Used Car Leasing vs. Financing: What Is More Beneficial?

Underwater Rocks of Used Car Leasing

Used car leasing seems very beneficial: used vehicles depreciate more slowly, and the monthly payment will be much lower. But is it the best option, and are there any shortcomings?

Car Leasing: How It Works?

Initially, leasing began to develop in the United States in rail transport. The father of American leasing is Henry Schoenfeld, who, back in 1952, organized the company for one specific transaction. He became the organizer of the famous American leasing company United States Leasing Corp, convinced that this type of financial service is fraught with many undiscovered opportunities. At the same time, the leasing business related to vehicles began to develop. In the 1930s, Henry Ford started to effectively use an analog of this type of rental to expand the sales opportunities for his cars. Thus, leasing quickly became one of the main types of business in the US. The rapid development of new leasing companies, and the modification of the terms of leasing agreements, determined the development of these financial services. Today, every second American has leasing obligations.

In fact, with leasing, you do not own a car. You take it from the dealer, use it and pay the difference in the cost of the car now and after three years. You can choose to lease for a different number of months, but 36 months is the standard term. At the end of the lease, there are usually three options:

• return the car and take a new one;
• return the car and take nothing;
• buy the car.

The option to buy a car remains valid throughout the entire contract term, taking into account already paid monthly payments. But buying a car makes sense if you liked this particular car so much that you don’t want to leave it, or you significantly exceeded the mileage limit.

Can I Get a Used Car on Lease?

Yes, you can, although it is a less common option. As a rule, these are certified pre-owned used cars available for lease from authorized dealerships. So the oldest used car for lease will be less than four years old and will have not more than 48,000 miles on the odometer. Another option is leasing services, where you can take over a lease from another customer who wants to transfer it.

What Factors Affect the Amount of Payment?

This is an obvious question that is difficult to get an objective answer to. There are several factors, and their presence or absence affects the final cost of a car in different ways:

• The final car cost – the amount for which you buy it;
• Recommended price from the automaker (MSRP);
• Discount that the dealer can offer;
• Various, sometimes changing every month, discount programs from the manufacturer;
• Car dealerships commission from services and the residual value of the car.

Also, these factors are superimposed by the leasing conversion factor: there are 7-9 conversion gradations, depending on the particular bank providing the service. And this coefficient directly depends on the buyer’s credit rating, earned based on age, credit history, and the number of lines of credit. All these factors affect the final cost of leasing for each particular buyer.

What Are The Downsides of Leasing a Car?

The main downside of used car leasing is that you don’t own the vehicle at the end of the lease. If you decide to buy your next car, you won’t have trade-in and all the benefits it brings . People who use leasing over many years may pay more than they would if they had initially financed or bought the car.

Mileage limit

All brands have it. Usually three levels: 10,000/12,000/15,000 miles per year. The higher the limit, the higher the monthly payment. If at the end of the lease the mileage is exceeded, you will have to pay for it The prices for penalty miles are different – it depends on the brand and the cost of the model. For big cities like Indianapolis, 45,000 miles for three years is nothing, especially if you are planning to travel.

Payment for Termination of Leasing

This is a one-time payment at the end of the contract. Not all brands have it. It also can be canceled if a person immediately takes the next car and draws up a new lease agreement. Everything is done to ensure that people constantly use leasing.

Is It Better to Lease or Finance a Used Car?

Used car leasing can be attractive if you are looking for a small monthly payment and are ready to change your vehicle every three years. But buying means that your car is your property, and, in the long run, this is usually the best option. Despite the payment being slightly more, you invest in your own vehicle.

But to be more confident in your decision, address the Indy Auto Man financial department, and our qualified consultants will help you find the most beneficial financing option. Or try our convenient car loan calculator right now and find out what you can expect from used car financing.