If you like the idea of leasing a new car instead of buying one, you might find that leasing a used car is something that could be right for you. CBS This Morning Money Editors Ken and Daria Dolan explore used car leasing and how it may or may not be the best thing for your pocketbook.
Leasing a used car is not yet a very popular consumer option. At least not yet. But leasing a new car wasn't popular until the early 1990s, and it now it accounts for a third of the market for new cars.
Why would anyone want to lease a used car? Is there an advantage?
Over the past few years automakers have flooded the market with short-term 2- and 3-year leases, which are now ending. As people turn in these cars, the used car market is getting flooded.
Drivers of leased vehicles tend to be more mileage conscious. And, they tend to take better care of their vehicles since they know they will be accountable for any damage when they return it.
So, if you are interested in a used car, you have a better chance of getting one in good condition than you might have had years ago.
How much money can I save by leasing a used car instead of a new car?
Prices on used cars vary. But for a look at approximate numbers, here is a comparison of prices on new and 2-year-old vehicles on three popular models.
Mercedes C 230 Sedan
If you are determined to drive a luxury vehicle but can't afford a new one, leasing a used one is a terrific option.
- A new Mercedes C 230 Sedan will cost you $38,700.
- Monthly payments for a new leased vehicle would be $595.
- Monthly payments for a two-year-old vehicle would be approximately $399.
Ford Explorer 4wd XLT.
- A new Ford Explorer 4wd XLT will cost you $30,685.
- Monthly payments for a new leased vehicle would be $499.
- Approximate monthly payments for a two-year-old vehicle would be $304.00
Toyota Camry LE 4-cylinder
- A new Toyota Camry LE 4-cylinder will cost you $21,638.
- Monthly payments for a new leased vehicle would be $323.
- Monthly payments for a two-year-old vehicle would be $230.
So, on the Mercedes or the Ford Explorer, you could save about $200 a month, but with the Camry you save only about $100. Isn't it worth it to just spend the extra cash and get the new car?
If you can afford the new car, it's always the better alternative. However, if you can't afford the extra $100 a month, the used car is the next best thing.
Because it's a used car, you need to pay attention to a few things in particular before you sign the dotted line. Things to watch out for:
- As with all used cars, you need to really determine the condition of the car. Look for a car that is manufacturer-certified. These vehicles must pass a special inspection. Usually, car makers wil add an extra year to the warranty, which covers the engine and transmission.
- Don't look at vehicles more than three years old. A two-year-old car is best since it will usually still have one year of the original warranty.
- Do your own background check on the car. You can do this by finding the vehicle identification number, or VIN, which can usually be found on a plate inside the windshield.
With the vehicle identification number in hand, go to Carfax on the Web at www.carfax.com. Or, phone 888-422-7329.
For a $12.50 fee on the Web ($20 by phone), Carfax can give you the car's mileage from any previous sale, which can help you determine whether the odometer has been tampered with. It also can tell you if the car has ever been declared a total loss by an insurance company. (A good body shop can cover up some pretty bad accidents.)
So far, what kind of consumer has been leasing used cars?
According to CNW Marketing Research studies, affluent women represent the largest number of high end used car leases. A woman is more likely to lease a 2-year-old Mercedes than a man with a similar income, who is more likely to lease a new Mercedes.
Why isn't this more common? Is there a downside to leasing a used car?
Most Americans are not even aware they can lease a used car. Manufacturers would rather sell a new car, so "pre-owned" vehicles aren't receiving the same level of financial support by way of advertising or promotion.
Also, the market has been flooded with low-priced, short term leases, often backed by big factory incentives. That means the payments between new and used are not necessarily huge.
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