Car Lease Terms with Definitions

Here are most of the car lease terms with definitions you will ever need to know. You should be aware of these auto lease terms because many of them are fee's that can be negotiated away before signing the lease contract.

Acquisition Fee (Origination Fee, Lease Inception Fee): A hidden fee that could be as much as $500 to $1000 at the beginning of your car lease. Kind of makes those "No Money Down" advertised car leases a joke.

Adjusted Capitalization Cost (Net Capitalization Cost, Adjusted Cap Cost): This is one of the car lease terms having to do with the monthly payments that you and the salesperson agreed to when you negotiated your new car lease.

Back Loaded Lease (Rear End Loaded Lease): A car lease with monthly payments that increase as you get near the end of the lease.

Balloon Lease: A Balloon Lease is one of the car lease terms about the low payments at the start and higher payments in the middle and then lower payments near the end of the lease term.

Captive Finance Company (Captive Finance Arm): A car term used for a finance company that is owned by a car manufacturer. A few are General Motors Acceptance Company (GMAC), Ford Credit and Chrysler Credit.

Closed End Lease (Closed End Lease): A car lease that states clearly at the outset exactly what you will owe (the Residual) at the end of the lease.

Depreciation Fee (Monthly Depreciation Fee): The Cap Cost minus the Residual Value divided by how many months you car lease term is.

Disposition Fee: A fee charged at the end of the lease for the car dealer to "dispose" (or sell) your leased vehicle.

Early Termination Charges: A fee charged if you return your car before the end of the lease term.

Excess Mileage Charge: A fee charged for every mile you go above the maximum mileage allowed as stated in your car lease agreement.

Finance Fee (Rental Charge, Monthly Finance Fee, Lease Charge): The amount you pay to rent the car from the car lease company.

Fees: Any charge that is over and above the price of a vehicle. Many fee's are hidden.

Front Loaded Lease: This type of car lease is the opposite of a Back or Rear Ended Lease in that your payments are higher at the beginning and get lower as you reach the term of the car lease.

Gap Insurance (Gap): A type of car insurance recommended for new cars (bought or leased) that protects you from having to pay any gap between what you owe on your loan and your cars current market value should your car be stolen or totaled in an accident.

Inception Of Lease: The date your car lease starts which is when you sign the contract.

Lease Term: The length of your car lease.

Lemon Laws: State laws for poorly built cars called Lemon Cars. Not all Lemon Laws apply to leased vehicles as they do with cars that are purchased.

Lessee: This is the person that is leasing the car.

Lessor: The company that is leasing you the car.

Mileage Cap (Mileage Limit): Most leased cars have a limit of how many miles you can put on their car over the term of the lease. The Mileage Cap (or Limit) is usually 12,000 to 15,000 miles and you will pay a steep fee for every mile you go over this limit. This way they can sell your car as a low mileage vehicle when your lease ends.

Money Factor: A formula used to figure out the monthly interest charged for a car lease.

Open End Lease: A car lease where the final payment for your lease will not be figured out until the end of your lease. A Closed End Lease is preferable because you know going in exactly what your lease will cost you.

Purchase Option Value (Purchase Option Price): The price owed at the end of a car lease if you choose to buy the vehicle. Usually the same amount as the Residual Value.

Residual (Residual Value): For a Closed End Lease, this is what your car is worth at the end of your car lease.

Subsidized Lease: When car manufacturers have slow selling cars they may offer more favorable lease terms by lowering the interest rate or by raising the residual value.

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