If you need a vehicle, but don't have the cash, many dealers allow you to lease. There are many situations where leasing is the ideal choice over financing. Learn how car leasing works and the pros and cons to help you make the right choice for your situation.

So, how does leasing work? Leasing is making monthly payments to a dealer for temporary use of the vehicle without ownership. The typical car lease contract lasts from 12 to 60 months, although some dealers may offer shorter or longer terms. Most dealers calculate payments according to credit score, vehicle value, mileage, and predicted depreciation during the loan term. Contracts commonly include loan length, fees for going over the mileage, and maintenance and insurance requirements.

When considering leasing, there are some pros and cons to keep in mind. One con of car leasing is if you go over the mileage, you must pay a fee, which is typically 15 to 25 cents per mile. You are also responsible for paying for wear and tear, and you pay extra for insurance. You don't own the vehicle, so you can't sell or trade or add the features you want. Since you don't own it, you won't build equity.

A major pro to leasing is that you don't have the responsibility of selling the car or the concern of depreciation. You turn it back over to the dealer at the end of your lease term. Leasing is a also good way to boost your credit score for better if you make payments on time.

It's also important to know some leasing terms. The acquisition fee is what the dealer charges you to draw the lease, which can add a few hundred dollars. The residual value refers to the cost and sale price of the vehicle at the end of the lease term. Depreciation is the difference between the vehicle's current worth and what you owe on the loan. GAP insurance, or guaranteed auto protection, pays the difference between the vehicle value and what you owe.

When does leasing make sense? If you don't travel long distances or work out of town, leasing could be less expensive. It is a good idea if you want to drive a newer model without a commitment to buy. Sometimes, car leasing is ideal if you need something temporary for business, and it could earn you a tax deduction. Sometimes, dealers run lease specials with lower interest rates, especially during holidays.