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Leasing a Used Car in Canada

Leasing a Used Car in Canada

Leasing a vehicle has become an increasingly popular alternative to buying in recent years. With new car prices rising, people are looking for more affordable options like leasing pre-owned models. But can you actually lease a used car? In this comprehensive guide, we’ll cover everything you need to know about leasing used vehicles.


We’ll start with an overview of how leasing a pre-owned car works and the pros and cons to consider. Next, we’ll provide tips on finding the best used car lease deal along with information on getting approved for a used lease. We’ll also compare leasing versus buying used and outline the key factors to weigh. By the end, you’ll understand if leasing a used vehicle is the right choice for your situation.



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What is a Used Car Lease?

A used car lease works very similarly to leasing a new vehicle. Instead of buying a used car outright, you make lower monthly payments to essentially “rent” the car for a predetermined amount of time and mileage. With a used car lease, the leasing company still owns the vehicle.

The used cars available for lease are typically either:

 

 

You’ll agree to a lease term, usually 24-36 months for used cars, and be limited to a set number of miles per year, often 10,000-15,000. At lease end, you simply return the car unless you decide to buy it.

Monthly payments tend to be lower than new car leases, but you will still need to put down a deposit, first month’s payment, taxes/fees, and potentially a security deposit. The monthly payment is based on the vehicle’s depreciated value over the lease term.

 

Pros of Leasing a Used Car

There are several advantages to leasing a used vehicle instead of a new one. Here are some of the top benefits:

 

Lower Monthly Payments

One of the biggest pros of leasing used is that you’ll enjoy lower monthly payments compared to a new car lease. Since used cars have already depreciated significantly from their original MSRP, the monthly payment to lease one is much less.

For example, you may be able to lease a 3-year old used luxury sedan for 30-50% less per month than leasing the same model brand new. The savings can be substantial.

 

Don’t Have to Worry About Resale Value

With a used car lease, you aren’t responsible for the vehicle’s resale value at the end of the lease. This is the lease company’s concern, not yours. You simply return the car when the lease ends.

This means you don’t have to worry about mileage restrictions or wear and tear reducing the car’s value. As long as you stay within the lease terms, the residual value risk falls on the lessor.

 

Certified Pre-Owned Comes with Warranties

When you lease a certified pre-owned (CPO) used vehicle, it comes with extended warranty coverage to provide peace of mind. CPO cars undergo rigorous inspections and any issues discovered are repaired prior to sale.

The CPO warranty – typically 1 year/unlimited miles bumper-to-bumper and 7 years/100,000 miles powertrain – covers you from any expensive repairs during your lease.

 

Cons of Leasing Used Vehicles

While leasing a used vehicle can seem attractive, there are some drawbacks to consider before signing on the dotted line. Here are some of the main cons associated with leasing a pre-owned car:

 

Higher Money Factor Rates

One of the biggest downsides is that used cars almost always have higher money factor rates than new vehicles. The money factor is similar to an interest rate on a loan – it determines the financing charges you pay to lease the vehicle. New cars tend to have money factors around 0.001 or 0.002, but used car rates are typically 0.003 or higher.

 

Limited Options

Not all dealerships offer used car leasing. Most manufacturers only allow their certified pre-owned (CPO) vehicles to be leased, and even then, it’s up to each individual dealer if they participate in used leasing programs. This means you may have a hard time finding a used lease locally if few dealers in your area offer the option.

 

Extra Fees

Leasing a used vehicle often comes with extra fees that you wouldn’t pay on a new lease, the most common being a disposition fee. This can range from $300-$500 and is charged at the end of your lease when returning the car. There may also be an acquisition fee added at the beginning of your lease, which is essentially an upfront cost to process the used lease.

 

Tips for Finding the Best Used Car Lease

When looking to lease a used vehicle, you’ll want to make sure you find the best possible deal. Here are some tips to help you secure a great used car lease:

 

Stick to Certified Pre-Owned Vehicles

Certified pre-owned (CPO) vehicles are your best bet when leasing used. CPO cars have undergone extensive inspections and reconditioning. They also come with extended warranty coverage for added peace of mind. Leasing a CPO used car will generally provide the lowest money factor rates.

 

Consider Off-Lease if Comparable CPO Unavailable

If you can’t find a certified pre-owned model with the features you want, off-lease vehicles can also be leased. Off-lease used cars are typically 3 years old and were leased new. They must pass inspection before being sold. While money factor rates are higher than CPO, off-lease vehicles still offer savings over new.

 

Research Money Factor and Capitalized Cost

When comparing lease offers at different dealers, look at the money factor rate and capitalized cost. The money factor is similar to interest rate. Get quotes from multiple dealers and negotiate the lowest rate possible. Also compare capitalized cost – the price of the vehicle lease is based on. Push for the lowest capitalized cost to reduce your monthly payment.

 

Compare Multiple Dealers for Best Terms

Get lease quotes from as many dealers as possible when searching for a used car lease. Compare all the terms side-by-side – monthly payment, due at signing, lease length, mileage allowance. Look for the lease offer with the overall lowest cost and most favorable terms before signing anything.

 

How to Get Approved for a Used Car Lease

Getting approved for a used car lease will depend on a few key factors that most lenders look at when reviewing an application.

 

Credit Score

Your credit score is one of the most important criteria in determining if you’ll get approved for a used car lease. In general, you’ll need a credit score of at least 650-700 to qualify for a used car lease. The higher your score, the better lease terms and interest rate you can expect to receive.

Having an excellent credit score of 750 or above will give you the best chance at approval and make it easier to negotiate the lowest money factor rate possible.

 

Income Requirements

Lenders will also want to see that you have sufficient income to handle the monthly payments. Many used car lease providers require a minimum monthly gross income, often around $1,500-$2,000 per month.

Having a higher income and steady employment history will improve your chances of getting approved. Provide recent pay stubs and tax returns as proof of income on your application.

 

Down Payment

Putting some money down upfront can also help in getting approved for a used car lease, even with less than perfect credit. Most used car lease programs require a down payment, often between $1,000-$3,000 or more.

Having the ability to put 10-20% down shows the lender you can handle a financial commitment. A larger down payment also lowers the amount being financed, which makes approval more likely.

 

Should I Buy or Lease My Next Used Car?

When deciding whether to buy or lease a used vehicle, it’s important to consider your long-term ownership goals as well as calculate the total costs of each option.

Here are some key factors to weigh when choosing between buying and leasing used:

 

Ownership Goals

If you plan to keep the car for more than 3-4 years or put significant mileage on it annually, buying is likely the better option. You’ll build equity over time and won’t face mileage restrictions.

Leasing is better suited for those who want a new car every 2-3 years and drive fewer than 15,000 km per year. You can turn the car in at lease end rather than worry about selling it.

 

Total Costs

To determine the true cost, calculate the monthly payments, down payment, interest, fees, insurance, fuel costs, maintenance, and repairs for each option based on your driving needs.

Buying used often requires more money upfront but may cost less in the long run. Leasing has lower monthly payments but restrictions and fees add to the overall price over the lease term.

Crunch the numbers for both options before deciding. Buying can build equity while leasing allows more flexibility – weigh what matters most to your situation.

 

Key Takeaways

In summary, yes you can lease a used vehicle from most dealerships if it’s a certified pre-owned model. While not as common as new car leasing, used car leases are a viable option that provide the benefits of lower payments on nicer vehicles without having to worry about resale value.

The key things to keep in mind are that used car leases tend to have higher money factor rates, you may face more restrictions on brands/models, and there are often extra fees involved. However, you can get approved if you have a sufficient credit score and income. Taking the time to negotiate terms and shop multiple dealers can help find the best possible deal.

At the end of the day, leasing a high quality used vehicle provides an affordable way to drive a nicer car with lower monthly payments. While buying used may make more sense for some situations, the ability to lease pre-owned models gives consumers another great option to consider for their next car.

 

Frequently Asked Questions About Leasing Used Cars

Many people have questions when it comes to leasing a used vehicle. Here are answers to some of the most frequently asked questions:

 

Can I Negotiate the Price on a Used Car Lease?

Yes, you can negotiate the monthly payment, down payment, fees, and lease term just like with a new car lease. Do your research on pricing and go in prepared to get the best possible deal.

 

What is the Mileage Limit on Used Car Leases?

Used car leases typically have lower mileage limits than new leases, averaging 10,000-12,000 miles per year. This varies by lender and you may be able to pay more for extra mileage up front.

 

Can I Lease a Used Car from a Private Seller?

No, you can only lease a used car from a dealership, not a private party. The dealer handles all the lease paperwork and arrangements with the financing company.

 

Do Used Car Leases Come with Warranties?

Certified pre-owned (CPO) vehicles come with extended manufacturer warranties. Regular used cars do not have warranties unless you purchase an additional service contract.

 

Is Gap Insurance Required on Used Car Leases?

Gap insurance is highly recommended but not always required. It covers the difference between insurance payout and remaining lease balance if the car is totaled.

 

Can I Buy My Used Lease Car at Lease End?

Yes, most leases give you the option to purchase the car at lease end. The predetermined residual value becomes the effective sale price if you decide to buy it.

 

Final Thoughts

Leasing a used vehicle can be a smart financial move for certain drivers. While it may not be right for everyone, understanding the ins and outs of used car leasing puts you in a better position to determine if it could be beneficial in your situation.

To recap, the major pros of leasing used are lower payments, worry-free ownership, and driving a nicer vehicle for less. However, you’ll want to be aware of potential extra fees, limited options, and restrictions compared to new car leases. Focus your search on CPO vehicles and compare multiple dealers to find the best possible deal.

For those with good credit who don’t drive excess miles, leasing used offers an affordable way to get into a late-model car. Drivers wanting lower long-term costs or full ownership may still opt to purchase pre-owned. But leasing can make sense for many budgets and needs.

We hope this comprehensive guide gave you all the details to decide if leasing a used vehicle is right for you. Use the information to move forward confidently and find a great used car lease that fits your situation.

 

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Questions About Leasing a Used Car in Canada

Yes, you can lease a used car in Canada. However, used car leasing is less common than new car leasing. Typically, the only used vehicles available for lease from dealerships are certified pre-owned (CPO) cars that are less than 4 years old with low mileage. The benefit is you can often lease a CPO luxury vehicle for less than leasing new.

Pros:

– Lower monthly payments than new

– Get a nicer, more equipped vehicle for your budget

– Warranty coverage on most CPO vehicles

– Don’t have to worry about resale value

 

Cons:

– Limited selection and availability

– Mileage limits are typically lower

– Not building any equity in the vehicle

– Extra fees if you damage the vehicle



Yes, used car lease terms are often different than new car lease terms in Canada. Used car leases typically have shorter lease terms of 2-3 years instead of 3-4 years for new. The mileage limits are also usually lower for used leases, averaging around 12,000-20,000 kilometers per year instead of 20,000+ km/year for new. The leasing company sets different residual values and money factors for used vehicles as well.

  1. Decide on the make, model, year, mileage and trim level you want
  2. Check a dealership that offers CPO leasing for availability
  3. Apply for financing and negotiate the selling price
  4. Agree on lease terms like length, down payment and annual mileage
  5. Review and sign the used car lease agreement
  6. Inspect the CPO vehicle upon delivery
  7. Make your first monthly payment

Yes, leasing a used car in Canada often involves some extra fees on top of the monthly payment and down payment. You may encounter:

 

– Disposition fee when turning the vehicle in

– Wear-and-tear fees if the car has excessive damage

– Mileage overage fees if you exceed the mileage limit

– Purchase option fee if buying the car at lease-end

– Documentation/admin fees to process the lease

 

Always factor in these possible extra costs when calculating your total lease expenses.

Most leasing companies in Canada require a minimum credit score between 650-700 to lease a used car, however 720 or higher is ideal to get approved and get the best rates. Having an excellent credit score shows lenders you are a responsible borrower and will reliably make payments. A score below 600 will make it very difficult to qualify for a used car lease.

In most cases, yes – leasing a used car in Canada is cheaper per month than financing a used car purchase. With leasing you are only paying for the vehicle’s depreciation during the lease term, whereas financing a purchase means you pay for the full value of the vehicle plus interest charges over the loan period.

If you want lower monthly payments, a nicer car for your budget and don’t drive a lot of annual kilometres, leasing a used vehicle could be a good option. However buying a used car means no mileage limits, you can sell it whenever you want, and don’t pay disposition fees at the end. Weigh the pros and cons of each based on your budget, intended length of ownership and driving habits.

Wear and tear fees refer to charges assessed for any damage beyond normal use on a leased vehicle when returned at the end of the lease. Minor scratches, small dents under a certain size, stained upholstery etc could result in excess wear fees of a few hundred dollars. Major dents, cracked glass, missing parts etc can lead to much higher fees in the thousands.



– Stick to the agreed upon mileage limits

– Get any dents, scratches etc fixed before return

– Clean the interior thoroughly and remove any stains

– Make sure all parts, equipment and paperwork are present

– Return the car on time to the agreed upon location

– Take photos showing the car’s condition at return

If you decide to purchase your leased used car in Canada once the contract ends, you’ll likely face these purchase option costs:

 

– Purchase option fee ($300-$500)

– Applicable sales taxes

– Any mileage overage fees

– Documentation fee to transfer ownership

– Outstanding payments or early buyout fees

 

Always verify the total buyout price with the leasing company first before deciding to buy out the lease. The price is set in your contract but could change if you went over mileage limits.

The used car lease agreement you sign will stipulate rules regarding modifications. Most leasing companies do not allow any permanent alterations like tinted windows, different wheels, graphics packages etc. Temporary modifications like trailer hitches may be permitted but should be removed and the vehicle restored to original condition before lease turn in to avoid fees. Check with the lessor before making any changes.

Yes, most used car lease contracts in Canada allow you to terminate your lease early. However, you will face early termination fees equal to a few remaining monthly payments plus any applicable disposition fees. The leasing company may also charge you for repairs if the car’s value is less than the residual value in the contract due to excess mileage or wear at that point.

When reviewing a used car lease agreement in Canada, watch out for:

 

– Mileage limits and per km overage charges

– The residual value and money factor

– Wear and tear standards and fees

– GAP waiver and insurance requirements

– Early termination clause and fees

– Maintenance responsibilities and requirements

– All extra fees like doc fees and disposition fee

 

Scrutinize the fine print! Ask questions and clarify any unclear terms before signing your used vehicle lease contract.

With a used car lease, scheduled maintenance is typically your responsibility as the lessee per the terms in your contract. You must service the vehicle according to the automaker’s recommendations to preserve warranty coverage. Some leases require you use the dealership for service. Make sure to keep detailed records of maintenance completed in case of disputes at lease turn-in time when wear and tear is assessed.

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