Definition
A long-term rental of a vehicle for a set period and mileage limit, after which you return it or buy it.
What it means
When you lease a car, you pay for the vehicle's expected loss in value during the lease, plus a finance charge and fees, rather than its full price. Leases usually last two to four years and have a yearly mileage limit, such as 10,000 to 15,000 miles, with a per-mile charge for going over. You may also pay for wear beyond normal use, and ending a lease early can be expensive. The federal Consumer Leasing Act, through Regulation M, requires leasing companies to disclose costs such as the amount due at signing, monthly payments and fees. The money factor works like an interest rate; multiplying it by 2,400 gives a rough APR. At the end, you can return the car or buy it for the residual value stated in the contract.
Example
A 36-month lease with $2,000 due at signing and $399 a month costs $16,364 in payments. Driving 3,000 miles over the limit at $0.25 a mile adds $750.
Illustrative numbers only. Your situation will differ.