How to Lease a Car

A car lease is an effective way to drive a new vehicle while maintaining a budget. Lease terms are often between two and four years and offer monthly payments that are typically much lower than loan or finance payments if you buy a new or used vehicle. Though leases offer many benefits over buying, the leasing process is something you'll want to become familiar with ahead of time, as well as certain industry terms. So, if you've been wondering, "How do I lease a car?" read on for a list of specific steps to follow for how to lease a car.

What Is an Auto Lease, and How Does It Work?

First, what is a car lease, exactly? It's a contract between a car dealership and a customer that allows the customer to drive the vehicle for a specified amount of time. 

Leases come with many terms and restrictions for customers to be aware of, such as mileage restrictions. If you've been unsure of whether you should lease a vehicle because you've never understood what leasing a car is, this guide will help outline the process and benefits for you.

So, how does leasing a car work? First, you'll choose the vehicle you want to lease, then apply for the lease through the car dealership. During this process, you'll set and agree to the terms of the lease you're interested in, including how long the lease will be effective and how many miles you're allowed to drive within that time frame. 

The car dealership will then submit the application to the leasing agency. You'll make the agreed-upon payments throughout the length of the lease, as well as maintain car insurance on the vehicle. At the end of the lease term, you'll have the option to buy the vehicle, trade it in for another vehicle, or turn it over to the dealership.

How to Prepare to Lease a Vehicle

Step 1: Research Lease Agreement Language

Understanding the language of a lease is one of the most important aspects of the process. As a prospective lessee, you need to know exactly what you're agreeing to before signing any paperwork. Failure to understand the lease's terms and restrictions could lead to unwanted charges in addition to your regular lease payments. 

Become familiar with the following terms that may appear while researching or reviewing a lease agreement before shopping around for a lease:

• Down payment: The amount of money you'll pay at the start of the lease contract, which includes a security deposit and the first and last month's payment amounts.
• Lease length: The amount of time you'll be leasing the vehicle for, which is typically between two and four years.
• Acquisition fee: The fees you pay in order to start your lease, which include admin costs like running a credit report and verifying your car insurance coverage.
• Disposition fees: The fees you may be ordered to pay at the end of the lease, which cover costs for the dealership to prepare and sell the vehicle. 
• Money factor: The interest rate you pay throughout the term of the lease. 
• Mileage limits: The specific number of miles you're allowed to drive the vehicle during the lease term without incurring additional fees.
• Penalties for exceeding mileage limits: The lessee may not exceed the mileage limits defined in the lease; if they do, they're subject to paying an additional fee for every extra mile driven over that limit.
• Missed payment penalties: The lessee may not miss any lease payments without possibly defaulting on the lease agreement. Missed payments that are not promptly made up can result in the lender repossessing the vehicle and additional early termination fees for the lease.
• Early termination penalties: The lessee may not terminate the lease before the end date of the contract without being penalized. You might have to pay an early termination fee that makes up the difference between what's still due on your lease and the vehicle's current value if you choose to end a lease before the end of the term.
• End of lease purchase option: The lessee will often have the option to buy the vehicle at the end of the lease.

Step 2: Create a Budget for Your Lease

When leasing a vehicle, you'll want to consider additional factors that create extra costs to factor into your budget. For example, you may want to add wear-and-tear coverage to the leased vehicle if you'll be making long commutes or otherwise using the car a lot. You'll also need to factor in the cost of car insurance for a leased vehicle. 

At the minimum, you'll want to get collision insurance and comprehensive insurance for your leased vehicle to protect against accidents and threats other than collision, like theft, windshield breaks, and more. 

You may also want to consider purchasing gap insurance for your leased vehicle, and it's likely even required in your contract. Gap insurance covers the "gap" between what's owed for an early termination payoff and the insured value of the stolen or totaled car. 

The cost of each type of coverage varies depending on a number of factors, including the car insurance company you choose, your driving record, and more.

Step 3: Shop around for Lease Options

Different locations may have different leasing agreements, down to each city in the U.S. or even each specific dealership. One auto dealership might not be able to offer more competitive rates for a vehicle lease, so visiting different locations to compare rates is part of a customer's due diligence. 

Try getting a lease quote from at least three different dealerships before you choose your contract. Think of shopping for lease quotes as being similar to how you shop around for the lowest car prices or car insurance rates. If you have the option to save at one location over another, it's worth it to shop and compare your lease options before committing. 

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Steps for Leasing a Vehicle

Step 1. Choose a Vehicle to Lease

First, you'll want to choose your vehicle. Keep your budget in mind, and remember to plan for some extra expenses like car insurance, possible repairs, hidden fees, etc. 

Be sure to test drive any vehicle you're considering leasing first. This can help you ensure the vehicle doesn't have any issues that weren't made explicitly clear already.

Finally, you'll want to compare all your options before agreeing to a particular lease. Choose a vehicle that works best for you within a lease's terms. If a comparable model by another manufacturer offers a cheaper lease option, you may decide to go with that vehicle for the lease. 

Keep in mind that certain vehicles may also be cheaper to insure than others, which can help keep you under budget. 

Step 2. Negotiate Your Lease Terms

After you've selected your vehicle and thoroughly prepared your budget, you're ready to start negotiating a lease. The cost of the vehicle, as well as the interest rate on the lease and the mileage terms, are all factors that can be negotiated before you sign. The disposition fee is often open to negotiation, too.

Properly negotiating your lease's terms can help you save money not only upfront but down the road as well. For example, negotiating for a greater mileage allowance on the lease can help you avoid additional fees if you end up driving the vehicle more than you anticipated. 

Getting the lease's interest rate lowered can help you save a great deal of money in the long run, too. Take your time and review every aspect of the lease to see what can be negotiated before you sign off on it. You'll be thankful you did.

Step 3. Maintain Your Leased Vehicle

Maintaining a leased vehicle is critical. Remember that you can be held responsible for any additional required repairs to the vehicle at the end of the lease term. Be sure to keep up with routine maintenance, like oil changes. 

The good news is that the lease often covers routine maintenance costs. But also do your part in taking good care of the vehicle in other ways, including keeping it parked in a safe location, always locking the doors, and keeping the vehicle clean.

Step 4. Understand the End of Your Lease Agreement

Once your lease term is close to ending, the dealership might reach out to you to conduct an inspection on the vehicle. Clean the vehicle, remove your belongings before the inspection, and get any necessary repairs done ahead of time to avoid possible fees. 

After the lease is up, you'll have three options for what to do with the vehicle. You can either just turn the car over to the dealership and pay any final fees, trade the vehicle in toward another lease, or choose to purchase the car. 

If you choose to buy, you can either get a lease buyout loan or pay cash for the vehicle. No matter which choice you make, you'll have to complete some paperwork. Unless you buy the vehicle, you'll also have to physically return the vehicle to the dealership before the lease is officially terminated.

Frequently Asked Questions about How to Lease a Car