Auto Leasing Glossary

Acquisition Fee: This is a fee that most lessors charge to cover costs of setting up the lease. It can include GAP Insurance, Residual Value Insurance and Contingent Liability Insurance.

Capitalized Cost (Cap Cost): This is the financed amount of the lease and is comprised of the vehicle selling price, lease fees, sales tax or other added items.

Captive: This term is used to describe the auto manufacturer’s finance arm.

Captive Lease Programs: These are the leases offered by the manufacturer’s finance arm. They typically provide a cut rate money factor or an artificially inflated residual value to help lower your lease payment. This can limit your options during or at the end of the lease.

Cap Reduction: This is the same as “cash down” on a finance agreement. It helps lower the lease payment but it is not recommended.

Closed-end Lease: These are the most popular leases being offered today. They limit the liability of the consumer for the residual value at the end of the lease and are also covered under Regulation M.

Credit Score: This is part of your credit report and is used by most lessors to determine your rate. It is not necessarily used to determine if you would be approved for a lease. The higher the score the better and most lessors consider 700+ to be top tier or “A” credit.

Depreciation: Is the decrease in the value of the vehicle over a specific time period.

Excess Mileage Penalty: This is the amount you will pay for each mile you drive over your allotted amount specified on your lease agreement.

Extended Warranty: Also called a Vehicle Service Contract, picks up where the new car warranty leaves off.

Gap Insurance: In the event the vehicle is totaled or stolen, this insurance covers the difference between the lease payoff and the amount the lessee’s insurance pays. This is important when you are dealing with a no-money down lease.

Independent Leasing Company: These companies are an alternative to leasing through the dealer. They can usually assist you with any make or model, new or used, and provide better lease offers through various finance sources.

Lease Payoff: This is the amount required to get out of your lease early. It may include additional fees for breaking your lease early.

Lessor: Is the party who is leasing the car to you. Even though a dealership or broker may arrange the lease, the lessor is often a bank or the financial arm of a car manufacturer.

MSRP (Manufacturers Suggested Retail Price): This is the retail price of the vehicle that is displayed on the window of the vehicle. It’s also used to calculate the residual value.

Market Value: Is the amount an individual or dealer is willing to purchase your vehicle in a retail environment. See our Internet Resources for sites that will help you obtain this value.

Money Factor: This is used to calculate the interest on the lease. For a comparable interest rate multiply this number by 2400.

Monthly Depreciation: This is the amount the vehicle loses value each month and is part of the base monthly payment.

Monthly Interest: This is the monthly finance charge and is part of the base monthly payment.

Negative Equity: Is the difference between the market value of your vehicle and the current loan payoff, when the latter exceeds the former. Negative equity results when your vehicle declines in market value by more than your paid principle. Simply, you owe more than your car is worth.

Open Ended Lease: This type of lease is primarily used for businesses purposes as the lessee is responsible for the value of the vehicle at the end of the lease.

Purchase Option: This is the amount the vehicle can be purchased for at the end of the lease.

Purchase Price: This is the agreed to selling price of the vehicle

Regulation M: Is the Federal regulation implementing the Consumer Leasing Act of 1976 and requires lessors to provide more detailed pricing information in their lease contracts.

Remarketing Company: This is a third party company that handles the disposition of the leased vehicle.

Residual Value: Is the estimated value the vehicle will be worth at the end of the lease.

Term: Is the length of the lease.

Totaled: This is the term used to describe a vehicle that has been in an accident and the cost of repairs is more than the value of the vehicle.

Wear and Tear Insurance: An insurance policy that covers a certain amount of damage to a vehicle that the lessee would normally be charged for at the end of the lease.