  Lease DictionaryA smart consumer will have a good working knowledge of leasing, including the terminology. Without this knowledge, you may live to regret leasing your vehicle. Annual Mileage Limit: The number of miles per year a lessee is permitted to drive. See Excess Mileage Charge. APR or Annual Percentage Rate: In the simplest of terms it means the interest rate for one year that is charged on a loan balance. APR is not applicable to leasing. Capitalized Cost or Cap Cost: This is the cost of the vehicle to the lessor and other items, such as fees. It is not necessarily the suggested retail price. Capitalized Cost Adjusted or Adjusted Capitalized Cost or Net Capitalized Cost: The final capitalized cost on which the lease payment is based. Capitalized Cost Reduction or Cap Cost Reduction: A reduction in the capitalized cost resulting from a cash down payment, a trade in, rebate, or dealer incentive or discount. Closed-End Lease: A lease agreement or contract that permits the lessee to return the vehicle at the end of the lease with no liability, providing other terms of the lease, such as mileage allowance and wear-and-tear standards, are met. The lessor guarantees the value of the vehicle. Depreciation: The decline in value over the term of the lease. The difference between adjusted capitalized cost and the residual value which makes up the major part of the lease payment. Disposition Fee: A fee to cover the selling cost of the lessor at the end of the lease. Doc Fee or Documentation Fee: A fee charged by the lessor for processing legal paperwork, such title and registration. Early Termination Charge or Termination Charge: Often a expressed as a percentage of the original cost of the leased vehicle, specified in a lease as a payment by a lessee to a lessor to compensate the lessor for terminating a lease before its term or end. It varies greatly and can be very costly. Excess Mileage Charge: A charge per mile if you exceed the mileage allowed during the lease term, often 12,000-to-15,000 per year. If you drive more than the standard number of miles, be sure to tell the lessor because you can purchase extra miles that will cost you less at the beginning than at the end of the lease. Excess Wear And Tear: The depreciation of a vehicle over the term of the lease takes into account "normal" weaver and tear. Excess wear and tear is more than was anticipated. Items including in excess wear and tear can include such things as unrepaired damage to the body, chips or cracks in glass, unreplaced items such as hubcaps and antennas, failure to protect the vehicle's finish, and failure to follow the maintenance schedule. Gap Insurance: This is a specialized insurance product that covers the money a lessee owes under the lease if the vehicle is destroyed or stolen before the end of the lease. Incentive: A reduction in the cost of a vehicle to a lessor or new vehicle dealer by a manufacturer to encourage the lease or sale of a particular make or model. Lease: Also lease agreement or lease contract. A legal contract through which the owner of a vehicle (the lessor) conveys the right to use its vehicle to another party (the lessee) for a specific period of time (the lease term) for specified monthly payments. Lease End: The end of the lease. A good lessor will contact you in advance to determine what you want to do, such as buy the vehicle or lease a new one. Lease Rate, Rate or Money Factor: The rate the lessor charges you for using its money. The higher the rate, the higher the monthly payment. Lease Term: The length of the lease expressed in months or years. Lessee: The individual or business that by signing the lease who is obligated to pay monthly payments to the lessor and becomes entitled to use and possess the leased vehicle during the term of the lease. Lessor: The business who has legal title to the vehicle and grants to the lessee the right to use the vehicle for the term of the lease for which it is entitled to receive monthly payments. Luxury Tax: Effective January 1, 1991, the federal government started charging a 10 percent excise tax on the retail sale price of a vehicle over a set amount. As of January 1, 1996, it is 10 percent of any amount over $34,000. Manufacturer's Warranty: A manufacturer's warranty is included in the price of a new vehicle and usually cover the vehicle for at least one year or 12,000 miles. Today, many warranties by manufacturers last much longer. Some used vehicles may have a full or partial manufacturer's warranty. Monthly Payment: The amount a lessee pays the lessor to cover depreciation plus other costs, such as profit and fees. MSRP or Manufacturer's Suggested Retail Price: This is the price, that by law must be posted on the window of a vehicle. Also known as "sticker price" or "sticker." Unless the vehicle is in high demand, this price should never be paid. Open-End Lease: The lessee is required by this type of lease agreement or contract to pay the difference at the end of the lease between the actual value of the vehicle and the residual value as stated in the lease. The lessee guarantees the value of the vehicle. Option To Purchase or Purchase Option: That part of the lease that permits the lessee to buy the vehicle at the end of the lease. Purchase Price: The amount stated in the lease for which the lessee can buy the vehicle at the end of the lease. Rebate: A reduction in the cost of a vehicle to a lessee or new vehicle purchaser by a manufacturer to encourage the lease or sale of a particular make or model. Residual Factor: The percentage of MSRP, as determined by the lessor, to compute the residual value. Residual Value: The value of a leased vehicle that the lessor depreciated the vehicle down to during the term of the lease, typically based on an estimate of future value. It is stated in the lease. Security Deposit: A cash deposit required at the beginning of a lease that is held by the lessor until lease end as a security for the lessee performing all obligation of the lease. It is generally refunded unless there is excess wear and tear or excess mileage. Allowable charges, such as for excess mileage, will be deducted before a final distribution of the deposit is made. Service Contract or Extended Warranty: Although often termed an "extended warranty," a service contract is not a warranty as defined by federal law. However, like a warranty, a service contract is a promise to perform or pay for certain repairs or services. It is the separate and additional cost that distinguishes a service contract from a warranty. Subvented Lease or Subsidized Lease: A lease usually with the vehicle's manufacturer's captive finance company which is subsidized either by a lower lease rate or rebate. Often used by a manufacturer to sell more of a particular make or model. Trade-In Allowance: Credit given to a lessee for the value of a vehicle being traded in and usually used to reduce the capitalized cost of the vehicle being leased. Up Front Charges: Most lease agreements or contracts will require the payment of "up-front fee." These can include title, lease acquisition, license, registration, security deposit, or documentation or "doc" fees.   Lease Dictionary Who Leases Vehicles? What Is Vehicle Leasing? Is Vehicle Leasing Right For You? What Questions Should You Ask? What Are Your Responsibilities Under A Lease Agreement? What Should You Look For In A Vehicle Lease Agreement? Be Cautious! Are There Tax Advantages To Leasing A Vehicle? How To Go About Leasing A Vehicle. Comparing Leases Lease Versus Buy Comparison |