Have you been tempted by a used car lease deal lately? Going secondhand certainly sounds like a good idea to tackle the cost of living.
New car depreciation levels can be eye-watering, especially for more expensive motors. It therefore makes sense to let someone else take the initial depreciation hit, and cut the amount you spend on monthly payments. However, as we’ll see, it’s not quite that simple.
Used car leasing was once very niche. But since the global pandemic and subsequent global chip shortage, new cars have been in short supply.
Leasing companies have cottoned on to this and have started offering ex-lease cars on used car leasing schemes.
The main benefit is that these cars are in stock and ready to go. They’re typically only a few years old, and will usually have a 90-day guarantee as well.
How does used car leasing work?
Used car leasing (which is also called Personal Contract Hire or PCH) works broadly in the same way as new car leasing. Drivers pay an initial payment (which they don’t get back), then continue to cough up their fixed monthly instalments. Once they’re all paid, drivers hand the car back.
To stress, when companies refer to used, or second-hand leasing, they’re not referring to old bangers. It varies from company to company, but generally you’ll struggle to find a car more than three or four years old on a used car leasing deal.
Used car lease deals can include pre-reg cars (cars registered by a dealership in order to make sales targets, but aren’t actually sold to a customer) and ex-demonstrators too.
What about used car leasing and warranties?
If you’re leasing a nearly-new used car, you’ll benefit from the remainder of the manufacturer’s new car warranty. If you’re looking at an older car, you may not benefit from a warranty – this is something worth bearing in mind.
Used car lease deals do generally include a full mechanical inspection though, so you have the reassurance you’re not leasing a car with any major issues. As mentioned above, many companies also offer their own guarantee, typically around 90 days.
As is often the case with new cars, used car leasing deals generally have a no-quibble return period, usually of a week or two. This gives you the opportunity to fully check over the car and send it back if you’re not happy.
‘We handpick only the very best used cars from our fleet,’ says used car leasing experts ZenAuto. ‘With all our cars put through a 128-point AA inspection, you can have peace of mind that you’re getting a quality car.’
Used car leasing – is it any cheaper than regular leasing?
Thanks to new car depreciation, monthly payments tend to be less on a used car than with a new one. But they don’t necessarily offer the greatest value.
Going used in the typical example below works out cheaper over the course of the agreement, mainly thanks to an £87 a month saving on the monthly cost. However, this is a four-year-old car, that no longer has any manufacturer’s warranty. And you still have to fork out a similarly lumpy up-front sum.
Nearly-new used cars with warranty remaining tend to have a similar monthly payment to new cars, but a slightly cheaper initial payment.
These are typical examples: they can vary a lot, depending on what deals can be found at any one time.
Typical four-year old Fiat 500 48-month lease deal
Monthly cost: £184 (47 payments, incl. VAT)
Initial payment: £1,659 (plus £39.99 processing fee)
Mileage allowance: no mileage limit
Total cost: (excluding excess mileage charges and any end of contract charges): £10,096
Typical new Fiat 500 48-month lease deal
Monthly cost: £271 (47 payments, incl. VAT)
Initial payment: £1,750 (plus £99 processing fee)
Mileage allowance: 5,000 miles per year
Total cost: (excluding excess mileage charges and any end of contract charges): £14,487
Used car leasing deals are few and far between
The sheer lack of used car leasing deals can be explained by the huge constraints on leasing businesses offering used cars. For example, the business needs to find a steady stream of used cars in good shape, a problem not found when leasing new cars. They all individually have to be checked, and then advertised with bespoke pictures. There is a lot more work involved.
Generally, high-end cars are the best value to lease because of depreciation. But even with leasing, high value cars are for the few, not the many.
Used car leasing with no deposit
Technically, when you lease a car, you pay an initial payment, not a deposit. This technicality is important because unlike with a deposit, you don’t get an initial payment back.
Used car leasing with no initial payment is a real niche-busting exercise. Not many companies offer this service, but there are a few out there. Generally, these work out as more expensive than regular used car leasing services.
This is because an initial rental helps reduce the cost of your monthly payments. The more money you put upfront, the less you pay each month.
Paying an initial rental also makes you more likely to be accepted if you have bad credit too. This is because the finance company essentially lends you less money, so you’re less of a risk.
Used car leasing pros
Typically a bit cheaper than new car leasing
Can be easier to get if you have a bad credit rating
Usually cars are in stock and ready to go
Used car leasing cons
Rarely better value than new car leasing
Fewer cars on offer
Cars are more worn
Used car PCH or PCP – which is better value?
PCP (Personal Contract Purchase) deals are far more common on used cars. This finance agreement allows customers to spread the cost of a car across a deposit, a series of fixed monthly payments, and an optional (balloon) payment.
Typically, deals last between two and four years. The main difference between PCH and PCP is that with a PCP deal you’re building equity in a car, and have the option of buying it outright. Whereas leasing works just like a form of long-term rental.
As we’ve discussed, second-hand leasing deals aren’t as good value as brand new car deals, and it’s the same with used car finance PCP agreements. Used car PCP deals are typically subject to very high APR rates that cause the monthly costs to soar.
What to do then? To really work out whether a used PCH or a used PCP deal is best, you’ll have to get like-for-like quotes and figure out the total amount. Make sure quotes have the same deposit/initial payment, annual mileage limits, and contract length.
