To unload some of those off-lease cars, automakers and leasing companies have come up with a brilliant idea:
“the used-car lease.” That’s right, they’re going to lease the same vehicle to someone else! After the first customer pays off 40-50% of the car, they turn around and lease it to customer #2 for 70-80% of original retail. Then he pays off another 50-60% and returns the car so they can sell it to someone else. Pretty good trick, isn’t it? And
gives dealers a chance to make enormous profits on extended waffanties, too!
In theory, used-car leasing should have an advantage over new-car leasing (or buying). Since lease payments are based (partly) on the price of a vehicle, the monthly payments should be lower on used cars because they cost less than new ones.
Turn to Table 1 (“Monthly Lease Payments”) in the Appendix, and notice the effect price has on the monthly payment. For example, a new car that sells for $25,000 would have a monthly lease payment of $472 (36 month term, residual of 50% and APR of 8%). If you leased the same car—at the same terms—when it was 3 years old and selling for $14,000 (allowing a $1,500 profit for the dealer), the lease payment would only be $264.
That being said, we must now face the real world of car sales and leasing. The best deals on new-car leases are those with huge manufacturer subsidies that lower the monthly payments, and you’ll probably never see one of those on a used car. In addition, there are three more things that can prevent those theoretical savings from being realized: the actual price of the car, the cost of maintenance and repairs, and the cost of an extended warranty to cover major expenses.
Tags: Technology