How Does Leasing a Vehicle Work?

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Getting a new car is an exciting experience but purchasing isn’t right for everyone. Another great option is to lease a vehicle from a dealership. But you may be wondering “What is a lease exactly and how do they work?” You came to the right place. We’ll walk you through everything you need to know about vehicle leases to see if it’s the right option for you.

What Is a Lease?

The difference between buying a vehicle and leasing a vehicle is essentially the same as the difference between buying a house and renting an apartment. When you purchase a car, you’re taking full responsibility for it. Just like buying a house, this has both pros and cons.

If you’re not interested in bearing full responsibility for your car, then a vehicle lease might be the better choice for you. Instead of having the car under your name, the vehicle is being loaned to you for an agreed-upon period, or a lease term. Depending on what your financial situation is like, leasing may be preferable to buying a car outright.

How Does a Lease Work?

When you lease a car from a dealership, you sign a contract agreeing that you can take the car under certain conditions. These conditions can vary on a case-by-case basis, but there are a few things you should be aware of if you’re thinking about a car lease.

Here are a few terms that may come up when you look into leasing a vehicle:


This term stands for “manufacturer’s suggested retail price.” This is the price that the car manufacturer suggests that dealerships sell the vehicle for. It may be more commonly known as a sticker price.

If you were planning on buying the vehicle you’re interested in, then you’d likely need to pay the full MSRP, or possibly more if you’re looking to customize the vehicle. But if you end up leasing the vehicle, there’s a good chance you’ll be able to negotiate a lower price. That’s great news considering the rising cost of purchasing a new vehicle!

Residual Value

This is an important one. Basically, a residual value is what the estimated value of your vehicle will be at the end of your term with it. This will be guessed based on the vehicle’s resale history.


This term refers to the decrease of the vehicle’s value during the lease term. The depreciation will be a big determinate of what your fees are during your lease.

Purchase Option Agreement

When you lease a vehicle, you may not want to give it back at the end of the term. In this case, your lease may come with a purchase option agreement.

As the name implies, what that means is that once your lease is complete, you will have the option of purchasing the vehicle. This option will add to your monthly payments.

The Pros and Cons of Leasing a Car

Purchasing a car has lots of benefits. You don’t have to give it back, for one thing, which may make it a more appealing option to many. But at the same time, there are lots of downsides.

The same is true for leasing. There are several advantages and disadvantages to leasing a vehicle.


To someone who’s never considered leasing a car before, it might seem like an odd thing to do. You don’t even get to keep the car! But the truth is there are lots of reasons why someone might prefer leasing over buying a vehicle:

  • You’re likely to have lower monthly fees than you would if you purchased a new vehicle.
  • Newer vehicles will be more accessible for your budget.
  • You can have the option of purchasing the car once the term is up, so you can see how you like it.


While there are lots of benefits to leasing a car, there are some downsides you may want to consider as well:

  • The number of miles you can drive will most likely be limited.
  • If your car has lots of wear and tear at the end of the term, you might be penalized.
  • If you need to end the lease early, it can be costly.

Deciding whether to buy or lease a car ultimately comes down to you as an individual. Leasing is great if you don’t do a lot of driving and you prefer to drive around in something new. If you’re still unsure of which option is best for you, here’s an article exploring all of the different options available for acquiring a new vehicle. When it does come time to purchase, you’ll find what you’re looking for at a great price right here on!