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Auto Leasing Terms

Amount Financed. The sale price of the vehicle, plus any charges for taxes, title, license fees, service contracts and insurance, less the down payment and trade-in. The amount of money subject to finance charges.

Annual Percentage Rate (APR). Disclosure of the total amount of finance charges expressed as a true percentage of the declining unpaid balance.

Balloon Contract. A loan that is amortized only down to the expected end-term value with a remaining balance to be paid in a lump sum at the end of the term.

Balloon Payment. Estimated final payment which covers the remaining expected value of the vehicle.

Capitalized Cost Reduction. A reduction of the gross capitalized cost, paid by the lessee, either in the form of cash or non-cash credit from the lessee's trade-in or rebates.

Closed-End Lease. A type of lease in which the lessee is not responsible for the value of the vehicle at the end of the lease. The lessee is liable for excess mileage and wear and tear. This is also called a guaranteed trade-in, net lease, or walk-away lease.

Down Payment. Most retail transactions involve a down payment of 10 to 15 percent of the amount to be financed. It can be less depending on your credit standing, ability to repay, and other criteria. A down payment helps lower your monthly payment as well as establish equity in your vehicle.

Early Termination. When a lease is ended before its scheduled maturity date.

Excess Mileage Charge. Leases generally contain a mileage limitation to prevent excess mileage from being driven, and therefore, excess depreciation of the vehicle. A set mileage allowance is stipulated in a lease agreement. If this limit is exceeded, the lessee is charged for each mile driven exceeding the allowable mileage, as specified in the lease (e.g., 15 cents per mile). However, if at lease inception you feel you will be driving more then is set forth in the lease, you can add the anticipated excess mileage to your lease to be paid as part of your monthly payment.

Excess Wear and Tear. Leases contain specific standards for excess wear and tear. Included are such items as missing parts, scratches, dents, mismatched/bald tires, cracked glass, ripped/torn/burned interior and inoperable mechanical parts. The lessee must either repair the excess wear and tear, or pay the lessor the estimated cost of repairs.

Gross Capitalized Cost. The agreed price of a lease vehicle including, but not limited to: dealer-added equipment, service contract fees, and insurance.

Lease. A contract between lessor and lessee for a specified time period and a specific payment. The title to the car remains in the name of lessor as owner until the lessee exercises the purchase option or turns the vehicle in at the end of lease term.

Lessee. The customer who signs a lease with the lessor and pays for use of the vehicle.

Lessor. The financial institution to which the lease is assigned. The party leasing the vehicle to the lessee, the actual owner of the vehicle and the lease (i.e., leasing company, dealer or financial institution).

Manufacturer's Suggested Retail Price (MSRP). The retail price of the vehicle as recommended by the manufacturer -- often called the sticker or list price.

Net Capitalized Cost. The difference between the gross capitalized cost and the capitalized cost reduction. Used as a basis for calculating the lease payment.

Purchase Option Price. An option in a lease which allows the lessee to purchase the vehicle at the end of the lease term for a specified price, and in some cases, during the lease term at an amount to be determined or at a specified price.

Residual Value (Lease-End Value). The lease-end value of the vehicle set at lease inception by the lessor. It's usually calculated as a percentage of the MSRP. This is used as a component of the payment calculation.

Retail Contract. Contract representing time and sale of a vehicle to customers.

Refundable Security Deposit or Reconditioning Reserve. An amount collected by the lessor at the beginning of the lease to ensure the lessee's compliance with the terms of the lease. The security deposit is generally refundable at lease end, provided there are no excess mileage, excess wear and tear charges, outstanding parking tickets, or unpaid lease payments. A few states do not allow security deposits, but do allow a reconditioning reserve. The reconditioning reserve can only be used to repair the vehicle and cannot be used for past due payments, late charges, parking tickets, etc.

Term. The duration of the retail contract/lease agreement, usually expressed in months (e.g., 24 months, 36 months).

Termination (Scheduled). The end of the lease term, as called for in the lease. 

 

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