As Affordable Used Cars Get Older And Rarer, Leasing Makes More SenseNovember 22, 2018
A recent report by Edmunds focused on the state of the used car market in the third quarter of 2018. More than ten million used cars were sold during this period. The average used-vehicle transaction price hit $20,085, the highest level seen since 2005. This sounds good on the surface, but there are problems aplenty for those who need lower-priced used cars.
This report reveals that a significant part of the increase was due to lease returns. These are usually new vehicles that were leased for two to three years, returned to the dealer at the end of their lease terms. Most of these become Certified Pre-Owned (CPO) vehicles, which are thoroughly inspected, and then sold by dealers with additional warranty coverage. These CPOs are plentiful, but they are retailed at much higher prices than most other used cars, which are older, and are sold without a manufacturer’s warranty.
Finding Affordable Used Cars Is Not Easy
The picture is not so bright when it comes to used cars under $10,000, According to Edmunds, used vehicles in this category are becoming more and more scarce. Five years ago, under-$10,000 used cars made up 25 percent of the used market. Now it is down to only 16 percent.
Why the shortage? There are several factors involved. New car sales during the recession years were low, so there are fewer of them available to show up as used cars. Vehicles in general have higher overall quality, so they last longer, and their owners keep them longer. As a result, fewer are traded in on new cars. All of this can make finding one in decent condition, and without a huge amount of mileage on it, very difficult.
Buying Older Used Cars Can Get Very Expensive
As the transaction prices of new cars and CPOs continues to rise, this pushes up the prices of most less expensive used cars. Add to this the steadily increasing interest rates, and the fact that used-car interest rates are much higher than those for new cars, and you have more obstacles to affordability. Sure, you can push out the loan term to seven or eight years to get a decent monthly payment, but do you really want to be making payments on a ten-year old vehicle with minimal resale value, and without any warranty coverage? You can count on some expensive repairs when it reaches that advanced age, and it will all come out of your pocket!
Leasing A New Car Gives You A Low Payment Without The Risks
As the new-car market starts to slow down, you can bet that the manufacturers will do everything they can to keep new cars affordable. This includes subsidized lease deals. And for those on a very limited budget, leasing a new car can be a much better financial deal overall than buying an old used one. Here’s a quote from the Edmunds report:
“There are many instances in which a lease will be competitive with a payment for a used vehicle and occasionally even be cheaper.”
The many benefits of leasing go way beyond the low monthly payments:
- You are covered by the warranty for the entire term of the lease
- You can lease with little or no money down
- There is a plentiful supply of new cars with affordable leases
- You can drive a nicer vehicle
- You can have a vehicle with all the latest technology and safety features
- You have a much shorter term on your lease
- You can walk away at the end of the lease with no concerns about the vehicle’s value
- You can step right into another lease and do it all again
As you can see, leasing a new car provides you with a reliable, affordable vehicle that has full warranty coverage and all the latest safety and infotainment technology. As long as your credit rating is pretty good, you should be able to qualify for the lease deals you see on the manufacturers’ websites and in their advertising.
When it comes to leasing a new car vs. buying an old used car, it’s a no-brainer!