Q: How, specifically, does a lease work?

A: When you lease a car, you simply pay for its use. In other words, you pay the difference between what it's worth new and what it's worth at the end of the lease—as well as interest and taxes. Your payments are almost always lower than conventional financing of the same term. In fact, you may even be able to get a lower monthly payment on a 36-month lease than on a 60-month straight finance. For many people, leasing is a great way to be able to afford a more expensive car or keep a newer car that's always under warranty.

Q: What happens if I want to trade early?

A: Because none of your payment has gone toward building equity in your vehicle, you'll usually owe more than the vehicle is worth until shortly before the end of the lease. A vehicle depreciates the most its first year and then levels out. The below chart illustrates how this works.

Q: What fees are involved in a lease?

A: Most lease companies assess the following fees, some of which may be negotiable, especially if you lease another car through the same company:

• Fee—an administrative fee that's included in the financed cost of the vehicle.
• Security Deposit—typically equals the amount of the first month's payment, rounded up to the next $25 dollar increment.
• Early Termination Fee—applied if you trade in the vehicle early.
• Disposal Fee—applied if you keep the vehicle to the end of the term.

Q: What does "normal wear and tear" mean?

A: The lease company doesn't expect the vehicle to be new when you return it. But if you don't repair excessive wear before you give the car back, then they will make the repairs and charge you. Excessive wear can include, but is not limited to:

• Cracks in the windshield.
• Any body damage above the level of a door ding.
• Stained or torn seats and carpets.
• Missing or broken parts and equipment.

Excessive wear charges only apply if you drive the vehicle to the end of the term and give it back to the lease company; if you buy it, sell it or trade it in early, you'll have no charges.

Q: May I add anything to my vehicle, like accessories?

A: If you plan on upgrading your vehicle, you should do it before you lease it. There are two types of upgrades to consider:

1. A "Hard Add" is a permanent change that adds value to the vehicle, like a sound system or nicer wheels. Hard Adds can be residualized and will actually be cheaper to you in the long run.
2. A "Soft Add" is a change that doesn't add value to the car, like a bed liner or pinstripes. You will lose these upgrades at the lease end, but you won't have paid cash for them, since they were part of your payments.

If you add anything after the lease starts, and you decide to turn the car back to the leasing company at the end of the lease, you will have to restore the vehicle to the exact condition it was in when you leased it or lose the upgrades.

Q: Why is insurance more expensive when I lease?

A: When you lease, you are listed as the "lessor," not the owner. The leasing company is the owner. This is both good and bad news for you. If there is a major lawsuit, the lawyers will often go after the leasing company, which has the deepest pockets. For this reason, the leasing company requires a higher level of coverage and a lower deductible, which can make your premiums higher.

Q: What is a "subvented" lease?

A: Like rebates or cut-rate financing, subvented leases are a type of consumer incentive. When a lease is subvented, or subsidized, it has an above-market residual value or a below-market lease factor, either of which can result in lower monthly payments. If a vehicle you're considering has a subvented lease, it can save you hundreds—or possibly thousands—of dollars, so be sure to ask your dealer.