Leasing
How leases work, money factor, residual value, mileage limits, fees and lease-end options.
How does leasing a car work?
Leasing is essentially paying for the portion of a car's value you use over a set term, plus a finance charge. The lessor buys the car, you pay monthly for its expected depreciation plus a rent charge, taxes and fees, then return it at the end or buy it at a set price. Leases come with mileage limits and wear-and-tear standards. Most leases are on new vehicles and run 24 to 48 months.
Is it better to lease or buy a car?
It depends on how you drive and what you value. Leasing usually means lower monthly payments, a new car every few years and warranty coverage, but you build no equity and face mileage and wear limits. Buying costs more monthly but you own the car and can drive it as much as you like for years after paying it off. On OffLot, Build your deal lets you compare buy, lease and cash for the same vehicle.
Who should lease a car instead of buying?
Leasing tends to suit people who drive a predictable, moderate number of miles, like having a newer vehicle with the latest tech and safety features, want lower monthly payments and prefer to avoid long-term repair costs. It's less suited to high-mileage drivers, people who modify cars, those with rough-use situations like pets or heavy hauling, and anyone who wants to own a car long-term. Your budget and habits matter more than any rule.
Why are lease payments lower than loan payments?
Because you're paying for only part of the car's value. A loan pays off the entire price, while a lease covers the expected depreciation during the term plus a rent charge, with the remaining value (the residual) left unpaid unless you buy the car. The trade-off is that at the end of a lease you own nothing, while at the end of a loan you own the car outright.
What is a money factor on a car lease?
The money factor is the lease's financing rate, written as a small decimal like 0.0025. Multiply it by 2,400 to get a rough equivalent APR; 0.0025 is about 6%. It's used to calculate the monthly rent charge. Like a loan rate, it depends on your credit and the lessor's programs, and dealers may be able to mark it up, so ask for the money factor in writing and compare it with the lessor's base rate if you can.
How do I convert a money factor to an interest rate?
Multiply the money factor by 2,400 to get an approximate APR. For example, a money factor of 0.00200 equals about 4.8%. To go the other way, divide the APR by 2,400. It's an approximation, since leases calculate rent charges differently than loans, but it's a useful way to compare a lease's financing cost against loan offers. Always ask the dealer to state the money factor explicitly.
What is residual value on a lease?
Residual value is the lessor's estimate of what the car will be worth at the end of the lease, usually shown as a percentage of MSRP. It's set by the lessor, not typically negotiable, and it's also your buyout price if you purchase the car at lease end. A higher residual means less depreciation to pay for, so lower monthly payments. On OffLot, the lease estimate on new-vehicle pages shows the residual alongside the payment.
Why does a high residual value make a lease cheaper?
Your lease payment largely covers the difference between the capitalized cost and the residual value. A higher residual means the car is expected to hold more value, so there's less depreciation for you to pay over the term. That's why vehicles with strong resale values often lease well. Residuals also change with term and mileage: shorter terms and lower mileage allowances usually come with higher residuals.
What is capitalized cost in a lease?
Capitalized cost, or cap cost, is essentially the price of the car in a lease, plus any fees, taxes or products rolled in. The adjusted cap cost subtracts any cap cost reductions like a down payment, rebates or trade-in equity. The lower the adjusted cap cost, the lower your payment. Because cap cost is based on the vehicle price, you can negotiate it just as you would when buying.
What is a cap cost reduction?
A cap cost reduction is anything that lowers the amount being leased, such as a cash down payment, manufacturer rebates or trade-in equity. It lowers your monthly payment, but putting a lot of cash down on a lease is risky: if the car is totaled or stolen early, that money is generally not returned, even with GAP coverage. Many people prefer a smaller payment boost over a large down payment for that reason.
Should I put money down on a lease?
Many experts suggest keeping a lease down payment small or zero. Cash you put down reduces the payment, but if the car is stolen or totaled, GAP typically covers what you owe, not the money you already paid, so that down payment is usually lost. You'll still owe the first payment and fees at signing in most cases. If you want lower payments, consider applying the cash to multiple payments or simply keeping it.
What does due at signing mean on a lease?
Due at signing is the total cash required to start the lease. It often includes the first month's payment, an acquisition fee, any cap cost reduction (down payment), registration and title fees, a dealer documentation fee and sometimes a security deposit and upfront taxes. Advertised lease payments often assume a sizable amount due at signing, so read the fine print. On OffLot, the lease estimate on new-vehicle pages shows the amount due at signing alongside the monthly payment.
Why do lease ads say 'plus tax' and 'due at signing'?
Lease ads usually highlight a low monthly payment, and the fine print reveals what it assumes: a specific amount due at signing, a particular term and mileage allowance, a trim level, excellent credit and taxes not included. A lower payment can simply mean more cash upfront. To compare fairly, ask for the full terms in writing and calculate the total cost of the lease, including everything paid at signing.
What is an acquisition fee on a lease?
An acquisition fee, sometimes called a bank fee, is charged by the leasing company to set up the lease. It's typically a few hundred dollars to around a thousand, depending on the lessor and vehicle, and it can be paid at signing or rolled into the cap cost. It's usually not negotiable, though dealers sometimes add a markup to it, so it's worth asking whether the amount is the lessor's standard fee.
What is a disposition fee?
A disposition fee is charged at the end of a lease when you return the vehicle, to cover cleaning, inspection and preparing it for resale. The amount is set in your lease contract. It's often waived if you buy the car or lease another vehicle from the same brand. Check your contract for the exact fee and waiver conditions before lease end so it isn't a surprise.
How many miles do you get on a car lease?
Common annual allowances are 10,000, 12,000 and 15,000 miles, and some lessors offer lower or higher options. Lower mileage usually means a slightly lower payment because the car is expected to be worth more at lease end. Estimate your driving honestly by checking your current annual miles. On OffLot, the lease estimate on new-vehicle pages lets you choose 10k, 12k or 15k miles per year and see how the numbers change.
What happens if I go over my lease mileage?
You'll pay an excess mileage charge for every mile over your allowance when you return the car, at a per-mile rate stated in your contract, often somewhere around 15 to 30 cents. Those charges can add up quickly. If you'll be over, options include buying the car, which avoids the charge, or trading it in early if it has equity. It's usually cheaper to buy extra miles upfront than to pay overage later.
Can I buy extra miles on a lease?
Yes, most lessors let you choose a higher mileage allowance at signing, which raises the monthly payment slightly but usually costs less per mile than overage charges at the end. Some also let you buy additional miles during the lease. If you underestimate, ask your lessor about options before the lease ends. If you overestimate, unused miles generally aren't refunded, though some lessors offer credit, so estimate carefully.
What counts as excess wear and tear on a lease?
Excess wear and tear is damage beyond normal use, such as large dents, deep scratches, cracked glass, torn upholstery, stains, curb-damaged wheels and tires below minimum tread depth. Small chips and light scratches are usually acceptable. Each lessor publishes its own standards, sometimes with a measuring guide. Most schedule a pre-return inspection so you can fix issues yourself, often for less than the lessor would charge.
Is lease wear-and-tear protection worth it?
It can be if you have kids, pets, a tough commute or park on the street, since it covers specified damage at turn-in up to a limit. If you're careful with cars, you may pay more for the coverage than you'd ever claim. Read exactly what's covered, the caps and exclusions. It's optional, and on OffLot protection products appear as optional choices in Build your deal.
Can I end a car lease early?
Yes, but it's often expensive. Early termination typically requires paying the remaining payments or the difference between the payoff and the car's value, plus an early termination fee. Alternatives include buying the car out and selling it, trading it in at a dealer, or transferring the lease to someone else if your lessor allows it. Ask your lessor for an early payoff quote and compare it to the car's current market value.
What is a lease buyout?
A lease buyout means purchasing the car you're leasing, either at the end of the term for the residual value plus fees, or early for a payoff amount set by the lessor. It can make sense if the car is worth more than the buyout price, you're over on miles or have wear charges, or you simply like the car. You can pay cash or finance the buyout through a bank or credit union.
Should I buy my car at the end of the lease?
Compare the buyout price (residual plus any fees) with what similar cars sell for. If the market value is higher, buying could be a good financial move or you might sell it for the equity. Buying also avoids mileage and wear charges. If the car is worth less than the buyout and you're within limits, returning it may make more sense. Also consider the car's reliability and your needs.
Can I sell or trade in a leased car?
Often, yes. A dealer or buyer pays off the lease using the lessor's payoff quote, and if the car is worth more than the payoff, you keep the difference as equity. Some lessors restrict third-party buyouts, allowing only their own brand's dealers to buy the car, so check the policy first. On OffLot, the Trade-in and Sell my car pages estimate equity by subtracting your payoff from the estimated value.
Can I transfer my car lease to someone else?
Many lessors allow lease transfers, in which another person takes over your remaining payments and the lease. The new lessee typically has to pass a credit check, and there may be a transfer fee. Some lessors keep the original lessee liable if the new person defaults, while others release you. Policies vary widely, so call your lessor before listing your lease on a transfer marketplace.
Can you lease a used car?
Yes, though it's less common. Some manufacturer finance companies offer leases on certified pre-owned vehicles, and some banks and independent lessors lease used cars too. Used leases can mean lower payments, but money factors may be higher and term lengths and mileage options more limited. Compare total costs against buying the same used car. OffLot's lease estimate is shown for new vehicles.
Do I need GAP insurance on a lease?
Many leases already include GAP coverage, because a leased car's value can fall below what you owe if it's totaled or stolen. Check your lease contract for a GAP or 'gap waiver' clause before buying separate coverage. If it isn't included, GAP is worth considering. Note that GAP generally won't refund any down payment you made, which is one reason many people keep lease down payments small.
Can you negotiate a car lease?
Yes. The capitalized cost, which is effectively the vehicle's price, is negotiable just as it is when buying. You can also ask about the money factor, since dealers may mark it up, and question add-ons and dealer fees. The residual value and acquisition fee are usually set by the lessor. Negotiate the price first, then review every number on the lease worksheet before signing.
What should I ask for when leasing a car?
Ask for the capitalized cost (selling price), the money factor, the residual value as a percentage and dollar amount, the term, annual mileage allowance and per-mile overage charge, the amount due at signing with a breakdown, acquisition and disposition fees, and whether GAP is included. Having all these in writing lets you compare offers and check the math. OffLot's lease estimate shows the payment, due at signing, residual, depreciation and rent charge.
How is a lease payment calculated?
A lease payment has two main parts. The depreciation charge is the adjusted cap cost minus the residual value, divided by the number of months. The rent charge is the adjusted cap cost plus the residual, multiplied by the money factor. Add those together, then add sales tax as your state requires. On OffLot, the lease estimate on new-vehicle pages breaks out the depreciation and rent charge so you can see how the payment is built.
What is the rent charge on a lease?
The rent charge is the financing cost of a lease, similar to interest on a loan. Each month it's typically calculated by adding the adjusted cap cost and the residual value, then multiplying by the money factor. Over the full term, it represents what you pay the lessor for using its money. A lower money factor or lower cap cost reduces it. Your lease disclosure should show the total rent charge.
What is the depreciation charge on a lease?
The depreciation charge is the portion of your payment that covers the value the car loses during the lease. It equals the adjusted cap cost minus the residual value, spread over the number of months. It's usually the largest part of a lease payment. Negotiating a lower price or choosing a vehicle with a higher residual reduces it. On OffLot, the lease estimate shows depreciation separately from the rent charge.
How does sales tax work on a car lease?
It varies by state. Many states tax each monthly lease payment, while some tax the full vehicle price or the total of payments upfront, and some also tax down payments or rebates. A few states have no sales tax at all. That means the same lease can cost noticeably different amounts in different places. Check your state's revenue department or DMV, and ask the dealer to show how tax is calculated on your lease.
What lease term is best: 24, 36 or 48 months?
Thirty-six months is the most common because it often lines up with the bumper-to-bumper warranty and favorable residuals. Twenty-four months means a newer car more often but typically higher payments; 48 months lowers the payment but you may outlast the warranty and face more wear. Lessors' programs vary, so compare. On OffLot, the lease estimate on new-vehicle pages lets you try 24, 36 or 48 months.
Does OffLot offer lease estimates?
Yes. Every new-vehicle page on OffLot includes a lease estimate in the 'What this vehicle really costs' section. You can choose a 24-, 36- or 48-month term and 10,000, 12,000 or 15,000 miles per year, and the estimate shows the monthly payment, due at signing, residual value, depreciation and rent charge. OffLot is in preview, so these figures are illustrative; actual lease terms come from lessors.
Can I lease a car through OffLot right now?
Not yet. OffLot is currently in preview, so listings, prices and lender programs are simulated, and real purchases, leases and credit checks aren't live. You can still explore how leasing works: choose lease in Build your deal, review the lease estimate on new-vehicle pages and even see how a monthly-payment offer is structured. It's a useful way to understand the numbers before you shop for real.
Is leasing a good option for an electric vehicle?
Leasing can appeal to EV shoppers because battery and charging technology change quickly and resale values can be hard to predict, so the lessor carries that risk. Lease terms also depend on manufacturer programs and residuals, which vary. Note that the federal clean-vehicle credits, including for leased vehicles, ended for vehicles acquired after September 30, 2025, so check current manufacturer and state incentives instead.
Do I need good credit to lease a car?
Generally, leases favor good to excellent credit, and the best advertised lease deals typically require top-tier credit. With lower scores, you may still be approved but with a higher money factor, a security deposit or more due at signing. Getting your credit reports from AnnualCreditReport.com and fixing errors beforehand can help. A co-signer may also be an option with some lessors.
What is a security deposit on a lease?
A security deposit is a refundable amount some lessors require at signing to cover potential end-of-lease charges such as excess wear or mileage. Many leases today don't require one, but some do, especially with lower credit. A few lessors offer multiple security deposit programs, where refundable deposits lower the money factor. Policies vary by lessor, so ask whether a deposit is required and how it's refunded.
What happens at the end of a car lease?
You usually have three options: return the car, buy it for the residual value plus any fees, or trade it toward a new vehicle. If you return it, expect an inspection for excess wear and a check of the mileage, with charges for anything over the limits and possibly a disposition fee. Contact your lessor a few months before the end to schedule the inspection and review your options.
Can I lease a car and then buy it later?
Yes. Nearly every lease includes a purchase option, letting you buy the car at the end for the residual value listed in your contract plus any purchase fee and taxes. Many lessors also allow an early buyout at a payoff amount. Because the residual is set at signing, buying makes the most sense when the car's market value ends up above that number.
Is it smart to lease a car for a business?
Leasing can be appealing for business use because of predictable costs and frequently newer vehicles, and part of the payment may be deductible for business use. Tax rules are specific, so talk with a tax professional about your situation. Consider your mileage carefully, since business driving can push past limits. Compare the total cost of leasing and buying over the period you'll need the vehicle.
What fees should I expect when leasing a car?
Typical lease fees include an acquisition fee from the lessor, a dealer documentation fee, title and registration, sales tax as your state requires, and a disposition fee at the end if you return the car. You might also face excess mileage or wear charges and an early termination fee. Ask which fees are government charges and which are dealer fees, and get all of them in writing before signing.
Does a car lease include maintenance?
Usually not, though many new vehicles come with a limited period of complimentary scheduled maintenance from the manufacturer, and some lessors sell prepaid maintenance plans. You're responsible for keeping up with the maintenance schedule in the owner's manual, and skipping it could lead to charges at lease end. Repairs for defects are generally covered by the factory warranty during a typical lease term.
Can I lease a car with a trade-in?
Yes. If your trade-in has equity, it can be applied as a cap cost reduction to lower your lease payment or cover amounts due at signing. If you owe more than it's worth, the negative equity can be added to the lease's cap cost, raising your payment. On OffLot, the Trade-in page estimates your equity by subtracting your payoff from the estimated value, so you know where you stand first.