I don’t quite get the math on leasing used. The first three years of depreciation are the worst. Most of the lease cost is depreciation. Why then is the sweet spot at three and not 5 or 6 years? Wouldn’t car companies make a lot of money if they charged, say 70% of that of a new monthly payment from years 3-6,and knew residuals were not 40-50% that of msrp at 3 years but rather, say 80% of the value from years 3-6? IE, a lot less depreciation, therefore relatively less monthly lease cost?
I think it’s because almost no one wants to lease a used car past its warranty. Take a look at the “fair” app or whatever it’s called - they lease / rent used cars, and they’re asking MORE than for a new car for the ones I looked at…
Used cars usually don’t have incentives on them.
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New car leases are “cheap” because the manufacturers make them cheap by using below-market money factors and above-market residual values, and then throw in lease cash to sweeten the deal.
Manufacturers don’t do that on used cars because they have a factory making new cars and they need to move that metal. Moving used cars is someone else’s problem.
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Because new cars msrp are overpriced. So they tricked everyone into buying new car that and getting a big discount/incentives but in reality manuf inflate the msrp and test the market.
At the end of the day a $30k msrp car minus big incentives/discount will be worth $19-20k after 3 years and probably around $11k after 6 years. If you look at the delta it is going to be the same. So banks/finance will not give good apr, rv and support on a used car.
Some good points here regarding similar inquiry:
Simply because used car, especially luxury brand used car can’t hold their 80% from rears 3-6.
I remember I have do a small research to compare the price.
A 30k used car almost depreciation as fast as a 30K selling price new car.
And also you have more potential maintenance and repair cost. So, most of people don’t want to lease a used car.
The only thing I can think of is people may want lease a used sports car.
For example lease a 40K used F-type since you can’t found similar new sports car around 40K
I know someone will say it is Mustang and Camaro price range. But a lot of people won’t cross shop them with F-Type.
If you look at the delta it is going to be the same
Then the concept that most of the depreciation is in the first three years is wrong.
Well, yes and no.
Let’s start with simple numbers: $50k car, loses 10% when you drive off the lot, 15% of remaining value per year.
After year one, 45 * 0.85 = 38,250
After year two = 32512.5
After year three = 27635.63
After 3 years, left with roughly 55% RV, seems pretty normal. Yet, you’ve lost 45% of your total value. If we keep going with 15% per year, it takes another 10-11 years to lose another 45% and end up at 10% ($5K in value). So you can “use up” 45% of the value of the car in years 1-3, or 45% in years 4-14 (roughly).
Mind you, this is a very simplistic model, but I think it illustrates the point.
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Starting w 27635.63 at Year 0 of a 3 year lease, at 15% per year, you get 23,490.29, 19,966.74, and 16,971.73 by the end. Resid value then is 61.4% and the delta is −10,663.90. Compared to a delta of 45% of 50k, or 22.5k, payments at the same interest rate would be less than half.
Let’s say you lease a new 50k BMW at 10% off MSRP plus 3000 incentives, or 42k cap cost, that’s a delta of about $14,360, if resid is 55%.
A lease starting in years 4-6 of a 10k delta at the same interest rate would be about 75% of the payments in years 1-3. With no incentives up front. $500/mo for a new BMW is now $375 for a lease return. No free maintenance anymore and for BMW, no warranty. But some marques have longer warranties. The multiples might be the same as in above example, making a used lease at least somewhat attractive for a lesser then. As mentioned above though, it doesn’t help car companies move new cars, so unless there’s profit with the lease itself, why offer one…I think I see the rationale now.