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What Is a Lease?

A lease is a contract between a lessor (the property owner) and a lessee (the property user) for the use of a vehicle or property, subject to stated terms and limitations, for a specified period and at a specified payment.

A consumer lease is a lease between a lessor and a lessee for the use of personal property to be used primarily for personal, family, or household purposes for a period of more than 4 months and with a total contractual obligation of no more than $25,000. A lease meeting all of these criteria is covered by the Consumer Leasing Act and the Federal Reserve Board's Regulation M. If any one of these criteria is not met--for example, if the leased property is used primarily for business purposes or if the total contractual obligation exceeds $25,000--the Consumer Leasing Act and Regulation M do not apply. Note: The total contractual obligation is not the same as the gross capitalized cost. Some leases with a gross capitalized cost of over $25,000 may be covered by Regulation M, depending on the terms of the lease. See the glossary for a definition of Total contractual obligation.

Leasing a vehicle is different from renting a vehicle in that a lease has

  • An agreed-upon term
  • In most cases, an early termination charge if the full term is not completed
  • An end-of-term residual value
  • In many cases, a purchase option.

Renting a vehicle for a vacation or business trip does not fall under the protection of the Consumer Leasing Act (assuming that the term is less than 4 months).

The parties to a lease are the lessor and the lessee. Usually, the original lessor is a dealership or an independent leasing company. However, many leases are assigned to a third party at the time the lease is signed. More info

Next: Types of leases

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Last update: May 5, 2003