Car lease agreement form

Consumer vehicle leases are always “closed-end” leases, which should be specified here at the top of the lease agreement form. Closed-end agreements set a firm lease-end residual value, allowing the customer to return the vehicle at the completion of the lease without further financial obligation. “Open-end” leases are only for commercial vehicle use, and require the customer to pay any difference at lease-end between the initial residual value and the actual lease-end market value.

If two people’s names appear here as primary signers, such as husband and wife, both are equally responsible for the lease. Both names will appear on all legal documents, titles, and registrations associated with the lease, unless you request otherwise. The lease will appear on credit reports for both people. This is not the same as having one person’s name on the lease and having a co-signer or “guarantor”, whose name appears elsewhere (at the bottom) of the lease agreement form. A co-signer or guarantor only becomes responsible if the primary signer(s) default or fail to pay on the lease. However, the lease appears as a debt obligation on the “guarantor’s” credit report just as if he was a primary signer.

This section identifies the Lessee (you), the Lessor (the dealer), and the Assignee (the lease company). It says that you are initially leasing the car from the dealer, but that the dealer will immediately hand over (assign) the lease to the lease company, assuming the lease company agrees to take it based on your credit approval. Therefore, the leasing company becomes the Lessor from this time forward. Payments and all matters concerning the lease should be addressed to the lease company, not the dealer.

This section is the legal description of the vehicle. It’s particularly important in a lease that the information in this section be completely accurate, especially the VIN number and the mileage. Any inaccuracies here can cause serious problems later in the lease.

This section should accurately list all optional and dealer-installed equipment on the vehicle. This is important at the end of the lease when an accounting for the equipment must be made. Be sure there’s no equipment listed that is not actually on the vehicle. Also make sure you do not remove or modify any of the indicated equipment during the lease.

This specifies the amount you will pay to begin your lease. The specifics of how this figure is determined is explained in another section of the contract just below this section. There will also be another section below that explains where the money to pay this amount will come from.

This specifies the amount of your monthly lease payment, including any sales or use taxes. The first payment on a car lease is always due at the time the lease is started, at the time the contract is signed. All other payments are then due at the beginning of each payment period. Each payment is due on the monthly anniversary of the first payment. This section does not explain how the monthly payment is calculated. This is done in another section below, although the formula is never explained.

This section lists any charges that have not been added to the lease cost, which means these charges will be paid in some other way other than through your monthly payments. The most common example is a disposition fee, which is paid at the end of the lease when you return your vehicle to the lease company. It’s an administrative fee that is charged to compensate the lease company for the cost of paperwork, transporting, and preparing the car for auction. Watch here for extra dealer-added fees that are questionable, and could be negotiable. Sometimes these fees have official-sounding names, but are simply additional profit for the dealer.

This figure might be a little confusing, but it’s for information (and legal) purposes only. It is the sum total of all the various payments associated with this lease, not just monthly payments. It is everything you pay at the beginning, middle, and end of your lease. It includes all fees, taxes, finance charges, and all other charges — and monthly payments. It’s the total amount of money that you will have spent on the lease, assuming you return the car at lease-end. If you choose to buy your vehicle at the end of the lease, you would add the purchase price to this figure to find the real cost of your lease/purchase.

This shows the amount of money required to be paid up front for the lease. It would include any down payment (capitalized cost reduction), first month’s lease payment, and a security deposit, if any. It also includes any official fees for taxes, title, and registration which the dealer collects from you and turns over to your local or county/state agency. It might also include a lease acquistion fee, if that fee has not already been included in your capitalized cost. Sales tax on your down payment and for rebates is generally indicated here. The dealer may add a fee or two of his own here, such as a document fee, which might be negotiable.

The amount you are required to pay at lease signing doesn’t have to be all cash. If you had a trade-in vehicle, you get credit for the agreed upon value here. If there are any rebates from the dealer or manufacturer, or any other type of special discount, you get credit for those here. These credits, along with the amount of cash you’ll pay, should add up exactly to the amount of your “Amount Due at Lease Signing” shown in the previous box on this form.

This is a very important figure in your lease contract but isn’t itemized anywhere. It’s the agreed upon price of the vehicle, plus a bank fee (acquisition fee) that is standard in all leases, but never shown specifically. Sometimes, depending on lease company, the acquisition fee is required to be paid up-front in cash, and not added to your Cap Cost. This figure can also contain the amount of any service contract, insurance, or other services you may have purchased and chosen to finance with your lease. If you had a remaining balance on a previous loan or lease, after getting trade-in credit, that is also added into this figure. If you live in a state that requires all sales taxes to be paid at the time of your lease signing, this will also be included in this figure. It’s advisable to have your dealer itemize this amount for you so that you know exactly what you’re paying for in your lease. There’s too much opportunity for a dealer to make a mistake here and, because it’s not itemized in your contract, it would be very difficult to detect.

This is the same figure shown above in the “Amount Due at Lease Signing” section. It’s all of the things that reduce the price that your lease will be based on, thus reducing your monthly payment. It might include a cash down payment (if any), trade-in credit, rebates, and other special credits or discounts that you and the dealer agree upon. It does not include your security deposit (if any), taxes, fees, or official charges since these do not reduce the cost of your lease. In most states, you’ll pay sales tax on a down payment and rebate, but get a tax credit for a trade-in. These taxes appear in the “Amount Due at Signing” section above.

Residual value is the estimated wholesale value of the vehicle at the end of the lease. It’s an estimate because no one can know for sure what the actual value will be. However, once set, the lease company is obligated to it. Lease companies use various data or data sources to help them with these estimates. The higher the residual, the lower your monthly lease payment. Some vehicles will have higher residuals than others for the same lease term. Lease companies often temporarily boost residual values for special lease promotions. Residual values are not usually negotiable.

Rent charge is something of a misnomer in a lease contact since it has nothing to do with renting as we know it. It’s just a strange misleading name for the total amount that you’ll spend during the course of your lease on finance charges. It is simply a disclosure required by law of the sum of all your monthly finance charges. A lease is like a loan in that you are using someone else’s (the lease company’s) money to finance your use of a vehicle. And you must pay interest on the use of that money. In leasing, it’s called money factor, but you won’t find money factor or interest rate specified anywhere in your lease contract. The only figure you’ll find that relates in any way to finance charges is this one. If you don’t understand finance charges in a lease, or how to determine your interest rate, refer to our Lease Guide section, Car Lease Payment Formula.

This is the amount of your monthly lease payment, not including any sales or use taxes. It’s called your Base monthly payment for that reason. If you look at the calculations just above this figure in your contract, you’ll see that it was determined by taking the amount by which the vehicle is estimated to depreciate over the life of the lease, adding the total finance charges, and dividing by the number of months in the lease. This gives you the base amount of each monthly payment, not including sales tax. This figure is oftentimes the source of mistakes in lease contracts. It’s very easy to miscalculate or use incorrect input data. It’s a good idea to verify this figure yourself by using the payment formula or the lease calculator in our Lease Guide.

Most states require you pay sales tax or “use” tax on the amount of your monthly payment. The amount of that tax is shown here, if any. However, if you live in one of the few states that requires that sales taxes be paid up front, you either pay that tax in cash or include it in your lease’s capitalized cost — and no tax would appear here as a separate part of your payment.

This warning is required to be in all lease contracts. It simply serves to notify you that leases are not designed to be ended early. To do so will possibly, but not always, be very expensive. The chances of a lease being expensive to end early is increased when the lease cost is high relative to the vehicle’s MSRP, if there is no down payment, if no trade-in, if the interest rate (money factor) is high, and/or if residual value is high.

All leases have this kind of clause. It requires that you pay at lease-end for any wear and tear that the lease company judges to be excessive. Most lease contracts contain some details on what is considered excessive. This is typically outlined in the small print on the back of the contract form (see below in this sample contract form). You will also be required to pay for any mileage in excess of the allowance set by this contract. Since your residual value is set based on this allowance, any additional miles you drive will lower the lease-end value of the vehicle below the specified residual value. You are therefore expected to pay the difference on a cents-per-mile basis. There are no set standards for this per-mile charge. Expensive vehicles usually have a higher per-mile charge than less expensive vehicles.

Most lease contracts provide an option to purchase the vehicle at the end of the lease for a set price, specified here. This price is typically the same as the residual value, specified earlier in this contract. However, some lease companies will add a nominal amount (for administrative purposes) to the residual to make the purchase price a little higher. Some specify this add-on fee separately, some simply include it in the purchase price specified here. If you think you’ll consider purchasing your vehicle at lease-end, a low residual value will be beneficial to you, although your monthly payments will be higher. At the end of your lease, you should always evaluate the purchase price to determine if it’s a fair price. If not, the lease company may be willing to negotiate the price.

This section frequently causes concerns but it shouldn’t. It’s an informational figure. It’s merely the dealer’s best guess at how much you’ll spend over the life of the lease for official fees, taxes, licenses and such. It is rarely accurate but it doesn’t matter because it is really not part of your obligations to this contract.

This section states that you as the Lessee are required to have and maintain proper insurance on the vehicle. To not do so puts you in violation of the lease and could subject you to default proceedings, which could be very expensive. The amount of insurance required is usually more than many people typically have on their vehicles, making it somewhat more expensive for these people. Actually, the amount of insurance required is very smart in these days of expensive repairs and liability lawsuits, whether you’re leasing or buying. In event of an accident, your insurance would pay for repairs just as if you owned the car. Be sure to get your repairs done by a reputable repairs shop who uses high quality manufacturer’s parts. Otherwise, you may have to pay at lease-end to have the repairs done correctly. If your vehicle is totally destroyed or stolen, your insurance pays the lease company (it’s their car) for the current market value of the vehicle, not what you still owe on the lease. If you owe more than the insurance pays, you may be responsible for the difference. However, if you have gap insurance, or this contract states (in the small print on the back) that you are not responsible, you have nothing to worry about. For more details, see the section in this sample contract, “Total Loss of Vehicle.”

There is typically no need for an optional service contract in a lease. It’s advisable to lease for a term that is no longer than the manufacturer’s warranty that comes with the new vehicle, making an additional warranty unnecessary. The exception is when you may, for whatever reason, choose to lease for a term longer than the new-vehicle warranty. Remember, an optional warranty only kicks in after the expiration of the manufacturer’s warranty.

This important notice is often ignored in lease contracts. Essentially, it says that you should read and understand your contract before you sign, that you should not sign if there are important blank fields that “will be filled in later,” and that you know you should get a complete copy of the contract after you sign. It’s important that you realize there is no 3-day “grace” period after signing a vehicle purchase or lease contract. There is a common misconception based on laws that protect consumers from door-to-door sales and certain other kinds of contracts. Once you sign your lease contract, the deal is sealed and you’re obligated to its terms and conditions. A dealer is not likely to be sympathetic to customers who come back in a few days saying they don’t want the car or want out of a deal. If you have any doubts or need extra time, take the contract home with you and come back tomorrow — though the dealer will not like it because he knows you might not come back.

This section only applies if you have someone who is acting as co-signer (a “guarantor”) for your lease. There can be more than one co-signer. A co-signer might be necessary if you have a flawed credit history, or no credit history, as might be the case with a young new driver. It might possibly allow you to get a lower interest rate than you would be able to get on your own. It can allow you to lease when you would not be able to do so if you had no co-signer. Anyone who acts as a co-signer will be completely responsible for the lease should you, the Lessee, default in some way and are unable or unwilling to fulfill the obligations of the lease. The lease company can come to the co-signer at the first sign of problems without even contacting the Lessee first. Therefore, a co-signer should not take on this responsibility lightly or without serious consideration of what it means.

This section is signed by the dealer who, by signing, turns over (“assigns”) the lease to the lease company. From this time forward, the lease company owns the vehicle and your lease contract. The lease company will pay the dealer the price that you and the dealer agreed upon for the vehicle. You then begin making monthly payments to the lease company. All matters regarding the lease, payments, insurance, accidents, and lease-end matters will then be with the lease company. All matters regarding the vehicle, such as maintenance, defects, repairs, or recalls, will be with the dealer.Your dealer may not sign the contract form on this line before he gives you a copy. This is not a problem.

You will keep the vehicle in good condition, as if you owned it. You will pay for all expenses of maintaining, driving, licensing, registering the vehicle, just as if you owned it. None of this is the responsibility of the lease company. You will not allow the vehicle to be misused, altered, or re-located without the lease company’s knowledge and permission. You will allow only authorized licensed drivers to operate the vehicle.

The lease company’s way of calculating unpaid finance charges uses the “actuarial” method, which usually results in your owing more than you might expect. When your lease payments were first calculated in the beginning of your lease, the amount of each payment going to finance charges was the same each month for the life of the lease — and the amount going to pay down the depreciation was also the same each month. However, when you end your lease early the lease company has the right to “recalculate” your lease based on a financial formula that assigns more of your early monthly payments to finance charges, and less to paying off the capitalized cost. This means, for example, if you’re halfway through your lease and want to end it, by the lease company’s calculations, you still owe more than half of the original capitalized cost of your lease.

RETURN OF VEHICLE AT SCHEDULED TERMINATION DATE: Your leases ends one month after the last monthly payment is due, unless you and the lease company agree to extend the lease. You will either purchase the vehicle or return it to a location designated by the lease company — usually a local dealer. You must pay for any excessive wear or damages. You also must pay for mileage in excess of the amount you agreed to at the beginning of the lease, as specified elsewhere in this contract.PURCHASE OPTION AT END OF LEASE: You have the option to purchase the vehicle at lease-end for the amount specified elsewhere in this contract. You must pay any related official fees or taxes.

You have the option to purchase your vehicle at lease-end, for the guaranteed purchase price stated in this contract. Depending on lease company, you have to pay a fee to exercise this option.

The lease company’s way of calculating unpaid finance charges uses the “actuarial” method, which usually results in your owing more than you might expect. When your lease payments were first calculated in the beginning of your lease, the amount of each payment going to finance charges was the same each month for the life of the lease — and the amount going to pay down the depreciation was also the same each month. However, when you end your lease early the lease company has the right to “recalculate” your lease based on a financial formula that assigns more of your early monthly payments to finance charges, and less to paying off the capitalized cost. This means, for example, if you’re halfway through your lease and want to end it, by the lease company’s calculations, you still owe more than half of the original capitalized cost of your lease.

EXCESSIVE WEAR AND TEAR: If you don’t purchase your vehicle at lease-end, and you have excessive wear and tear, you will either have the problems fixed yourself or pay the lease company for the cost of fixing the problems, as determined by the lease company. Excessive wear and tear includes, but is not limited to the following: 1) any mechanical defect or failure, 2) broken or missing parts or accessories, 3) damaged body, fender, trim, lights, or windows, 4) chipped paint, 5) interior rips, burns, stains, or excessively worn areas, 6) missing spare tire or jack, 7) tires with less than 1/8 inch of tread at the shallowest point, or 8) safety or emission control equipment not in proper working order.

Most lessees who maintain their vehicles well and keep damages repaired will have no problem with wear and tear fees at lease-end.

SECURITY DEPOSIT: The lease company may require a security deposit to be paid in the amount specified elsewhere in this contract. The lease company will refund this deposit to you at the end of the lease after deducting any charges that you may owe them. No interest will be paid to you.

Depending on your credit rating, you may not be required to make a security deposit. If you do, it will be in an amount that is approximately equal to one month’s lease payment. Some leasers confuse security deposit with down payment. A security deposit is returned to you at lease-end, unless it must be used to help pay possible lease-end charges, such as excessive mileage charges. A down payment is made at the beginning of a lease to pre-pay some of the capitalized cost — to reduce the amount of your monthly payment. It is not returned.

A lease is a legal contract like any other. It requires that you fulfill your part of the deal, or else you are in “default.” The lease company can then sue you to pay what you still owe on the lease, and can take the vehicle from you. Some people have the misconception that they can end their lease cleanly by simply returning the vehicle to the lease company and stop making payments. This thinking comes from the mistaken notion that leasing is like renting. It isn’t, and it doesn’t work the same way. Ending a lease in this way will result in significant cost, headaches, no car to drive, and a damaged credit history. If you need to end your lease, do it in the proper way. See the “Early Lease Termination Guide” elsewhere in this Lease Kit.

Related Topics

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• What is Car Leasing?
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• Lease Kit – Lease Inspector