Spelling: lease a·gree·ment
What Is a Lease Agreement?
A lease agreement is a legal contract between you and a leasing company that outlines the terms of your car lease. It defines how long you can drive the vehicle, how much you’ll pay monthly, and what conditions you must meet during and after the lease
This document is the foundation of any car lease and is binding once signed.
Lease Agreement Meaning in Car Leasing
In car leasing, the lease agreement serves as your roadmap. It spells out the rules and responsibilities for both the driver (lessee) and the leasing company (lessor). It’s where you’ll find the total cost of the lease, your mileage allowance, and any penalties for early termination or excess wear.
Key elements typically include:
- Lease term length (for example, 36 months)
- Monthly payment amount
- Annual mileage limit
- Residual value of the car at lease-end
- Fees (acquisition, disposition, excess mileage, and so on)
- Buyout option and its cost
When you lease a car, the agreement outlines what you’re paying for: the vehicle’s depreciation over the lease term, not full ownership. Once signed, this document becomes the basis for your monthly payments and responsibilities.
Most lease agreements:
- Are set by the lessor and non-negotiable
- Require full insurance coverage
- Limit how many miles you can drive annually
- Include return conditions (cleanliness, condition, and so on)
- Can include a purchase option at the end
Pro tip: Always read your lease agreement carefully before signing. It controls what happens if you exceed mileage, return the car damaged, or want to buy it out early.
Details in Car Leasing Agreements
You’ll encounter the lease agreement at the beginning of the lease process, typically after choosing your car and finalizing your financing or credit approval. It must be signed before the vehicle is delivered or driven off the lot.
It’s a critical step because:
- It confirms your monthly cost and end date
- It outlines penalties and protections
- It dictates whether you can buy the vehicle, and for how much
Note: If you’re using a third-party service to buy out your lease, they will also need a copy of this agreement to verify your residual value and contract terms.
What Happens After You Sign a Lease Agreement
After signing, you’ll receive a digital or printed copy of the lease agreement for your records. It’s important to:
- Save your copy in case you need to reference fees, terms, or the residual value
- Register your account with the leasing company to manage payments and see payoff info
- Track your mileage and condition throughout the lease so there are no surprises at turn-in
Most leasing companies will send reminders near lease-end with return or buyout options based on this agreement.
Related Terms for Lease Agreement
- Prev Term: lease
- Next Term: lease assignment
- Related Terms: residual value, lease buyout, capitalized cost