Leased Cars: Do Always New, Never Used

Pursuing leased cars may provide benefits in the short-term that prove to be disastrous in the long run. This is particularly true when looking at the difference between a lease for a new car versus that for a used, or pre-owned new car. The reasons for this difference can translate in a significant cost spread that you should make yourself aware of.

The rates charged on an annual basis, known as the annual percentage rate or APR, for a new car versus a used car is demonstrably different. A new car lease has the advantage of lower true interest costs for the lessee since the car will be returned at the end of the period with some residual value which can be marked up. This is not the case with a pre-owned used car because depreciation cost has significantly reduced the value of the vehicle.

It is easier to negotiate a new car lease with all of the "bells and whistles" necessary to consummate a good deal than it is on a pre-owned or used car. What is meant by bells and whistles is that the new car has never been driven and has little to no miles on it. This means that there is no wear and tear on the major components of the vehicle such as drive train, engine or exhaust to necessitate concern about the warranty. Knowing that a vehicle has many moving parts that are subject to replacement within a 2 to 3 year period because the nature of their usage dictates a harder look at a new lease over a used car lease.

A used car lease, by its very nature, cannot offer the same level of benefits as a new car lease, merely from the fact that the car has already been used. There is an automatic depreciation factor built into a car when it is first driven off the lot. The loss is written off or amortized over a period of years that recovers the cost, but in a lease, the recovery is more pronounced in a newer vehicle than a used one. This means that the finance company has to charge a higher rate of interest on a new car lease than a used car lease, in order to more quickly recover their losses associated with the lease.

These are some of the factors which must be considered prior to entering into a lease arrangement. In most every situation, a new car lease will be more favorable to you as the lessee than that of a used car lease for the same or comparable vehicle.