How car leasing actually works

When you lease, you pay for depreciation, not for the car. The finance company buys the vehicle, predicts what it will be worth at the end of your term, and charges you the difference — plus interest on the money they have tied up meanwhile. That is the whole idea. Everything else is arithmetic.

The four numbers that set your payment

• Capitalized cost — the price of the car for lease purposes. This is the negotiable one. Lower it and the payment falls.
• Residual value — what the car is predicted to be worth at lease end, as a percentage of sticker. Set by the manufacturer, not negotiable. A high residual is good for you: less depreciation to fund.
• Money factor — the interest rate, expressed as a small decimal. Multiply by 2,400 to get an APR: 0.00125 is roughly 3%. A dealer can mark this up, so it's worth asking what the base rate is.
• Term and mileage — how long, and how far. 74% of the offers we track run 36 months, and 10,000 miles a year is the most common allowance.

Roughly: the depreciation (cap cost minus residual) is divided across the months, a finance charge is added, and tax goes on top. Two cars with the same sticker price can carry very different payments purely because one holds its value better.

What "due at signing" really is

It is prepaid rent, not equity. Money down on a lease lowers the monthly figure but buys you no ownership, and if the car is stolen or written off early, insurance settles with the finance company — not with you. This is why experienced lessees keep the amount due at signing as small as the deal allows, even at a higher monthly payment.

What the advertised offers actually mean

Manufacturer lease offers — the ones we track — are the finance arm's promotional programs, and they're specific: a given trim, a given term, a stated amount due at signing, in a given region, for buyers who qualify at the top credit tier. Change any of those and the number changes.

They also turn over roughly monthly, and they vary by region — the same car can differ by $50–150 a month between parts of the country. That's why a number you saw last month may not exist today, and why we re-check each brand as its program expires.

At the end of the term

• Return it — the default. Expect an inspection; excess wear and mileage are charged then.
• Buy it — at the residual value agreed at the start. Worth doing when the car is worth more than that prediction.
• Lease something else — the manufacturer would very much like this, and loyalty incentives often reflect that.

Seeing it in practice

The abstractions are easier with real numbers in front of you. Current programs, ranked by monthly payment: every deal we track, SUVs, hybrids, EVs. Each offer shows its term, mileage allowance, amount due at signing, and the manufacturer's own fine print.

Still deciding whether to lease at all? Lease vs buy works through the trade-off.