{"id":352652,"date":"2016-04-04T10:42:05","date_gmt":"2016-04-04T15:42:05","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/consumer\/lemon-law\/leasing-a-car.html"},"modified":"2024-05-21T13:22:28","modified_gmt":"2024-05-21T18:22:28","slug":"leasing-a-car","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/consumer\/lemon-law\/leasing-a-car.html","title":{"rendered":"Leasing a Car"},"content":{"rendered":"\n
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Leasing a Car<\/h1>\n
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\n By Natalie Moritz<\/a> | Legally reviewed by Melissa Bender, Esq.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

Most car buyers don’t have the means to buy a car upfront and in full. Instead, these consumers often choose to finance a vehicle purchase<\/a> or lease the vehicle.<\/p>\r\n

Taking out a car loan works similarly to mortgages<\/a> and other kinds of secure loans. Leasing, on the other hand, is a little more complex. This article talks about how vehicle leasing works and the consumer protection laws<\/a> that apply to the car leasing process.<\/p>\r\n

See FindLaw’s Buying a Car<\/a> section for resources and information on purchasing a vehicle.<\/p>\r\n

How Does Vehicle Leasing Work?<\/h2>\r\n

A car lease<\/a> is a long-term car loan agreement. Consumers with auto lease agreements do not own the vehicle, and in most cases, return the vehicle at the end of the lease term.<\/p>\r\n

How lessors calculate monthly lease payments can be complex. This often makes it difficult for consumers to decide whether leasing or buying is a better financial decision.<\/p>\r\n

The best way to understand lease pricing is to view it from the car dealer’s perspective. In that sense, the dealer isn’t lending you a vehicle but rather an asset worth a certain amount of money. By the end of the lease term, you must return the car dealership or leasing company, plus interest<\/a> and other administrative costs (like a rent charge) and taxes.<\/p>\r\n

However, a car’s value isn’t a constant. It reduces with time and use, which is called depreciation<\/a>. Lease payments are the total amount the car depreciates divided by the number of months in the lease term, plus interest.<\/p>\r\n

For example, suppose you lease a car worth $30,000 for two years. From the car dealership’s perspective, they just gave you a $30,000 loan. The dealership calculates that after two years of normal use, the car will be worth $15,000. Since the lease term<\/a> is 24 months, your monthly payments will be $625 plus interest, taxes, and fees.<\/p>\r\n

At the end of the lease term, you will have paid the dealership $15,000 plus interest. You will return the car worth $15,000 to complete the rest of the loan. Some dealerships offer a purchase option for consumers to buy the car at its current value.<\/p>\r\n

Since lease payments are tied to the car’s market value, they are often lower than car loan payments. Lessees should be careful before agreeing to deals<\/a> with lower monthly payments. Keep in mind you still must pay back an amount equal to the car’s depreciation over the lease term.<\/p>\r\n

Dealerships often calculate interest as a percentage of the depreciation that is not yet paid back. The lower the monthly payment, the more depreciation value is left over for you to pay off. This means you’ll pay a higher interest rate.<\/p>\r\n

Federal Consumer Protection Laws and Leased Vehicles<\/h2>\r\n

The Consumer Leasing Act<\/a> (CLA) is a federal law that protects personal property consumer leases, including motor vehicles.<\/p>\r\n

This Act is an amendment to The Truth in Lending Act<\/a> (TILA), added in 1976 to extend TILA’s protections to personal property leases exceeding four months. It sets parameters for balloon payments<\/a> and residual liabilities, meaning the costs the lessee must pay at the end of the lease term. These include charges for excess wear and tear or mileage and disposition fees.<\/p>\r\n

The CLA requires lessors to provide specific disclosures<\/a> about a vehicle lease agreement, including:<\/p>\r\n