Glossary


LEASING TERMINOLOGY INDEX A B C D E F G H I J K L M N O P Q R S T U V W X Y Z A Acquisition Fee A fee charged by the Leasing company or the dealer to cover the costs associated with processing a lease. It is usually included as part of the vehicle’s capitalized cost. Adjusted Capitalized Cost The original asking price of the vehicle minus any price reductions negotiated between the dealer and the customer. If a down payment is made, that amount is subtracted as well. This is the basic lease component that is used to calculate lease payments. Also known as Net Capitalized Cost. See definition for Capitalized Cost. Top B Base Monthly Payment The monthly payment amount without applicable taxes or fees. It is computed based on the vehicle’s depreciation over the lease term and the money factor charge. Top C Capitalized Cost (or "Cap Cost") The capitalized cost is the total Final purchase price of the vehicle. This will sometimes be referred to as "Cap Cost". You may have heard of MSRP (Manufacturer's Suggested Retail Price) - this is just the list price of the vehicle to a customer. It is not necessarily what you will ultimately pay for the car. Capitalized Cost Reduction Any reduction in the original asking price of the vehicle. The reduction can result from a down payment, rebate, dealer incentive, or negotiation between the dealer and the customer. Also called Cap Cost Reduction or Cap Reduction. Co-lessee An individual who co-signs the lease with another individual or company. The co-lessee is responsible for fulfilling lease terms if the primary lessee does not fulfill their obligations. A co-lessee may be used to help someone with poor credit obtain approval, or simply to put the names of two people (such as a husband and wife) on the lease together. See also Lessee. Current Lease Buyout This is the amount that must be paid to purchase a leased vehicle before the end of the lease term. The amount is usually calculated by adding the residual value, the total of the remaining monthly payments, and any early termination fees which may apply. Top D Depreciation The reduction or decline in a vehicle’s value over time. It is a primary factor used to calculate the Base Monthly Payment. Disposition Fee A fee charged by many leasing companies at the end of the lease term. It is intended to cover the company’s expenses related to re-selling the returned vehicle. May be negotiable at lease initiation. Also called a Termination Fee. Top E Early Termination Terminating a lease before its scheduled end date. This action usually incurs significant penalties and fees. ESC (Extended Service Contract) A vehicle protection plan typically promoted by a vehicle dealer. It is designed to supplement the manufacturer’s warranty. Costs and coverage vary widely, so the terms and conditions should be read carefully and fully understood before signing any contract. Excess Mileage Charge A charge assessed at lease end for every mile driven over the mileage allowance specified in the lease contract. This charge varies by leasing company and may vary depending on the size of the original mileage allowance. Excess Wear And Tear A charge assessed at lease end if the vehicle is damaged or appears worn beyond normal expectations for the length of lease. Examples include exterior dents, dings, and scratches as well as interior stains, rips, or damage. Top F Federal Consumer Leasing Act Disclosures These disclosures are required by Federal law. They describe key components of the lease contract, including up front costs, monthly payment, mileage allowance, and any fees or penalties that may be assessed at the end of the lease or in the event of early lease termination. Top G Gap Insurance Optional insurance coverage that will pay the difference between what you owe and what the vehicle is worth in the event of vehicle loss. Coverage typically applies to lost/stolen vehicles as well as vehicles that are declared a total loss due to accident or wreck. Also known as Gap Coverage or Gap Protection. Gross Capitalized Cost This is the negotiated price for the vehicle plus any other items that are paid for over the term of the lease. Examples include any extended service contact, the acquisition fee, optional gap insurance, any applicable luxury or sales tax, and any outstanding prior credit or lease balance. Top I In-Process Lease Any lease that is currently in place between a leasing company and a lessee. The lessee may decide to offer the vehicle for lease exchange on Lease-X.com if they want to exit the lease early without paying early termination penalties. Interest Rate See Money Factor. Top L Late Charge A penalty assessed by the leasing company for failing to make a monthly lease payment in full by the due date. Some leasing companies include a specified grace period following the due date, during which no late charge will be assessed if the payment is received during that timeframe. Lease A written contract or agreement by which a leasing company transfers possession of a vehicle to the lessee for a specified term and a specified payment. Lease Assumption Term used to describe when an outside party takes over an in-process lease from the original lessee. The party assuming the lease is subject to all of the terms and conditions specified in the original contract and typically assumes all future liability for fulfilling the agreement. Lease-End Buyout This is the purchase price of the vehicle at the end of the lease. The amount includes the residual value agreed upon at lease origination plus any applicable purchase option fee. Lease Exchange See Lease Assumption Lessee The primary driver of the leased vehicle, who signs the lease contract and is legally bound to the contract terms and conditions. Lessor The legal owner of the leased vehicle and the entity who sets forth the lease terms and conditions. Typically a bank or leasing company. Top M Money Factor The fraction that is used by a leasing company to calculate the interest charges on a lease. The corresponding annual interest rate can be determined by multiplying the money factor by 2400. MSRP (Manufacturer's Suggested Retail Price) This is the sticker price of a new vehicle. It serves as the starting point for negotiating a lower price and is important because it is typically used to determine a vehicle's residual value. Top O Odometer Statement This is a Federal form used to disclose a vehicle's mileage during a transfer of vehicle ownership. A specific lease odometer statement is used in lease transactions such as terminations, assumptions and transfers of equity. Failure to complete a disclosure or making false statements on a disclosure can result in fines or imprisonment. Top P Purchase Option Fee This is a fee that may or may not be charged by the leasing company if the lessee chooses to purchase the vehicle at the end of the lease. It is designed to cover the leasing company’s cost associated with the purchase process and typically ranges from $300 to $500. Top R Required Vehicle Insurance Refers to the insurance policy requirements set forth by the leasing company. Typically includes liability and physical damage coverage, with dollar amounts and limits on deductibles specified in the lease contract. Residual Value This is the original estimate of a vehicle’s wholesale value at the scheduled end of the lease. The value will vary depending on the mileage allowance specified in the lease. The lessee can purchase the vehicle at the end of the lease for the residual value amount plus any applicable purchase option fee. Top S Sales Tax A local tax, if applicable, assessed on the base monthly payment for the duration of the lease. Unlike a lump sum sales tax that is assessed up front on a vehicle purchase, the sales tax on a lease is spread out over the life of the lease. Security Deposit A refundable deposit amount collected when the lease is signed. It is used to cover any penalties or fees that may be assessed at the end of the lease. The security deposit is usually roughly equivalent to the amount of one monthly payment. Top T Termination Fee See Disposition Fee. Total Monthly Payment The total monthly lease payment is determined by adding together the monthly depreciation, interest, and sales tax charges. Transfer of Equity This is similar to a lease assumption, except that the original lessee usually remains liable for the lease contract if the new lessee fails to fulfill the contract obligations. Assuming A Lease About Lease Contracts How A Lease Payment Is Calculated End Of Lease Options Glossary Take a look at our leasing guide here.