How Much Does It Cost to Lease a Used Car?

How Much Does It Cost to Lease a Used Car?

Leasing a used car can be an appealing option, especially for those who enjoy driving a newer vehicle every few years. In recent times, leasing has gained popularity, with around 18% of new cars being leased in the third quarter of 2022. While it may seem cost-effective due to its lower monthly payments, there are additional expenses to consider.

The average monthly payment for a leased car was approximately $540 during the second quarter of 2022. However, this isn't the only cost associated with leasing. Typically, you might need to make a down payment upfront, and there could be acquisition fees as well. It's crucial to read the lease agreement carefully, as it outlines the lease's duration, monthly payments, annual mileage limits, and other terms. When the lease term ends, you have the option to either purchase the vehicle or return it.

Returning the car at the end of the lease might incur additional charges if the vehicle doesn't meet the expected condition. These costs are for any damage or wear beyond normal wear and tear. Leasing can be advantageous for those who prefer driving the latest models without worrying about extensive maintenance.

Since leased cars are generally new, they typically don't require expensive repairs, often only necessitating routine maintenance. Additionally, monthly lease payments tend to be lower than loan payments for the same vehicle, making it an attractive option for budget-conscious drivers.

Overall, while leasing a used car can provide access to newer vehicles and lower monthly payments, it's essential to consider the associated costs, including down payments, fees, and potential end-of-lease charges, to make an informed decision.

What Expenses Should You Anticipate When Leasing a Vehicle?

Leasing a vehicle is an appealing option for many, as it often translates to lower monthly payments and the opportunity to drive a newer car. However, it's crucial to anticipate several expenses when considering a lease. While the average monthly payment for a leased car was around $540 in the second quarter of 2022, it's not the only cost involved.

Typically, leases require an initial down payment and may include acquisition fees upfront. The lease agreement defines the lease duration, monthly payments, annual mileage restrictions, and other terms. When the lease concludes, you can choose between purchasing the vehicle or returning it.

If you decide to return the car, you could face additional costs if it exhibits damage or wear beyond normal wear and tear, emphasizing the importance of understanding all associated expenses before leasing a vehicle.

Monthly Installments

The monthly installments are the regular payments you make during the lease period. These payments cover the cost of using the car and are determined based on the car's initial value and the expected depreciation over the lease term.

Making a larger down payment or trading in a vehicle can help lower your monthly installments. Typically, the first monthly payment is due on the day you sign the lease agreement, and this payment is in addition to the initial down payment. It's essential to budget for these monthly payments when leasing a vehicle.

Additional Mileage Costs

Additional mileage costs can be a significant expense when leasing a vehicle. Lease agreements typically come with an annual mileage limit, such as 12,000 to 15,000 miles per year. If you exceed this limit and return the vehicle at the end of the lease with additional miles, you'll be subject to extra mileage charges. The cost of these charges can vary, ranging from 10 to 25 cents per mile, depending on the type of car you've leased.

For instance, if your lease had a 12,000-mile annual limit over a three-year term, and you return the car with 4,000 miles over the limit, at a rate of 20 cents per mile, you would need to pay $800 in extra mileage charges. It's crucial to monitor your mileage and consider your driving habits when leasing to avoid these additional costs.

Surplus Wear-and-Tear Expenses

Excess wear-and-tear expenses can add to your overall leasing costs. While some wear and tear is normal during your lease term, returning the car with excessive damage can lead to additional fees. Such damages could include dents, scratches, upholstery stains, worn-out tires, cracked glass, or failing to follow the vehicle's maintenance schedule.

The specific fees you might incur can vary depending on your state of residence, with some states allowing dealers to charge the full cost of repairs and others imposing legal limits on these charges. To avoid these additional costs, it's important to take good care of the leased vehicle during the term of your lease agreement.

Initial Payment

When leasing a car, dealerships may request a down payment, also referred to as a capitalized cost reduction. The required down payment can differ based on various factors, including your location, the dealership's policies, the value of the vehicle you're leasing, and any ongoing promotions.

Down payments can vary widely, from zero dollars to several thousand dollars, depending on these factors and your specific lease agreement. It's important to understand the down payment requirements and any available promotions before signing a lease contract.

Financial Factor

The money factor, which is like the interest rate for your lease, is expressed as a decimal and is influenced by your credit score. Typically, a higher credit score results in a lower money factor. To understand the equivalent interest rate, you can multiply the money factor by 2,400. For instance, if the money factor is 0.0015, you would calculate an interest rate of 3.6% by multiplying it by 2,400. Knowing your money factor and its relation to your credit score can help you make more informed decisions when leasing a car.

Is Leasing a Car a Good Option?

Leasing a car has its pros and cons to consider. On the positive side, leasing allows you to drive a new car with lower monthly payments, often including maintenance coverage, and you won't have to deal with the long-term commitment of ownership. However, there are downsides, including mileage restrictions, additional charges for exceeding those limits, and the fact that you won't own the car at the end of the lease.

This means you'll need to lease or buy another car when the lease term ends, which can become a continuous expense. Weighing these factors and your personal preferences is crucial when deciding whether leasing is the right choice for you.