How does a vehicle lease work?


Quick Answer

When one leases a car, the car is sold to the leasing company at the price negotiated with the dealer. The leasing company then leases the car out to the individual, says Real Car Tips.

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Full Answer

Most people think that it is the dealership that leases cars, but this is not the case. Leasing companies, such as banks or the finance division for auto manufacturers, purchase the car from the dealership and then lease it back to the customer at the rate agreed upon in the leasing contract, states Real Car Tips.

A lease is a type of contract in which monthly payments are made to the leasing company in exchange for using the vehicle for a predetermined time frame. Typical lease agreement time frames are 24, 36 or 48 months, states Smart Motorist.com. In financing, payments are based on total vehicle cost, but in leasing the payments are based on the estimated amount of depreciation and interest rates.

Leasing is a form of rental agreement where one does not own the car after all the payments are made. Leases are also subject to hidden costs for any vehicle damage and if a lease agreement is terminated early, it could result in damage to one's credit score, claims Smart Motorist.com.

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