Lease vs Buy: The Two-Way Comparison Leaves One Out

Almost every page on this subject hands you two columns. A lease payment down one side, a loan payment down the other, and a line underneath about how the first is smaller and the second builds equity. It looks like a fair fight. It is not one, and the reason has little to do with which product is the better product. Those two figures are not measuring the same thing. One is the price of using a car for a few years. The other is the price of a car.

Nobody here writes leases, holds inventory or earns a commission on financing, and that is the whole reason this page can make an argument that costs money to make. A two-column layout cannot hold the third position, and the third position is not a compromise between the other two. Leases are a new-car product, written on new cars, so the entire debate is conducted inside the new-car market by two parties who both want you in one. Buying a used car outright is not a modest version of financing a new one. It is a different place on the depreciation curve, and the format deletes it before the argument begins.

What a lease actually is

A lease is not a purchase arranged in instalments. It is a contract under which somebody else buys a car and lets you use it for an agreed period, on agreed conditions, in exchange for money. They are the lessor. You are the lessee. At no point during the term do you own the vehicle, and unless you exercise a purchase option, at no point afterwards either.

That sounds obvious written down, and it is routinely obscured in practice, because the transaction looks identical from the outside. You choose a car at a dealership, negotiate over its price, sign a stack of paper, take delivery, and start making a monthly payment. Everything visible about the process says purchase. The contract says rental with a fixed end date.

The consequence that matters is not philosophical. It is that the money you hand over is buying a different quantity, and the federal rules governing consumer leases spell out exactly which quantity, in a way no marketing copy has to.

The regulation writes out the sum for you

Consumer vehicle leases in the United States are governed by the Consumer Leasing Act and the regulation implementing it, Regulation M, published at 12 CFR Part 1013 and administered by the Consumer Financial Protection Bureau. It applies to leases of personal property for personal, family or household use with an initial term of more than four months, which is a definition written to catch exactly the product a dealership sells you and to exclude a weekend rental.

Regulation M requires that a motor vehicle lease disclose a payment calculation — the rule calls it a mathematical progression of how the scheduled periodic payment is derived. The steps are prescribed, and they are worth walking through, because between them they contain the entire argument of this page.

The progression starts at the gross capitalized cost, which the regulation describes as the agreed upon value of the vehicle together with any items you pay for over the lease term. Subtract the capitalized cost reduction — trade-in allowance, rebate, non-cash credit or cash you put in — and you have the adjusted capitalized cost, which the rule describes as the amount used in calculating your base payment.

Then comes the number that decides everything. The residual value is defined as the value of the vehicle at the end of the lease used in calculating your base payment. Subtract the residual from the adjusted capitalized cost and the difference is disclosed as depreciation and any amortized amounts, which the regulation glosses as the amount charged for the vehicle’s decline in value through normal use. Add the rent charge, defined as the amount charged in addition to the depreciation, and you have the total of the base payments. Divide by the number of payments and you have the monthly figure on the advertisement.

Read that sequence again with the comparison in mind. The lessor is required by federal regulation to show you, in writing, that your payment consists of a slice of the car’s value plus a charge for the money. A loan payment has no residual subtracted from it, because the borrower is paying for the whole vehicle rather than the part of it they intend to use up. The two payments are computed from different bases. Setting them side by side and reading off the smaller one is not a comparison; it is a category error with a chart attached.

The two numbers that decide a lease

Almost everything a shopper is invited to negotiate over — the price of the car, the deposit, the term — feeds into a payment that two figures ultimately control, and exactly one of the two is open to you.

Residual value: a forecast, set by somebody else

The residual is the lessor’s estimate of what the vehicle will be worth when you hand it back. It is normally taken from an industry residual guide rather than invented at the desk, and it is not usually negotiable. It is also the single largest determinant of the payment, and it works in a direction that surprises people.

A high residual means the lessor expects the car to hold its value, which means the depreciation slice is small, which means the payment is low. So the cars that lease most cheaply are the cars the market expects to stay expensive. That is the opposite of the intuition most buyers arrive with, and it explains why two vehicles at the same sticker price can lease for very different figures without anybody doing anything unusual.

It also cuts the other way at the end of the term. A high residual is the purchase-option price you will be quoted if you decide to keep the car, so the same forecast that made the lease attractive makes the buy-out expensive. There is no arrangement in which the residual is high for the part you like and low for the part you do not.

And a residual is a forecast of a future used-car price, which means it inherits every uncertainty that attaches to forecasting a market. Within the last few years the federal used-vehicle price index recorded a twelve-month rise of 45.24%, an episode traced month by month on our page about how car depreciation actually works. Residual forecasts written before it were overtaken by events, which is why leases signed in that window so often ended with genuine equity sitting inside them. The error can run the other way just as easily, and nobody at the signing table knows which.

The rent charge, and the rate you are not allowed to be shown

The second number is the cost of the lessor’s money. Regulation M calls it the rent charge. The industry calls it the money factor and expresses it as a small decimal, for reasons that become clearer once you know what the law says about it.

Regulation M contains a provision on rate information that deserves far more attention than it gets. If a lessor states a percentage rate at all, whether in an advertisement or in the lease documents, that rate must be accompanied by a notice saying the percentage may not measure the overall cost of financing the lease. The rule then forbids the lessor from using the term annual percentage rate, annual lease rate, or any equivalent term.

That is the regulator saying, in the plainest available language, that no single rate honestly summarises a lease. It is not a loophole and it is not a trick played on consumers; it is a warning aimed at the lessor, and the effect on a shopper is nonetheless significant. When you compare two car loans you compare annual percentage rates, a figure that is legally defined, legally required, and computed the same way by every lender. Nothing of the kind exists on the lease side, by design. The Federal Reserve can publish an average finance rate at commercial banks — 7.14% over 60 months at the most recent reading — because a loan has a rate to average. There is no equivalent series for leases, and there cannot be one.

So the practical answer to “how do I compare two leases” is not to find the rate. It is to compare the disclosures, which the law obliges the lessor to hand over.

What the lessor is required to give you before you sign

This is the most useful section on the page, and it is the one thing here that is not a matter of opinion. Regulation M sets out a list of disclosures a lessor must make. The timing rule is unambiguous: the lessor shall provide the disclosures to the lessee prior to the consummation of a consumer lease. They must be made clearly and conspicuously in writing, in a form the consumer may keep. And a core set of them must be segregated from everything else in the document, containing only directly related information, laid out in a manner substantially similar to the model form the regulation publishes.

Segregation is not a formatting quibble. It means the numbers that decide the deal are legally required to sit in their own box, apart from the marketing, the option list and the add-on menu. If you cannot find that box, the conversation has not properly started.

Two entitlements inside that list are worth pulling out, because almost nobody uses them.

You can demand the itemisation of the gross capitalized cost, and you can have it before you sign. The regulation gives the lessee an option to receive a separate written itemisation of the gross capitalized cost, broken out by type and amount, and says that if the lessee requests it, the itemisation must be provided before consummation. That is how you find out what has been folded into the number the payment is calculated from — a service contract, an insurance product, an outstanding balance carried over from a previous vehicle. All of those can be capitalized, and all of them then earn rent charge for the term of the lease.

The total of payments is the figure to compare, not the monthly one. The regulation requires it, describes it in the plainest possible terms, and it is the one disclosure that cannot be improved by rearranging the structure of the deal. Two leases with the same monthly payment and different totals are not close to equivalent, and the difference is legally required to be printed.

The terms that decide the number

The disclosure list tells you what you are owed. This section is what the individual terms mean once you have them in front of you.

Capitalized cost

This is the lease equivalent of the purchase price, and it is negotiable in exactly the way a purchase price is. Everything downstream is computed from it, so a reduction here reduces both the depreciation slice and the rent charge that accrues on it. It is also the number a payment-first negotiation is most likely to leave untouched, because a shopper anchored on a monthly figure can be given that figure without the capitalized cost moving at all.

Capitalized cost reduction

Money paid at signing that reduces the adjusted capitalized cost. It is frequently described as a down payment, and the label does real damage, because it is not one. On a purchase, a deposit builds equity in an asset you own. On a lease it is prepaid depreciation on an asset you never will. If the car is written off or stolen in the first months of the term, that money is gone and the settlement goes to the lessor, which is a specific exposure taken up in the section on gap coverage below.

Residual value

Covered above. Set by the lessor, rarely negotiable, and the largest single lever on the payment. Read it as a forecast that somebody else has made and that you are being invited to trade against.

Money factor

The industry expression of the rent charge. It is a small decimal, which is precisely why it is a small decimal — a figure in that format is very hard to hold against the rate on a loan quote, and as we have seen the regulation actively prohibits the lessor from converting it into an annual rate for you. The useful move is not to try to decode it but to insist on the two disclosures that make it visible anyway: the rent charge itself, and the total of payments.

Acquisition and disposition fees

An acquisition fee is charged at the start for originating the lease. A disposition fee is charged at the end for taking the car back and preparing it for resale. Both must appear in the disclosures — disposition charges fall under other charges, and the regulation is specific that where the fee varies according to where you return the vehicle, the lessor must disclose the highest amount charged.

The disposition fee is the one people forget, because it arrives years after they last thought about the paperwork, at the moment they are handing back a car and mentally finished with it. It is not a penalty and it is not a surprise: it was disclosed at the start, in a box, and hardly anybody reads it there.

Mileage allowance

The number of miles the contract permits across the term, with a stated charge for each mile beyond it. The allowance sits underneath the residual: a lease written with more miles has a lower expected end value, so the depreciation slice is bigger and the payment is higher. This is the section’s central point and it gets its own heading below.

Wear and use standards

The condition the vehicle must be in when it comes back. Regulation M requires the lessor to state its standards for wear and use and requires those standards to be reasonable, and it requires a notice telling you that you may be charged for excessive wear based on those standards. Everything about how that plays out in practice depends on where the line between normal and excessive is drawn, which is why the standard needs reading before the car is yours to look after rather than afterwards.

The mileage allowance is the constraint people underestimate

Of everything in a lease contract, this is the term that most reliably costs people money they did not expect to spend, and the reason is a failure of estimation rather than a failure of reading.

Ask somebody how far they drive in a year and they will answer from a mental model of a typical week: the commute, the weekend, the supermarket. What that model omits is variance. It omits the year with a house move in it, the summer somebody in the family gets ill two hundred miles away, the job that changes to a site on the other side of the county, the friend who relocates, the child who takes up a sport with away fixtures. None of those is a lifestyle change worth mentioning to anybody. All of them are miles.

A lease term of several years is long enough for at least one of them to happen, and the allowance is a total across the whole term rather than a budget that resets. Overrun in the first year and you do not get a fresh start in the second; you spend the rest of the contract driving against a deficit. The charge is levied per mile at a rate fixed at signing, applied to every excess mile at the end, and it arrives as a single bill at the moment you are trying to hand the car back.

There are two more properties of the constraint that make it worse than it first appears.

You cannot buy the slack later at the price you would have paid earlier. Some lessors will sell additional miles mid-term, and the arrangement is generally less favourable than choosing a higher allowance at the start would have been. The allowance is priced into the residual, and the residual was set on the day you signed.

It changes how you use the car. This is the cost nobody puts in a comparison table. People with a mileage allowance start declining the long drive, taking a second car for the trip, thinking about whether a journey is worth the per-mile charge. A vehicle you are metering is doing a slightly different job from a vehicle you are simply using, and if the point of having a car is that you can go places in it, that is a real reduction in what you bought.

The one genuinely good piece of news here is regulatory. The charge for excess mileage is not something a lessor can invent at the end of the term. Regulation M requires the wear-and-use notice to specify the amount or the method for determining any charge for excess mileage, which means the number is in your paperwork from the first day, and you can multiply it by a realistic overrun before you sign rather than after.

Wear and use: a standard, not an opinion

The second end-of-term liability is condition, and it operates differently from mileage because it is qualitative. The regulation handles that by requiring the standards to be stated and requiring them to be reasonable, and the official commentary offers an illustration that tells you a good deal about where the line sits: a lessor might expect a lessee to return an undented car with four good tyres.

That is a modest expectation, and it is also the whole problem in miniature. Tyres wear out on a schedule set by mileage and driving style. Kerbed alloys, stone chips, a scuffed bumper corner from a tight car park, a cracked windscreen, a seat marked by a child seat, an interior that has carried a dog — each is ordinary, none is negligence, and every one of them is potentially chargeable depending on where the standard draws its line.

Two asymmetries are worth naming.

The first is that the inspection happens at the end, when your leverage is at its lowest. You are handing back a car you no longer want, to a party that has already been paid for the term, and any dispute is conducted after the fact about damage that is now hard to attribute. The practical defence is a pre-return inspection, arranged early enough to have the work done at your own choice of price rather than at the lessor’s schedule of charges.

The second is that the right to an independent appraisal, which Regulation M grants where end-of-term liability turns on the realized value of the vehicle, does not arise merely because you are liable for excessive wear. The commentary is explicit about this. A lessor can expect a car back in reasonable repair, can charge you the difference if it is not, and the appraisal right is a different mechanism aimed at a different problem — the gap between residual and realized value on the kind of lease where you carry that risk.

Closed-end and open-end, and why the difference matters

Regulation M contemplates two structures, and establishing which one is in front of you is the first question to ask about any lease contract.

In a closed-end lease — which the official commentary notes is sometimes called a walk-away lease — the lessee is not responsible for the residual value of the property at the end of the term. Should the vehicle come back worth less than the lessor forecast, that shortfall belongs to the lessor. You still owe for excess mileage, excess wear and any disposition fee, but the valuation risk is not yours. This is the structure consumer vehicle leases generally use.

In an open-end lease, you are liable at the end for the difference between the residual value and the realized value. The car is sold, and if it makes less than the contract assumed, you make up the shortfall. Regulation M attaches consumer protections to this structure that do not exist elsewhere: the right to an independent binding appraisal, and a rebuttable presumption that a residual is unreasonable and not in good faith to the extent that it exceeds the realized value by more than three times the base monthly payment. Where that presumption applies, the lessor cannot simply collect the excess — it must bring a successful court action and pay your reasonable legal fees, unless the shortfall was caused by unreasonable or excessive wear.

That is an unusually strong piece of consumer protection, and its existence tells you how much valuation risk the open-end structure transfers. If the disclosure in front of you includes a statement of your liability for the difference between residual and realized values, you are being asked to carry the used-car market’s behaviour for the next few years. That may be a perfectly acceptable trade. It should be a knowing one.

The end of the term, and the three ways out

Every lease finishes in one of three ways, and the decision is usually made in the last weeks of the term, under time pressure, by somebody who has not thought about the contract in years. It is a better decision made early.

Hand it back

The default. You return the vehicle, it is inspected against the wear standard, the odometer is read against the allowance, and you settle whatever those two produce along with the disposition fee if one applies. Then you have no car, which is the part that catches people out: the end of a lease is not a neutral event but a deadline by which you must have arranged transport.

What you do not have is any exposure to what the car is then worth, and on a closed-end lease that is exactly what you paid for. If the used market has fallen, you are indifferent to it. That is a genuine benefit and it belongs in an honest comparison.

Buy it

If the contract contains a purchase option, the disclosure rules around it are stricter than most people realise. The price must be disclosed as a sum certain, or as a sum certain to be determined at a future date by reference to a readily available independent source, with enough information for you to work out the actual price when the option becomes available. Regulation M states plainly that describing the purchase price as the negotiated price or the fair market value does not comply.

Exercising the option makes you a used-car buyer, and the ordinary used-car questions apply, with one advantage: you know the car. You know how it has been driven, whether it has been serviced, and what it went through, because it went through it with you. What you may not know is what happened before you took delivery, or whether anything was recorded against the vehicle during the term. It is worth seeing what a history report on that specific VIN shows before committing to a buy-out price fixed years earlier, because the option price was set by a forecast and the car’s recorded history is a fact.

Roll into another one

The third exit is the one the dealership is best set up to deliver, and the one that needs the most care. Ending a lease early, or trading out of one into a new agreement, can leave an unamortised balance, and that balance has to go somewhere. If it is capitalized into the next lease, it becomes part of the gross capitalized cost on a vehicle that has its own depreciation to get through, and it earns rent charge for the length of the new term.

It is the leasing form of a trap our piece on being underwater on a car loan examines closely: a shortfall from one vehicle carried forward onto the next, which converts a one-off deficit into a permanent feature of your finances. The itemisation of the gross capitalized cost, which you are entitled to request before signing, is exactly the document that shows whether it has happened.

Early termination deserves a separate warning, and the regulation supplies one. Every motor vehicle lease must carry a notice stating that you may have to pay a substantial charge for ending the lease early, that the charge may run to several thousand dollars, and that the earlier you terminate the greater it is likely to be. That is a prescribed federal warning printed on the contract, not a scare story. A lease is a fixed commitment for its full term, and the flexibility people imagine they are buying with a shorter obligation mostly is not there.

Gap coverage on a lease

If a leased car is stolen or written off, two numbers come due at once and they do not match. The insurer pays the vehicle’s actual cash value on the day of the loss. The lessor is owed an early termination amount calculated under the contract. The difference between the two is a real liability, and it belongs to you.

The structure of a lease makes that gap likely rather than exceptional in the early part of the term, for the same reason it appears on a financed purchase: a car’s value falls fastest at the beginning, while the contract balance unwinds on its own schedule. Any capitalized cost reduction you paid at signing sits inside the exposure too, because it reduced the balance rather than buying you an asset.

Many vehicle leases include a gap waiver as standard, and many do not, and there is no way to know which without reading the contract. The disclosure requirement is the place to look: Regulation M requires a brief identification of insurance in connection with the lease, including the types and amounts of coverage and the cost to you where it is arranged through the lessor, and the types and amounts required of you where you must obtain it yourself. Three questions settle it. Is a waiver included? What does it cost, and is that cost inside the capitalized cost? What does it exclude — the deductible, missed payments, excess mileage and wear charges are all common carve-outs.

How the product is priced, and where it is bought for less than the finance office charges, is covered in our piece on GAP insurance and whether it earns its price. The point specific to leasing is that the exposure is not optional in the way it is on a purchase, because you never accumulate equity that would close the gap on its own.

The credit requirement

Leasing is generally underwritten more tightly than lending. The reason sits in the structure of the product rather than in any judgement about lessees.

A lender advancing money against a car has one exposure: whether you repay. A lessor has two. It needs the payments, and it also owns a vehicle whose value at the end of the term it has already committed to in the residual. If the car comes back worth less than forecast, the lessor absorbs that on a closed-end contract. Its capital is at risk in a way a lender’s is not, and underwriting reflects it.

The practical consequences are two. Approval at the margin is harder than for a loan on the same vehicle. And where a weaker credit profile on a loan shows up as a visibly higher annual percentage rate, on a lease it shows up inside the money factor — which, as established above, the lessor is not permitted to express as an annual rate. The same deterioration in terms is simply less visible.

That is a reason to arrive with an outside price for money before any of this is discussed. A loan pre-approval does not commit you to borrowing, and it does give you a rate obtained from an institution with no interest in which product you end up choosing. Where to obtain one, and what to hold it against, is the subject of our piece on getting a car loan pre-approval.

The comparison that has three columns

Now to the part the standard page cannot reach.

Leasing and financing are both new-car products. A lease is written on a new vehicle by a captive finance arm attached to a manufacturer, and the entire lease-versus-buy debate is therefore conducted inside the new-car market, between two ways of paying for a car nobody has owned. The comparison is real. It is also a comparison between two positions at the top of the depreciation curve.

Federal lending data sizes the missing column better than any argument could. On the Federal Reserve’s measure of what borrowers actually finance, a new car carries an average balance of $42,503.54 against $24,897.75 on a used one. Ten years earlier those readings were $28,140.06 and $16,670.42 respectively, so both markets have climbed — but the distance between them is what matters here. A large part of that distance is value the first owner has already surrendered, arriving on the second owner’s side of the ledger as debt that never had to be taken on.

That is the structural case for the third column, and it does not rest on anybody’s opinion of leasing. The front of the depreciation curve costs what it costs because of things that can only be sold once: the premium for being first, the discount a second buyer applies to a history they cannot verify, the factory guarantee running down. A used buyer walks in after somebody else has settled every one of those. Our page on car depreciation works through why the curve bends where it does.

The exchange is not free, and pretending otherwise would repeat the sin of the two-column comparison. Buying past the steep stretch usually means the factory guarantee has gone too, so what a lease spends on guaranteed condition, a used-car budget spends on repair risk instead. A plan with no reserve in it has quietly assumed one side of that swap and ignored the other. A certified pre-owned car tries to buy the flat section of the curve without giving up all the coverage, at a price you can only judge once you know which party actually stands behind the certificate.

There is a second difference, and it is the one this site exists for. A lease is a claim about a category — a new vehicle of a stated specification, warranted by its maker. A used car is one particular object carrying one particular past, and nothing in a photograph separates a good example from a bad one. A title brand, an odometer figure that disagrees with the record, an open safety recall: each of them alters the car’s value and its running costs together, and each sits behind the same seventeen characters printed in the listing. Running the title and recall record on a VIN before you negotiate is what converts the third route from a gamble into a decision. Buying used trades the lease’s constraints for an information problem, and the information problem happens to be the solvable one.

Where leasing genuinely wins

An honest page has to include this section, and it is not a courtesy. There are circumstances in which a lease does something the alternatives do not, and some of them are undersold even by the people selling leases.

You never have to sell a car. Disposal is the part of ownership people dislike most and account for least. Advertising, strangers, test drives, payment risk, or a trade-in valuation you have no way to check. A lease ends with handing over a key. That has real value, and no comparison table has ever priced it.

You are never outside warranty. If a term is set to finish within the manufacturer’s coverage, the car is under guarantee for as long as you have it. That does not merely reduce repair costs; it removes a category of uncertainty from your finances entirely, which is worth more to some households than the arithmetic suggests.

The obligation is fixed and dated. You know what it costs, you know when it ends, and there is no residual asset whose value you have to guess at. For anyone who needs their outgoings predictable rather than minimised, that is a genuine feature.

You are indifferent to the used market. On a closed-end lease the valuation risk sits with the lessor. Given how far the used-vehicle market has moved within living memory, transferring that risk to somebody else is not a trivial thing to have arranged.

You want the newest equipment on a short cycle. Safety systems, driver assistance and drivetrain technology are changing quickly enough that a short replacement cycle has substantive consequences and not merely cosmetic ones. Leasing is built for a short cycle. Buying is punished by one, because repeated purchases pay the expensive part of the curve over and over.

Your mileage is low and predictable. The constraint discussed above is only a constraint if it binds. For a household that genuinely drives a modest and stable number of miles, the allowance costs nothing at all, and the residual it supports is working entirely in their favour.

What none of those advantages amount to is a general answer. They describe a set of circumstances. If you are in them, a lease may fit well; if you are not, the same contract is a set of restrictions attached to a payment that was never buying the car in the first place.

What actually decides the answer

We are not going to tell you which route to take, and any page that does so without knowing your circumstances is guessing in public. What can be set out is the list of things the answer turns on, so that you can see which of them you already know.

How long you intend to keep the vehicle. This is the largest input and the one most often left unstated. Leasing is a product for short holding periods and is comprehensively beaten over long ones, because at the end of a lease you have nothing and at the end of a loan you have a car. The two only compete inside a particular band of years, and which band depends on everything below.

How many miles you drive, and how confidently you know that. Not the average. The bad year.

Whether you want to own a car at the end. Some people want an asset and some want transport with no residual attached. Neither preference is wrong, and pretending the question is purely financial obscures the fact that it is partly a preference.

What terms you can actually get. A lease priced off a strong residual and a keen money factor is a different proposition from one priced off a weak residual for a marginal credit profile. Both are called leasing.

Whether you could absorb an unexpected repair. This is what separates the used option from the other two more sharply than price does.

How much variance your life contains. A lease is rigid. If a relocation, a job change or a family change is plausible within the term, the early termination notice printed on the contract is describing your exposure.

Underneath all of that sits a question that is not about leasing at all, which is what any of these routes should be allowed to cost you across the period you intend to keep the car. The costs that never show up in any payment quote are worked through in our piece on setting a realistic ceiling on car spending, which is the place to start if the number itself is the uncertain part.

The one thing this page will assert is narrower than a recommendation. Whatever you decide, do not decide it by putting a lease payment next to a loan payment and choosing the smaller one. They are prices for different things, the regulation itself sets out why, and the third column is not on the page unless you put it there.

Common questions

Is leasing cheaper than buying?

The monthly payment is usually lower, and that is not the same question. A lease payment covers the vehicle’s forecast loss in value over the term plus a rent charge; a loan payment buys the whole car. Over a short holding period the comparison is genuinely close and depends on the residual and the money factor you are offered. Over a long one, leasing loses to ownership for a structural reason: the lease ends and you have nothing, while the loan ends and you have a car. No answer covers everybody, and a page that offers you one has stopped describing your circumstances and started describing its own.

What is a money factor, and how does it compare to an interest rate?

It is the way the lease’s finance charge is expressed. Regulation M calls the underlying amount the rent charge and defines it as the amount charged in addition to the depreciation. The regulation also forbids a lessor from presenting any percentage rate as an annual percentage rate or annual lease rate, and requires any rate that is stated to carry a notice saying it may not measure the overall cost of financing the lease. In other words there is no legally comparable rate on a lease, by design. Compare the rent charge and the total of payments instead — both are required disclosures.

What must a dealer show me in writing before I sign a lease?

Regulation M requires a specific list, delivered clearly and conspicuously in writing, in a form you may keep, before the lease is consummated. It includes the amount due at signing itemised by type, the payment schedule, other charges, the total of payments, the full payment calculation from gross capitalized cost through residual value and rent charge to the monthly figure, early termination conditions and the prescribed warning about them, wear-and-use standards and the excess mileage charge, the purchase option price, insurance, fees and taxes, and any liability you carry for the difference between residual and realized values. You can also request a written itemisation of the gross capitalized cost, and it must be provided before you sign.

What happens if I go over the mileage allowance?

You are charged for every excess mile at a rate fixed when you signed, settled as a single amount at the end of the term. The rate is not improvised: Regulation M requires the wear-and-use notice to specify the amount or the method for determining any charge for excess mileage, so it is in your paperwork from the first day. Buying additional miles mid-term is sometimes possible and is generally less favourable than having chosen a higher allowance at the outset, because the allowance was priced into the residual on the day the contract was written.

Can I get out of a lease early?

Usually, and it is expensive. Every motor vehicle lease must carry a notice warning that ending the lease early may cost a substantial charge, potentially several thousand dollars, and that the earlier you end it the larger the charge is likely to be. The conditions and the method of calculating the charge are both required disclosures, and the charge itself must be reasonable. Treat a lease as a fixed commitment for its full term, because that is what the contract makes it.

Should I buy the car at the end of the lease?

That depends on the purchase option price against what the car is actually worth, and the option price was set years earlier by a forecast. The regulation requires it to be a sum certain, or determinable from a readily available independent source — a price described merely as the fair market value or the negotiated price does not comply, so you should be able to establish the figure well before the decision falls due. The advantage you have over any other used buyer is that you know how the car has been treated. The gap in your knowledge is what happened before delivery and what has been recorded against it since, which is what a vehicle history check answers.

Is leasing a used car possible?

Some lessors write them, and they are far less common than new-car leases, which is why nearly every lease-versus-buy comparison is implicitly a comparison between two ways of acquiring a new car. That is the omission this page is about. The genuine third option for most people is not a used lease but buying a used car outright and letting the first owner absorb the steepest part of the depreciation curve. The Federal Reserve’s lending figures size the difference: an average of $24,897.75 financed on a used car against $42,503.54 on a new one.