Lease Payment

A lease payment is the recurring monthly charge a lessee pays to the leasing company in exchange for the use of a vehicle over a specified term, usually two to four years. Unlike loan payments, which build equity by reducing principal, lease payments primarily cover the vehicle’s depreciation during the lease period, plus interest and fees.

Lease payments are influenced by several factors: the vehicle’s MSRP, the residual value at lease-end, the money factor (interest rate equivalent), lease term length, and any upfront costs such as down payments or trade-ins. Because lessees only pay for depreciation and not the full value of the vehicle, lease payments are generally lower than loan payments for the same car.

However, leases come with restrictions such as mileage limits, wear-and-tear guidelines, and penalties for early termination. Understanding how lease payments are structured is essential for comparing leasing versus buying and for evaluating different lease deals.

Lessees should always review the breakdown of charges and consider long-term costs when entering into a lease agreement.