Car Shopping: Lease Returns
October 30, 2008 by Miranda Marquit
Filed under Finance
A couple of days ago, I left a comment over at Bible Money Matters on a post about car shopping:
Our car is showing signs of sickness after seven years. We’re thinking we may need to get another one (we’ll buy it used, though — we like lease returns). But we’re crossing our fingers that it won’t come to that.
Sean at Financial Ramblings saw that and emailed me and asked for my thoughts on possible car shopping. I thought I’d write about lease returns, and why my husband and I prefer them.
Why I like lease returns
The first (and only, so far) car that my husband and I bought together was a lease return. It has worked out very well for us for seven years. Here’s why the next car we buy will be a lease return as well:
- A good chunk of the depreciation has already taken place. Most of you know the conventional wisdom about new car values. Once you drive them off the lot, they basically depreciate a couple thousand dollars (or more!). With a lease return, the new car depreciation has already taken place.
- You get a newer used car. When you buy lease returns, you generally get a used car that is no more than three years old (in our case, it was only a year old). Our car still had the warranty on it. Which came in handy 8 months later when something came up. In many cases, you can get a lease return that is still under warranty.
- Maintenance and miles. Most lease agreements require that drivers take the car in for regular maintenance, and that they limit their miles. This means that, on the whole, lease returns offer the chance to buy a car that has been reasonably well cared for and all of the maintenance is up to date.
Is now a good time to go car shopping?
Even though we don’t need another car, we’re wondering if maybe now may not be a good time to go. Car dealerships in our area are beginning to get desperate, and we could get a good deal. Plus, with yesterday’s Fed rate cut, financing continues to cost less. We’d have a sizable down payment, of course, but we’d still finance part of it.
What do you think? Do you like lease returns? Is now a good time to buy a car?
The only good time to buy a car is when you really need to buy one. Since you don’t need a car now, why would you be in a hurry to purchase a depreciating asset? This is the old “buy something because it is on sale” rationalization.”
You make an excellent point, Mr.! We probably won’t really take the plunge (we like the fact that we don’t owe anything on our present car) unless the one we have dies on us.
Thanks for sharing. DW bought a year-old lease return and got 181K miles. We might try again, although I’m wondering if depreciation is more gradual these days. It is not quite straight line, but it seems -more- straight line. Private party, you even have people trying to sell 1+ year old cars for more than the cost of a brand new car. Maybe they did not negotiate the price or the interest or something? All of this is making me question if there is a “sweet spot” for used cars. Shoot, you get out 3-5+ years and it feels like people are hoarding anything halfway reliable.
Used car veterans… is this market better or worse than usual?
I think it probably depends on the brand of car, as well as the fact that private party sellers sometimes get a little optimistic about the worth of the car.
I don’t know about a “sweet spot.” We try really hard not to have to buy anything to begin with…
I bought two new cars (slow learner), both were garbage and had several major mechanicals, then an Acura in good condition with 50k mile on it and another Acura that was a lease return. Both Acuras required only regular maintenance and a couple power window fixes (both under warranty).
If you want a feature that others don’t and may be seen as a liability in your area, that increases your negotiating power dramatically. Mine is a stick shift, which no one wants in traffic plagued Atlanta. I got a sweet deal on a two year old car. I’ve had it for three and love it! I will get 200k for sure, and hopefully 300k.
As for depreciation, the curve is steepest for poorly build cars (Chrysler, Ford, GM) and luxury cars. It is much more of a straight line for reliability champions (Toyota, Honda). A cheap co-worker gave up trying to buy a low mileage Corolla, as demand was high enough they kept their value.
Thanks for your insights, Trader Vic. I think that you are right on the money. And the stick shift is a good point. I love the manual transmission. Unfortunately, DH refuses to learn to drive one…