Used car leases are growing in popularity, primarily because it's possible to get excellent deals on almost-new vehicles, particularly luxury cars. Luxury cars maintain high-resale values, which makes them good lease candidates.

The logic of leasing used cars is this: Since leasing is based on paying for depreciation of a vehicle's value, then it should be less expensive to lease a car that has already seen its most rapid depreciation during its first year or two. Sometimes this logic is true; other times not. We'll explain.

Lease a used car - good deal or not?
Used car leases are inherently more difficult to evaluate than new car leases. It's harder to determine whether or not you're getting a good deal.

Used cars have more leasing variables to deal with, such as the initial value of the car, which is subject to market fluctuations, initial mileage, and overall vehicle condition. Where you live even has an effect on the value of used vehicles. None of these are factors in a new-car lease.

Lease-end residual values on used cars are much more difficult to predict since, unlike new cars, there's no factory-set list price upon which to base the residual percentage. Therefore, dollar values are used instead of percentage values.

Interest rates are generally higher for used-car leases than for new-car leases. This is the same for used-car loans.

Furthermore, you may not have the benefit of being fully covered by a manufacturer's new-car warranty, which means you may have to purchase an extended warranty if you want coverage.

This is not to say that you shouldn't consider leasing a used car; just that you need to be aware that there are things to consider that you wouldn't have to be concerned about with a new-car lease.

How to compare deals
One of the best ways to evaluate used-car leasing is to get dealer quotes on the specific year/make/model vehicle you are interested in, and compare these deals to a new-car lease deal for the same make/model vehicle. You might be surprised at the results.

Often, new-car manufacturers' incentives, rebates, and discounts will make a new car lease the better deal — but not always. So compare before you decide that a used car lease is a better deal. It might not be.

Pick the right vehicle to lease
As with new-car leasing, the best pre-owned vehicles to lease are those whose resale values depreciate the least.

A car that holds its resale value as a new car will also hold its value better as a used car. Many luxury cars fall into this category. These vehicles will always have lower lease payments than a similarly priced vehicle that loses value more rapidly.

Research your vehicle
Once you've decided on a particular used vehicle, do your homework to determine a fair price. Just like new-car leasing, getting the right price is key to a good deal.

We recommend that you use Edmunds and look for their True Market Value (TMV) price. Realize that if you're buying from a dealer who inspects and certifies his cars, you should expect to pay extra for this added protection, which is not reflected in Edmund's prices.

Find your vehicle
One of the easiest and fastest ways to find the used vehicle you want is to search online. UsedCars.com is one of the best sites. You simply enter your ZIP code and the kind of car you want and you instantly get back a detailed list of local cars with prices.

Another excellent source ofl used cars online is eBay Motors. The site has thousands of people selling used cars every day.

Verify your vehicle
Once you've located a particular vehicle that you like, you should check out its history and have it inspected. Because it's always possible, even if certified, that the vehicle has been in a major accident or has been salvaged, we recommend that you ALWAYS check the vehicle's title and ownership history with a service such as CARFAX Vehicle History Reports.

There's a small fee, but it's well worth it. Just be aware that some vehicles may not have complete histories in the CARFAX database.

Inspect your vehicle
If you acquire your car from an individual, or from a dealer who does not certify his cars, it is recommended that you have the car fully inspected by a qualified mechanic or inspection service. Have them look specifically for problems in areas that would cost you the most to repair later: engine, transmission, body, and frame. Also look for signs of accident or flood damage. Tires should match.

Having a full set of maintenance records is not necessary, but would be very nice. If buying from a dealer from whom the car was bought/leased new, ask him if he did the maintenance. If so, he can provide the records.

Make sure all standard equipment is included and working: spare tire, jack and wrench, lights, power windows/seats//door lock, radio/CD player, security system, and air conditioner.

Watch the mileage
The vehicle you lease should have no more than average mileage for the age of the car. A high-mileage car is unlikely to make a good lease deal. See the following table of recommended maximum mileages:

• 1 year old vehicle: 15,000 miles
• 2 year old vehicle: 30,000 miles
• 3 year old vehicle: 45,000 miles

Also look for signs of excessive use that may indicate that the odometer has been rolled back. Look for worn pedal pads, worn seat fabric, and engine dirt.

Get your lease financing
You have two alternatives to financing your lease:

• Use the the lease company that is used by the dealer from which you acquire the vehicle.
• Arrange your own lease financing. This way, you find the car you want at a dealer or from an individual, negotiate your best price, and get a check from your lease company, credit union, or bank.

Watch your lease length
When leasing used cars, use the following as a recommended guideline for the length (term) of your lease:

• 1 year old vehicle: 24, 36, 48, or 60 months
• 2 year old vehicle: 24, 36, or 48 months
• 3 year old vehicle: 24 or 36 months

Do not lease a vehicle that is more than three years old. By the time a lease ends for an older vehicle, most of the useable value of the vehicle will have been depleted, and the cost benefits of leasing disappear. Therefore, if you want a vehicle that is more than three years old, buy it, don't lease it.

Consider repair costs
Most used-car deals don't come with a warranty. In fact, most such deals are "as-is," meaning that should you have any problems after you've signed the deal, the seller is not responsible in any way.

The exception to this are "certified" used cars, for which the dealer provides an inspection and a limited warranty. Just be aware that these warranties typically cover only a portion of the possible problems you might encounter, and are good for a relatively short period of time.

If you're buying an almost-new vehicle, the manufacturer's warranty might still be in effect, but could expire before your lease ends. This means the cost any major repairs in the final months of the lease could land in your lap. In this case, consider buying an extended warranty to cover the end of your lease term.

Gap protection
Just as with a new-car lease, you need "gap" protection to cover the situation in which your leased car is stolen, destroyed, or totaled in an accident. Your insurance company will only pay what the car is worth, not what you still owe on the lease. The difference could be considerable, depending on how far along you are in the lease.

Don't enter into any lease, new or used, without gap coverage. Used-car leases frequently don't include automatic gap protection, as do most new-car leases. Therefore, you'll have to arrange it separately with the lease company or with your car insurance company. Be aware that some car insurance companies don't offer gap insurance.

Before you sign your contract
Used-car leases work exactly like new-car leases. Make sure you know how leasing works and how monthly payments are calculated. LeaseGuide.com provides a Leasing Guide and Lease Kit that you can use for this.

Take extra care in reading over your lease contract. Look for errors, extra charges, add-on fees, and blank spaces. Used-car leases don't have the same legal disclosure requirements as new-car leases. If you don't like what you see, don't sign. Once you've signed, there's no "grace" period in which you can back out of the deal, unless specifically provided by the dealer, in writing.

See this article for more on Used Car Leasing.

Another way to do it - take over car lease
An alternate way to lease a used car is to simply take over someone else's new-car lease before it expires.

People who need to get out of a lease can list their vehicles with companies such as Swapalease and LeaseTrader. These specialized companies match up lease "sellers" with lease "buyers."

Outstanding deals can usually be found on these companies' web sites because "sellers" are often desperate to exit their leases, typically due to financial difficulties or lifestyle changes.

Lease transfer (sometimes called lease swap or lease trade) companies make it easy to find the car that you want and they handle all the paperwork to have the lease transferred to you. This is a great way to drive an almost-new car, at a low monthly payment, especially if you only need a short-term lease.