It’s no secret that cars are expensive, especially when purchased new. That’s why some drivers prefer to lease vehicles, which essentially allows them to try out a car for a specific period and return it later on. However, since newly leased vehicles are pricey, you might be wondering whether you can lease a used car. Let’s find out here.
Can You Lease A Used Car?
Yes, you can lease a used car in Canada, but you need to know where to look. Although leasing new cars is a more common practice in Canada, especially at dealerships, there are some places where you can lease a used car.
Typically, these used cars are less than 5 years old and have low enough mileage and wear n’ tear that they can still qualify for leasing. So, if you happen to find one that’s in decent condition, leasing a used car over a new one can save you hundreds, maybe even thousands of dollars.
How Do You Lease A Used Car?
While the vehicle itself will technically be second-hand, the leasing process for a used car is similar to that of a used car. In other words, to qualify for a lease plan, you must:
- Go through a financial verification process and undergo a credit check. To receive the best interest rates and terms, you’ll normally need a high income and a good-to-excellent credit score of around 660 to 900.
- Decide whether to return the car when your lease ends or enter a lease-to-own agreement. To return the car, you’ll have to keep it in good condition and stay within a certain mileage. Alternatively, you can pay its residual value and buy it.
- Understand that the car’s sales value will be broken down into two parts; the leased portion and the residual (estimated) value by the lease’s maturity date. Basically, your payments have to cover the car’s depreciation over your term.
Can You Lease A Used Car For A Short Term?
It depends where you look but yes, there are places in Canada that will allow you to lease a used car for 1 year or even 3 to 6 months. Just remember that shorter terms can lead to higher monthly payments and interest rates than longer ones. Nonetheless, leasing a used car for a short term can definitely be cheaper than renting or buying one.
What’s The Cost Of Leasing A Used Car?
There are a lot of pros and cons to leasing a car in Canada. One of the pros is the cost. As mentioned, the cost of leasing a used car can depend on several factors, including your creditworthiness and how much it will depreciate in value by your term’s maturity date. For example, let’s say you’re leasing a used car worth $15,000 over a 2-year term:
- During those 2 years (24 months), the car is estimated to lose 25% of its value
- This means a $3,750 depreciation, leaving the car with $11,250 in residual value
- $3,750 ÷ 24 = $156.25
- To cover that depreciation, your payments would be at least $156.25 a month
Of course, your payments could end up being higher if you apply with bad credit, a low income, or other issues that cause the lease provider to question your creditworthiness. However, they’ll probably still be lower than those of newer, higher-priced cars.
Where Can You Lease A Used Car?
Remember, used car leases are more rare than new ones. Don’t worry, because with enough research, you might be able to lease a used car through the following sources:
Dealerships
Although they’re less common, some auto dealers offer leasing plans on slightly used vehicles. Check out a few different ones in your region to see what deals you can get and don’t be discouraged if you can’t find many, since there are other sources below.
Manufacturers
Some auto manufacturers offer programs that allow clients to lease certified pre-owned (CPO) vehicles. This is particularly common with luxury car companies, so if that’s more your style, try shopping around before you try the next option.
Lease Swaps
Some online dealerships and companies will allow you to take over another customer’s lease, including any monthly payments and maintenance. Lease takeovers can be a great option if you prefer a shorter term or want to avoid the down payment that some lease plans require.
Step On How To Lease A Used Car In Canada
Once you find a provider, leasing a used car is relatively easy. That said, there are a few things you’ll need to do to qualify for that lease, so make sure to follow these steps:
Step 1. Do Your Research
Start by contacting a few dealerships and manufacturers in your area to see what kinds of vehicles are available for lease. You can also go online to check out their inventories and decide what type of car suits you.
If you’re looking for a shorter term or don’t mind a lease takeover, you can check out websites like Kijiji. Many private owners advertise lease transfers for their cars there. When researching, don’t just consider the sales price. Think about future costs and your own budget too.
Step 2. Shop Around & Compare Prices
If you find a used car you can lease from a dealership or manufacturer, be sure to ask for a quote. A quote can help you determine what your payments will be and whether you’ll need to provide a down payment.
Be sure to also inquire about the term and mileage limit. This should give you a better idea of how much you’ll pay for a lease.
Step 3. Choose A Lease
Don’t forget to consider every factor of your potential lease, including the interest rate, down payment options, and bonuses (cashback, etc.) you can obtain. Since not all dealerships and manufacturers offer leases on used cars, it shouldn’t take too much longer to complete your search by this point.
Step 4. Sign The Lease
Once you find a suitable provider and leasing plan, look over the lease-end terms and conditions to be sure everything is legitimate. Keep in mind that you probably won’t be able to modify the car or go over your mileage limit without penalty. If you’re happy, just sign the agreement and take the keys.
Benefits Of Leasing A Used Car
Leasing a used car can have some notable advantages, including but not limited to:
- Lower Payments – Used cars often have lower resale values, so your monthly payments are likely to be smaller than with a new car lease or financing plan. Plus, the car won’t depreciate as much if market values drop during your lease.
- Lower Insurance Rates – Lower resale values can also lead to lower insurance premiums. This is another great way to save money when leasing a used car. You can haggle for competitive rates by shopping around with different insurers.
- Easy To Upgrade – Since you’re basically renting the used car, you won’t have to worry about selling it later on. Leasing means you pay a monthly payment for a set term, after which you can either buy the car or lease a new one. So you’ll have a far easier time upgrading to a newer car when your lease is up.
- Luxury Cars – Although they may not be the latest models, many lease providers offer great deals on used high-end cars. This way, you’ll get to drive a luxury car without paying for the high sales price and rapid depreciation of a newer model.
Risks Of Leasing A Used Car
Unfortunately, leasing a used car could come with certain downsides too, such as:
- No Equity – Leasing a car means you aren’t buying it, so you won’t build equity. While a lease-to-own deal may be on the table. Remember to discuss the terms and conditions with your provider beforehand to make sure it’s truly right for you.
- May Not Have A Warranty – If you don’t lease a CPO or choose a manufacturer that covers its used cars under their original factory warranties. You might have to buy an extended warranty or face the potential consequences of zero protection.
- Early Termination Fees – If you aren’t happy with your term or you can’t afford your payments. You may need to pay a penalty to end your lease ahead of time. Even if you are able to afford it, you can’t pay a lease off early like a car loan.
- Wear And Tear Penalties – Whether you lease a new or used car, you must stay within your agreement to avoid further penalties. So, if you don’t return the car in reasonable condition or you go over your mileage limit, you’ll have to pay for it.
- Less Availability – Since used car leases are less common than new ones, your vehicle and monthly payment options could be far more limited. You may have to do a lot of research to find a dealer or manufacturer that offers appealing plans.
Need A More Affordable Way To Lease A Car?
If you’re looking to lease a car at a cheap rate, consider leasing a used car. It can be a good option and much cheaper than leasing or buying a new car. Just make sure to do your research and find a dealership or manufacturer that offers reliable, cost-effective vehicles and plans that suit your monthly budget.
