These bad credit auto loans come with higher interest rates to offset the risk lenders are taking. You’ll need to find a lender that offers bad credit auto loans and used car leases.

• What is the difference between leasing a car and financing a car?

  The key difference between leasing a car and financing a car is ownership. When you are leasing a car, you’re essentially renting it. Your monthly payments cover the cost of renting the vehicle for a set period of time, usually about three to five years. When you finance your vehicle, you’re making payments to pay down your debts until you own the car outright.