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LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

How to Lease a Car: Everything You Need to Know to Avoid Getting Scammed

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Content was accurate at the time of publication.

If you like the idea of driving a new car every few years, or want to keep your monthly payments as low as possible, leasing your next car may be a good option. Like renting an apartment, leasing a car entails a contractual obligation to pay a monthly fee to use the vehicle over a prescribed number of months. At the end of the lease, you can turn in your car and get a new one.

However, while leasing may seem like an attractive alternative to buying a car, it isn’t an arrangement that works for everyone.

Leasing vs. buying: What’s the difference?

When you buy a car, you own it free and clear once your loan is paid off. Leasing, however, entails making monthly payments in exchange for driving the car for a predetermined number of months. When your lease term ends, you won’t own the vehicle — instead, you typically have the option to buy it, return it or exchange it and lease or purchase another vehicle.

It is important to note that leasing is different from renting. Leasing entails a longer commitment — usually two or three years — that allows you to use the car as a regular vehicle for personal use. Car rental agreements typically last for just a couple days or weeks when you’re traveling.

How does leasing a vehicle work?

In most cases, getting a lease simply involves selecting the car you want and applying to the leasing company through the dealership. At that time, you’ll also determine the length of your lease and the number of miles you plan to drive.

During the lease, you’ll make monthly payments and keep regular full-coverage auto insurance on the car. At the end of the lease, you have the option to buy the vehicle, use it as a trade-in for another car or turn it in and walk away. Take note, though — if you turn it in and the car has more miles than you agreed on in the beginning (or excessive wear and tear), you may be charged for it. Otherwise, you have no further obligations.

Understanding lease agreement terminology

Before you commit to leasing a vehicle, it’s essential to understand the agreement. Common elements in a car lease agreement include:

  • Down payment: A down payment on a lease may include your first and last month’s payment and a security deposit.
  • Lease length: Vehicle leases typically run from 24 to 48 months. Though some may run longer.
  • Acquisition fee: These are fees you pay to enter into a lease. These include administrative costs, such as verifying insurance or pulling your credit report.
  • Disposition fees: When the lease ends, there may be costs incurred to prepare and sell the vehicle.
  • Money factor: A lease’s money factor is the interest rate you pay during the lease.
  • Monthly lease payments and how they’re calculated: Your monthly payments cover the cost of using the vehicle. Monthly lease payments are based on the difference between the MSRP and what the car is expected to be worth at the end of the lease. The payments may also include added costs, such as sales tax, GAP insurance and other fees.
  • Mileage limits: These are the fixed number of miles you’re allowed to drive the car under the lease term.
  • Penalties for exceeding mileage limits: Lessees who exceed the allowable mileage are subject to a fee for every mile they drive over the limit.
  • Missed payment penalties: Your lease may provide a few days or weeks as a grace period for you to make your payment. But if you miss a monthly lease payment, you could be in default of your agreement. If you don’t cure the default by making your missed payment, a lender could legally repossess your vehicle. In addition, you could be charged an early termination fee per the lease.
  • Maintenance responsibilities: The lease specifies who pays for repairs and maintenance during the term of the lease. The owner may pay for certain maintenance costs; however, when you lease a car, you are generally responsible for any excess wear and tear on the vehicle.
  • Early termination penalties: You may be penalized if you end the lease before the agreement’s termination date. Your early termination fee may be the difference between the amount still due under the lease less the vehicle’s current value.
  • End of lease purchase option: Many leases include a lease buyout option. This is the amount you’d pay to the dealer to purchase the car at the end of the lease.

Pros and cons of leasing a car


  Lower monthly payments

  Access to the latest features

  Don’t have to worry about selling your car

  Lower maintenance costs

  Mileage limits

  No equity

  Termination fee to end lease early

  Damage fees for wear and tear

Types of car leases

There are a variety of car leases available. While the leasing concept stays the same, the contract terms can be different.

Closed-end leases

This is the most common type of vehicle lease, following the typical lease process described above and ending on a set date. As an example, say you agree to lease a car on New Year’s Day, Jan. 1, 2020, for a period of three years — you would then have to turn it in by Jan. 1, 2023.

Pros: The vehicle’s price at the end of the lease is predetermined

Cons: There are possible penalties for turning a car in early or late

Open-end leases

Open-end leases don’t end on an exact date. Instead of a specific deadline, you’ll have a window of time to turn in the car without penalty for being early or late. The size of this window can vary: For example, if you signed an open-end vehicle lease for about two years beginning on Jan. 1, 2020, with a six-month turn-in window, you could turn it in any time between December 2021 and June 2022.

Pros: Flexibility

Cons: The vehicle price isn’t set, so you may need to cover the difference between what the estimated value was at the beginning of the lease and the car’s actual value at the end

Subvented leases

This is a type of close-ended lease, for which the leasing company gives a special discount. This discount could be on the interest rate (also called the money factor), which translates into a lower APR; it could also be a rebate on the price of the vehicle, which translates to a reduction in capitalized cost.

Pros: You’ll save money

Cons: You’ll likely need a high credit score to qualify

Single payment leases

In this type of vehicle lease, instead of making payments, you pay the entire amount for the lease upfront. You might even be able to combine this type of vehicle lease with other types — for example, you may be able to make a single payment, subvented, close-ended lease.

Pros: You’ll save by not paying interest on payments over time

Cons: You’ll have a large lump sum payment upfront

Used leases

It’s not as common as leasing a new car, but you can lease a used car. You might be able to find a used car lease from a dealership, a used car lot or from a current leaseholder in a process known as lease swapping. You must be approved by a leasing company, but credit requirements for a used lease may not be as strict as those for a new vehicle lease.

Pros: Lower payments

Cons: You may have to pay for repairs

Short-term and long-term leases

Short-term and long-term vehicle leases are exactly what they sound like — they refer to the shortest or longest terms possible for the types of leases we described earlier. Short-term leases tend to be shorter than two years, while long-term leases tend to be longer than four years. Keep in mind, however, that not all leasing companies offer these kinds of terms.

Pros: A short-term lease may be cheaper than a rental; a long-term lease will keep your car payments down

Cons: A short-term lease is expensive, because a car depreciates the most in the first year; a long-term lease means you’ll likely pay the full value of the car without owning it at the end

How to lease a vehicle in 7 steps

Here are seven tips to help land the right lease agreement for you:

1. Do your research: Even though you aren’t buying a new car, you’re still committed to making monthly payments for the duration of your lease. Take the time to find a car that you like, as you’ll be driving it for a few years.

2. Check your credit score: The best lease terms are often reserved for shoppers with excellent or good credit. A lower credit score may prevent you from leasing, or it could come with higher rates. Knowing your credit score can help you decide whether to lease or buy. Plus, many dealerships and automakers offer special lease incentives — and if your credit score is high enough, you may be able to qualify for these lease deals.

3. Look beyond MSRP: Just because you’re leasing the car doesn’t mean you can’t negotiate the price. The manufacturer’s suggested retail price (MSRP) is just that — a suggestion. A car dealer may be willing to reduce the asking price, which can save you money in lower monthly payments.

4. Comparison shop: Just like you’d shop around for the best car loans, you’ll also want to get lease quotes from at least three different car dealers. Just be sure the lease terms are the same to help you find the best deal.

5. Consider the overall price:Make sure you can afford to lease a vehicle before signing anything. Consider the monthly lease payment and any upfront fees you may need to pay.

6. Go for a test drive:When you sign a lease agreement, you should make sure you like the car. Take the vehicle for a test drive and ensure it has the features you want before leasing.

7. Ask questions: Make sure you understand the terms and requirements of the lease agreement. You’ll be committing to the agreement for a few years, so the arrangement needs to fit into your budget and lifestyle. Ask questions to be sure you understand the terms of the commitment, such as:

  • What is the term of the lease?
  • How much is being financed with the lease?
  • What is the car’s residual value, or value at the end of the lease?
  • How many miles are covered under the lease?
  • What is the vehicle’s interest rate, or money factor?
  • If you terminate the lease early, what costs will you incur?
  • How much money do you have to put down on the lease?
  • What fees does the lease have?
  • Does the lease have a buyout option?

Vehicle leasing: Mistakes to avoid

Once you commit to a lease, you’re legally bound to the agreement until it ends. So it’s a good idea to take a close look at your lifestyle and finances to make sure leasing is a good fit for you and your budget.

Some of the most common mistakes made when leasing a car include:

  • Not planning for upfront costs: Depending on the terms of your agreement, you may need to pay multiple fees at the start of your car lease. You may also be asked to put down a security deposit, as well as the first and last months’ payments. Some leasing companies charge an acquisition fee to cover the cost of processing your lease. You may pay registration, title and documentation fees, as well as taxes.
  • Offering too much of a down payment: When buying a car, putting more money down increases your equity. But when you lease, making a large down payment only ties up the cash you have on hand. You may be better off investing the extra money or paying off other debt.
  • Exceeding your annual mileage limit: Vehicle leases typically have annual mileage limits. If you exceed the allowable miles, you could pay anywhere from 10 to 25 cents per excess mile under the terms of your agreement.
  • Not buying GAP insurance: Car insurance protects your property if you get into an accident. But if you owe more money on your lease than the value of the car, you may be stuck paying the difference if your leased vehicle gets totaled. A guaranteed asset protection (GAP) policy protects you by covering the amount owed if you get into an accident.
  • Ending your lease early: When you end your car lease early, you may be charged an early termination fee. The fee is usually the difference between what you still owe on your lease and the current value of the vehicle. Your lease agreement may also require that you pay other fees when your lease ends, such as disposition fees and taxes.
Thing to know: Vehicle leasing fees

If you’ve never leased a car before, you may be unfamiliar with the added costs. Vehicle leasing fees for early termination, damages and disposition are among the most common costs you’ll encounter. Before you sign a car lease, take the time to learn more about these vehicle leasing fees.

How to end your lease

As you approach the end of your lease, you may be contacted by the dealership to schedule an inspection. Before getting the vehicle inspected, be sure to remove any personal items or customized features, such as a new stereo you may have added. Take care of any minor damage that can be fixed ahead of the inspection to reduce additional charges when you turn in your vehicle.

At the end of your lease, you have three options:

  • Settle up: If you decide not to lease another vehicle, you can turn the car in, pay any amounts that may be due and walk away. Just be sure to remove all personal items before you return the car — as you don’t own the vehicle, customization is not allowed. So if you made any permanent changes, like a new exterior paint color, you might incur a fee.
  • Lease a new car: You can lease another vehicle.
  • Car lease buyout: If you like the car you’ve been leasing, you may want to buy it. Your lease agreement should list the car lease buyout price should you choose to buy the car. You can either pay for the car in cash or get a lease buyout loan.

Frequently asked questions about leasing a car

Is it worth leasing a car?

It may be worth leasing a car if you want lower monthly payments and know you won’t exceed the lease’s mileage limit. It also offers more flexibility than owning a car.

Is it better to buy or lease a car?

Whether you choose to buy or lease a car has a lot to do with your personal preferences. If you enjoy driving a new car every few years, a lease may be the better option. With a lease, you’ll pay a lower monthly payment and put less money down. However, you won’t own it at the end of your lease, so if you’re looking for a long term option, buying may be your best bet.

Where are the best lease car deals near me?

Visit to find the best financing and car lease deals in your area.

Can I lease a used car?

If the monthly payments for a new vehicle are too pricey, you may be able to lease a used car. Many dealerships make leasing available on certified pre-owned vehicles. You could also skip the down payment and acquisition costs by taking over an existing car lease.

What credit score do I need to lease a car?

According to Experian, credit scores between 661 and 780 are considered good for leasing. If you’re able to lease a car with a lower credit score, you may be asked to put more money down or pay a higher interest rate.

Can I negotiate a vehicle lease?

Certain factors can be negotiated in a vehicle lease. You may be able to get a better lease deal by negotiating the price of the car, the interest rate, the mileage limit, the down payment or the lease term. The dealer may also be willing to reduce or waive extra charges, like acquisition and disposition fees.