How to Lease a Car

Leasing a car is like paying for the right to use it over a fixed period rather than buying it outright.

When you lease, you’re not covering the full price of the vehicle. Instead, your monthly payments usually include:

Depreciation – the drop in the car’s value during your lease term.
Finance charges – the cost of borrowing from the leasing company.
Taxes and fees – depending on what you choose to roll into your lease.

Unlike financing a car, leasing comes with specific rules:

Mileage limits – every lease sets an annual mileage cap, and extra miles come with added costs.
Wear and tear – you may be charged for damage outside of normal use.
Return process – when the lease ends, you’ll need to follow certain procedures and pay any applicable fees.

Is Leasing Right for You?

Leasing may be a great choice if you:

Want the latest tech and safety features.
Like driving a new car every few years.
Run a business and could benefit from tax advantages.

Advantages of Leasing

Lower monthly payments

Since you’re only paying for depreciation, lease payments are usually much lower than loan payments.

Latest safety features

New models come with improved driver assistance and safety technology. Leasing lets you upgrade regularly.

Cutting-edge tech

Stay up to date with the latest infotainment and connectivity features without waiting years to switch cars.

Warranty coverage

Most leases fall within the manufacturer’s warranty period, meaning less worry about repairs and maintenance.

More variety

Short lease terms give you the freedom to try different makes and models more often.

Disadvantages of Leasing

Mileage limits

Every lease includes an annual mileage cap—typically 10,000, 12,000, or 15,000 miles. Exceeding this limit means you’ll have to pay extra fees for each additional mile.

Wear-and-tear charges

Unless you purchase extra protection, you may be responsible for paying for any damage beyond what’s considered “normal use” under the manufacturer’s guidelines

No personalization

Leased cars must be returned in near-original condition. That means no major modifications or customizations—otherwise, you risk additional charges.

No ownership or equity

Since you don’t own the vehicle, you won’t build equity or have a trade-in value at the end of the lease. In fact, depending on fees, you might even owe money when you return the car.

FAQ

What is the money factor (lease factor)?

The money factor is similar to an interest rate on a loan. It’s the financing cost charged by the leasing company, expressed as a small decimal number.

What is the residual value of a car?

Residual value is the estimated worth of the car at the end of your lease term. It helps determine your monthly payments—the higher the residual value, the lower your payments.