Is is Worth Leasing an “Old” New Car?
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As we reach mid-June there are still more 2016 vehicles listed as new cars for sale than there are 2018 vehicles listed for sale. Overall, there are about 103,000 new 2016 vehicles listed for sale nationwide, which is about 4% of the total new car inventory currently listed for sale*.
All of these cars will eventually be sold, it’s just a matter of when and at what price. Lease Wizard doesn’t recommend for or against considering these vehicles for lease (or purchase) versus more conventional new cars – those with a 2017 or 2018 model year, but instead here are some things to consider that can help you make an informed choice:
- At some point in each year a manufacturer usually cuts off incentive support for these “old” new cars – the ones with a model year less than the current year. Usually that’s a few months into the year, so chances are that this point has already passed for most of these 100,000 new 2016 vehicles still looking for a buyer.
- In place of the regular incentive programs the dealer will likely have been provided a lump sum payment from the manufacturer, so at this point whether they move the car one day later or it sits for two or three more months, it comes down to basic retailing: what will the dealer do to move the merchandise quickly? The answer for you, the lessee/buyer, is that they are likely very willing to make a deal!
- Remember that the largest lessors of any single brand are usually the captive finance company (the finance company/bank affiliated with the manufacturer, i.e. Ford Motor Credit for the Ford Motor Company), and if the manufacturer isn’t incentivizing this sale any longer it may mean the money factor will also not be discounted to drive sales, and other lessors may also have a policy that the money factor on these older new vehicles are slightly higher than current model year new cars too. So don’t be surprised if the money factor is a little higher – make up for it by negotiating a low selling price that will reduce the net capitalized cost.
- When a 2016 vehicle leased for 2 or 3 years is up for return in 2019 or 2020, it will effectively be a 3 or 4 year old car – albeit one with lower than expected miles at that point. Thus, the residual value set by the lessor will reflect the lower value that accompanies an older car, potentially offset by the expected lower mileage. So you may want to consider 1 of 2 paths to get a great deal:
- If you do a two-year (24 month) lease there will likely be a 20,000 to 24,000 miles in the standard program. However, other similar 2016 vehicles being returned will have been on a three year lease and have 30,000-36,000 miles. See if you can get extra mileage allotted at no additional charge – a particularly great strategy if you drive closer to 15,000 miles annually and can get a two-year lease that is usually based on a 10,000 mile per year program.
- If the standard miles allotment is in line with your expected driving, then just make sure you negotiate a great deal on the selling price so that you’re not paying for depreciation that isn’t your problem – which is all the depreciation that occurred when the car sat on the dealer’s lot.
- In short, the key to getting a great lease deal on an older new car is to negotiate a really low selling price! It may be a good strategy to get the details on leasing a current model year vehicle of the same make and model so that you know exactly how much the money factor and residual value will change if you were to go with the 2016 model. Then make sure you negotiate a price that offsets the higher money factor and depreciation – plus more because you’re getting a car without the latest and greatest features.
Obviously, the other major consideration – but this goes along with any car you’re considering – is that the savings off MSRP or compared to another model is only worth it if the car has the features that are important to you. But if the 2016 car has everything you want and need, keep it in mind as a way to get a great deal.
Leasing an “old” new car can definitely be a money saving technique – again, only if the car is right and the deal is right. The new car off the dealer lot will have some advantages over a slightly used car, but if you’re considering leasing a prior-year new car, you should also look into lease assumption: which is assuming someone’s lease and taking over the payments until the scheduled end. If someone is trying to get out of their lease for a 2016 vehicle you would be getting a used car, but if that doesn’t bother you that may be a great deal too. We recommend you check out Lease Trader or Swapalease if this is of interest to you. Also, learn more about lease assumption at our Advanced Leasing Concepts page and our Used Car Leasing page.
*- Data from AutoTrader web search on nationwide new vehicle listings, June 13, 2017.
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