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How Does LendingTree Get Paid?

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.

Leasing a Car: Everything You Need to Know

Updated on:
Content was accurate at the time of publication.

If you like to have a new car every few years, leasing sounds good: You make monthly payments like with a loan, but you only pay for the drop in the car’s value during the lease, not the whole value of the car. When the lease is done, you return the car.

But leasing a car isn’t the best choice in some situations, such as if you rack up a lot of miles driving.

Normally, you choose a new car at a dealership and then apply for lease financing with the dealer.

You’ll choose the length of the lease period and how many miles you plan to drive each year.

  What does it mean to lease a car?

Leasing a car means agreeing to make a monthly payment and drive the car for a defined number of months and miles. You don’t own the car as you would with an auto loan, but you must maintain full-coverage auto insurance on it.

At the end of the lease, you can turn the car in to the dealer, buy it from the dealer or exchange it for another leased vehicle.

Choose the car you want to lease

Just like buying a new car, you should research the car you want to lease. Use auto review sites like Edmunds and KBB to learn about the car’s features and capabilities to see if it fits your lifestyle.

You can ask the dealer about any special “incentive leasing offers” or other discounts available.

Choose what type of lease you want

There are many kinds of car leases, and the best choice may depend on how often and how far you drive, as well as how long you want the car.

Usually, the dealership’s own financial lender — for example, Nissan Motor Acceptance Company or Ford Credit — will have competitive lease offers.

Compare multiple lease offers

If you have settled on the car you’d like to lease, you should try to get lease quotes from at least three different dealers. It’s the same idea as shopping around for the best car loan.

Make sure the lease terms are the same so you can compare the offers fairly. Consider all the additional costs, including any “acquisition fee,” security deposit, down payment or excess mileage costs.

Be aware that you’ll need to pay registration, title, documentation fees, destination charge and taxes, regardless of the lease terms.

Check your credit score before you apply for leases because the best deals are reserved for those with good or excellent credit, while a lower credit score could prevent you from leasing completely. You can get your score for free with LendingTree Spring.

Test drive the car

Before you lease, try taking the vehicle for a test drive to make sure it has the features you want and that you can live with it for the lease term.

The lease contract will be based on the specific vehicle — not just the price for that make of car — so the trim level, features and accessories will affect the final price.

Choose a lease and sign

To apply for a lease, you’ll be asked to provide basic personal information:

  • Social Security number
  • Date of birth
  • Employment status and/or annual income
  • Address and whether you own or rent
  • Monthly mortgage or rent
  • Contact information

Finalizing a lease is similar to signing a loan. The dealer will review the terms and conditions with you.

Don’t sign a lease agreement until you’ve read and understood all of its terms. Also, make sure the lease doesn’t include items you didn’t want, such as an extended service contract or disability life insurance.

Just like with a loan, you can negotiate parts of your lease contract, including:

  • The cost of the vehicle
  • The estimated value of the car at the end of the lease (also called the residual value)
  • Down payment amount
  • Value of your trade-in
  • Interest rate
  • Mileage limit
  • The option to buy the car after the lease

Leasing a car is like renting it for a set amount of time. Lease payments tend to be lower than with a loan, and they usually last two to four years, with mileage limits of 10,000 to 15,000 miles per year.

Buying a car with an auto loan generally means higher payments, with typical loan terms of three to seven years. But since it’s your car, you can drive as many miles as you want and sell or trade it whenever you wish.

Compare the total cost of leasing versus buying a car, along with these other factors, to see which option is right for you.


  Less money down: Most leases have a lower down payment than for an auto loan. Some dealers have zero-down leases, though there may be money due at signing.

  Lower payments: The payments are also usually lower. For example, a Honda Civic might be $422 a month to lease but $541 to buy, according to Experian.

  Convenience: When the lease is up, you can turn the car in and walk away. You don’t have the hassle of selling or trading it in.

  Equity: A lease doesn’t build equity for trade-in or sale, so you can’t use your old car to help pay for a new one.

  Fees: Fees are due at the beginning and end of the lease, as well as a fee if you end the lease early.

  Mileage restrictions: You’ll have to keep a close eye on your mileage or else pay expensive excess mileage charges (up to 25 cents or more).

Closed-end and open-end leases

The most common type of lease is a closed-end lease, which is based on an estimate of the car’s “residual value” — what it’s worth at the end of the lease term. If it’s worth more than this at the end of the lease, you may be able to buy the car at the lower value, but if not, you can walk away.

An open-end lease is a higher risk because you may have to pay the difference between the car’s estimated residual value and its actual market value at the end of the lease. On the other hand, if the car is worth more than the residual value, you might get a refund for the difference.

Subvented leases

A subvented lease is a kind of closed-end lease that includes discounts or incentives. You may be offered a lower interest rate for a smaller monthly payment. Or the leasing company will inflate the residual value of the vehicle, also leading to a lower monthly payment. Subvented leases are usually reserved for shoppers with excellent credit.

Single-payment leases

In a single-payment lease, you pay all the monthly lease payments at the beginning of the term. You don’t have to make a payment each month, but you tie up your funds instead of being able to use them for something else.

Used-car leases

You can lease a used car, which will likely have a lower payment because the car has already depreciated. Some manufacturers offer leases on “certified pre-owned cars” that have undergone thorough inspections and carry factory warranties.

Short-term and long-term leases

A short-term lease (a few months to two years) may be cheaper than a long-term one, but the payments will likely be higher because a new car depreciates quickly in the first year.

A long-term lease (two to five years) will help keep your monthly payments down, but you may end up paying the full value of the car, in which case a standard loan would have been a better option.

Leasing usually requires better credit than an auto loan. The average credit score for leases in the fourth quarter of 2023 was 737. However, leases were available for those with a credit score of 600 or less.

Leasing a car with bad credit often means a higher monthly payment, because there’s a higher risk to the lender.

On the other hand, a lease will typically have a lower down payment, so it may be a way to get a new car if you don’t have enough for the down payment on a loan.

You could improve your chances by improving your credit score to qualify for a lower interest rate or money factor rate. Also, consider alternatives such as bad credit car loans.

  Credit score to lease a car

There’s no hard and fast credit score number to lease a car — it varies from dealer to dealer. However, the best incentive deals are reserved for those with good to excellent credit, starting around a score of 661.

Leasing is available for buyers with lower credit scores, but the rates may be higher. Bad credit can also result in a larger down payment or shorter lease term.

Yes, you can lease a used car. Check with the dealer about leasing options for a used car. Some manufacturers offer leases on certified pre-owned cars.

Leasing a car depends on your financial situation and how badly you want a new vehicle.

You may be able to drive a more expensive car for a few years with leasing compared to with financing. However, you don’t build equity like you do with a loan, so consider doing a side-by-side comparison on the same car to see how the numbers add up.

The cost of leasing a car depends on the dealer’s selling price, financing charges and manufacturer’s incentive offers. Leasing usually costs less up front than buying a car, and monthly payments are likely to be lower.