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, once you've signed the lease contract, the dealer actually sells the car to it's leasing company — at the price you and dealer decided on. The leasing company then leases the car to you.

The car dealer simply acts as an agent for the leasing company so that you never deal directly with the leasing company until you start to make monthly payments. The dealer 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 Corporation. 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 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.

In Canada, independent leasing companies are harder to find than in the US, meaning you're more likely to be stuck with the car manufacturer's finance company. This has helped contribute to higher lease interest rates in Canada.

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.

Canadians should particularly make sure that the lease contract specifies a lease-end purchase option, if you think you'll want it. It's not automatically in the contract.