What is a Vehicle Lease Agreement?

A car lease lets you drive a new vehicle without paying a large sum of cash or taking out a loan. To lease a car, you simply make a small down payment — less than the typical 20% of a car's value you'd pay to buy– followed by monthly payments for the term of the lease. When the term expires, you return the car.

How Does Leasing Work?

When you lease a car you are essentially paying a company for the right to drive a car they own for a set period of time, usually two or three years. Your payments are meant to cover the depreciation of the car during that period, so they are often cheaper than an auto loan on an equivalent vehicle would be. Leasing can also be a good way to drive a newer model car for relatively little cost.

However, the major downside of leasing is that you will likely end up spending more over the long-term than you would if you bought a car and used it for many years. Moreover, since you don’t own the vehicle, your use of the car must be in line with the restrictions laid out in your lease agreement, which is why it’s important to read that document closely.

Looking to buy or lease? Use our calculator to decide how much car you can afford.

Sources: https://www.bankrate.com/loans/auto-loans/what-are-the-basic-elements-of-a-car-lease-agreement/