Leasing is nothing more than a method of paying for the use of a car over a specified period of time. Sounds like renting, but don't get the two confused.

When you lease, you negotiate a purchase price with the dealer just as you would if you were buying. But it's the leasing company that actually buys the car from the dealer — at the price you and dealer decide on. The car is now owned by the leasing company, who then leases it to you.

The car dealer simply acts as an agent for the leasing company. He works out the terms of the leasing agreement with you on behalf of the leasing company. For this service, the leasing company usually pays him a commission, which adds to his profit on the deal. Once the contract is signed, your relationship is with the leasing company, not the dealer.

Leasing companies used by dealers are usually subsidiaries of the car manufacturer (called "captive" leasing companies), such as Ford Motor Credit or General Motors Acceptance. However, dealers can also offer leases from banks and other lending institutions with whom they've worked out mutually beneficial business terms.

As a leasing consumer, you also have the option to shop for your own independent leasing company, bank, or credit union to find better lease terms than the dealer offers you. These independents frequently can even arrange to get you a better price on the car.

Signing a leasing contract means that you agree to make regular monthly lease payments, keep appropriate insurance, pay any vehicle taxes or fees, and take good care of the vehicle. Further, you agree that you'll keep the car for a specified number of months — typically 24, 36, or 48 months — and you're expected to stick it out to the end.

At the end of the lease you're expected to return your vehicle to the leasing company with no more than normal wear and tear. You have to pay them for any damage or extra mileage over and above your contract-specified limit.

You may have an option to purchase your vehicle at lease-end for a specified price, if you choose. Or you may be able to use the car as a trade-in on a new car. Otherwise, you can simply return the vehicle to the leasing company and walk away.