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Quick citation guide Select a citation to automatically copy to clipboard.APA: Betterton, R. (2024, January 29). Car lease basics: What you should know before you sign. Bankrate. Retrieved September 20, 2024, from https://www.bankrate.com/loans/auto-loans/what-is-a-car-lease/
Copied to clipboard!MLA: Betterton, Rebecca. "Car lease basics: What you should know before you sign." Bankrate. 29 January 2024, https://www.bankrate.com/loans/auto-loans/what-is-a-car-lease/.
Copied to clipboard!Chicago: Betterton, Rebecca. "Car lease basics: What you should know before you sign." Bankrate. January 29, 2024. https://www.bankrate.com/loans/auto-loans/what-is-a-car-lease/.
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Written by
Rebecca Betterton
Rebecca Betterton, a Certified Financial Education Instructor℠, is a writer for Bankrate who has been reporting on auto loans since 2021.
Edited by
Pippin Wilbers
Pippin Wilbers is a Bankrate editor specializing in personal and auto loans. Pippin is passionate about demystifying complex topics, such as car financing, and helping borrowers stay up-to-date in a changing and challenging borrower environment.
Reviewed by
Mark Kantrowitz
Mark Kantrowitz is an expert on student financial aid, the FAFSA, scholarships, 529 plans, education tax benefits and student loans.
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Car leasing is a popular alternative to buying a car, especially for people who don’t want to commit to a long-term loan. The lease itself is a contract that allows you to drive a new car for a predetermined amount of time, after which you’ll return it to the leasing company or dealership. The contract stipulates that you’ll make periodic payments on the car until the lease ends, and you won’t own it at the end of the term.
A car lease is a contract that allows you to drive a new car for a set period — typically three years — after which you’ll return it to the dealership. Payments are made on a monthly basis, and you’ll have to buy the car when the lease ends if you don’t want to turn it in.
You’ll have limited mileage, and if you exceed the limit, you’ll owe extra fees. You’ll make a payment when the contract starts, and you’ll need to pay additional fees when the contract ends, including a disposition fee.
A lease allows you to rent a car long-term rather than buying it. But it comes with a handful of fees at the beginning and end of the contract.
Before you decide whether leasing is right for you, you’ll need to understand exactly how it works. The dealer or leasing company buys a car. You then agree to pay for your time using the car.
During the lease, you’ll make regular payments to the leasing company. Since you’re not paying off the vehicle’s full price, your payments will be lower than if you bought the car and took out an auto loan.
When the lease ends, you’ll return the car to the leasing company. If you decide to buy the car, you’ll likely pay the residual value. The buyout price is determined ahead of time and included in the lease contract.
If you decide to lease another car instead of buying the vehicle at the end of the lease, you may not be charged certain fees, like the disposition fee.
If you violate the terms of your lease, you’ll face a penalty. For example, if you drive over the predetermined mileage limit, you’ll owe an excess mileage fee that can be expensive. You’ll also pay an excess wear-and-tear fee if the car has damage that exceeds what’s acceptable.
