Car Lease Terms

Here are tons of car lease terms and auto lease definitions.

Its probably a good idea to check these out because car leases can be complicated and you want to know what you're getting into.

Acquisition Fee: Also known as "Lease Inception Fee" or "Origination Fee." This is an obscure fee dealers like to charge that could cost you an extra $500 to $1000 or more at the start of your lease. You don’t get anything for it. When you hear radio and TV advertising that says something like “No money down and only $199 per month for 36 months”. Well, just know that when you get into the deal that you will see the term “Plus Acquisition Fee” and that the term “No money down” is bogus! This is a bogus fee and you should negotiate it away.

Adjusted Capitalization Cost: Also known as “Adjusted Cap Cost” or “Net Capitalization Cost”. You as the buyer need to know what this “cost” is and make sure that it matches EXACTLY the amount that your monthly payments are supposed to be. Specifically the monthly payments you and the salesperson agreed to when you were negotiating for your new car.

Back Loaded Lease: Also known as a "Rear End Loaded Lease". This is a lease where the monthly rental payment gets higher as you approach the end of the lease term.

Balloon Lease: This type of car lease is where the payments are lower at the beginning, get higher in the middle and then are lower again at the end of the lease term.

Capitalization Cost: The term “Cap Cost” may also be used. This is the price you should pay for your car if you were paying cash. This should be the same price you negotiated for BEFORE you told the salesperson that you want to lease instead of buy your car. Its important that you negotiate this type of deal and have it clearly stated on your lease agreement.

Captive Finance Company: May also be called “Captive Finance Arm”. This is the general term used for the car manufacturers finance companies. When you hear advertising for a car saying something like “Zero Interest”, then just know that these types of loans are only offered through the “Captive Finance Companies” and not some outside finance company. For domestic automakers there is: Chrysler Credit, Ford Credit and GMAC (General Motors Acceptance Company).

Closed End Lease: A “Closed End Lease” is the preferred type of lease, I think. This lease lets you know up front exactly what you will owe at the end of the lease (also known as the “residual”). The nice thing is that if your vehicles value ends up being lower than this at the end of the lease term then you won’t be liable to cough up more money.

Depreciation Fee: Also known as the “Monthly Depreciation Fee” and will be figured into your monthly lease payments. You can use this fee to figure out your depreciation costs. Its figured as the “Cap Cost” minus the “Residual Value” divided by how many months your “Lease Term” is.

Disposition Fee: Here is another bogus fee that you need to negotiate away BEFORE you start signing your lease agreement. The “Disposition Fee” is what the dealer will nick you for when you return your car at the end of its term. “Disposition” means for the dealer to “dispose” of your previously leased car. To “dispose” of your car means to drive it over to the other end of their lot and sell it as a used car – I swear! That’s all there is to it!

Early Termination Charges: This is the fee you will pay if you choose to turn your car in before the end of its lease term. Here is another fee you must negotiate down BEFORE you sign your lease agreement. Remember: IT’S ALL NEGOTIABLE!

Excess Mileage Charge: This is the price per mile that you will pay for any mileage that goes above what your lease agreement specifies. Prices vary and you must be aware of this because these charges can really rack up. You should also be able to negotiate this charge.

Finance Fee: Also known as: “Monthly Finance Fee”, “Lease Charge” and/or “Rental Charge”. This is the amount that you are renting the vehicle from the lease company for.

Fees: Be wary of ANYTHING with the term “Fee” in it! You should negotiate away or at least negotiate substantially down any fees BEFORE signing the papers. Lease companies, banks and car dealers love these “fees” because they are pure profit for them.

Front Loaded Lease: The payments are higher at the beginning of the car lease and then get lower as you approach the end of the lease term. Its just the opposite of a "Back" or "Rear Ended Lease".

Gap Insurance: Sometimes just called “Gap”. If your lease vehicle is stolen or totaled then you will be liable to pay the difference between the amount you still owe for the lease term and the current market value of your vehicle. This could amount to thousands of dollars. Gap car insurance will pay for that “gap” should this happen. A GAP insurance policy only costs a couple hundred dollars and is good for the entire term of your loan. Its well worth it for both leased cars and a car that you bought.

Inception Of Lease: The date you sign the lease agreement.

Lease Used Cars & Trucks: You can get an almost new car or truck by taking over someone elses lease. Advantages are shorter terms and no money down. You can see tons of ready to take over leased cars and trucks with Swap A Lease and Lease Trader.

Lease Term: The length of your car lease.

Lemon Laws: Each state has laws dealing with cars that are “Lemons”. Not all Lemon Laws apply to leased vehicles so you might want to research this and see what exists for your state.

Lessee: The “Lessee” is YOU the person that is leasing the car.

Lessor: This is the company that YOU the “lessee” are leasing your vehicle from.

Mileage Cap: Also known as “Mileage Limit”. When you sign your lease agreement there will be a limit on how many miles can be on your car at the end of the lease term. Most leased cars have a “Mileage Limit” of from 12,000 to 15,000 miles per year. If you return the vehicle with more miles than what is shown in your lease agreement then you will be liable to pay so much per mile above your limit. This is something else you should negotiate up front BEFORE signing your lease agreement. The reason this fee exists is to preserve the re-sale value of the vehicle after you turn it back in at the end of your lease term.

Money Factor: This is a mathematical formula used to figure the monthly finance cost (interest) of a lease. The “Money Factor” remains the same within each individual lease company but you can negotiate this amount between competing lease companies – and you should!

Open End Lease: This is a lease where the amount that you will owe on your lease will not be calculated until the end of your lease term. You do NOT want an “Open End Lease”. Get a “Closed End Lease” instead!

Purchase Option Value: Also called the “Purchase Option Price”. This is the price you will owe on your leased vehicle at the end of your lease term if you choose to purchase it then. Its usually the same amount as the “residual value”.

Residual: Or "Residual Value". If you get a Closed End Lease, then this will be the value of your leased vehicle at the end of the lease term. This should be negotiated when you’re shopping for a leased vehicle and can be done between competing lease companies.

Subsidized Lease: Sometimes the car manufacturers finance company will offer cheaper leases to cars that might be slow sellers for them. They may do this by lowering the “Money Factor” (the interest rate) or by raising the “Residual Value”.

Taxes: Be careful with the taxes on leased vehicles because some lease companies can grind you on this one because the taxes for a leased vehicle can be different from state to state. So you may need to do a little research.

Used Car Leases: Short term - no money down slightly used cars and trucks can be leased through Lease Trader and Swap A Lease.


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