Leasing Glossary

Every term you might run into on a lease, defined simply. Bookmark it for when you're reviewing your numbers.

Good to know: nearly all of our leases are closed-end — the consumer-friendly type. We only use open-end leases for select commercial and high-end exotic vehicles.

• Acquisition (bank) fee — A fee charged by the lender to set up, approve, and administer the lease. Paid up front or rolled into the lease.
• Adjusted capitalized cost — The amount you're financing at the start of the lease, after adding any fees and subtracting reductions like rebates, trade-in value, or cash down.
• Capitalized cost — Essentially the negotiated price of the vehicle used to calculate your lease.
• Capitalized cost reduction — Anything that lowers the cap cost: a down payment, rebate, or trade-in allowance.
• Closed-end lease (the type we use) — The most common type. You return the car at lease-end with no responsibility for its market value, assuming you stayed within agreed mileage and wear.
• Depreciation — How much the vehicle's value drops over the lease term; roughly the cap cost minus the residual value.
• Disposition fee — A fee some banks charge at the end of a lease to cover the cost of retrieving and reconditioning the vehicle. Disclosed in your contract.
• Early termination charge — What you owe if you end the lease before its term is up. Calculated per the lease agreement and generally costly.
• Excess mileage charge — A per-mile fee for driving beyond your mileage allowance, set in your contract.
• Excess wear & tear — Charges at lease-end for damage beyond normal use — think dents, cracked glass, or bald tires, versus minor dings.
• Gap protection — Coverage, typically included with a lease, that covers the difference if the car is totaled or stolen and you owe more than it's worth.
• Lessee — You — the person leasing the vehicle.
• Lessor — The legal owner of the leased vehicle (the leasing bank or company).
• Mileage allowance — The number of miles you can drive each year before overage charges apply. We can go as high as 25,000 miles per year.
• Money factor — The lease's equivalent of an interest rate, used to calculate the rent charge portion of your payment.
• MSRP — Manufacturer's Suggested Retail Price.
• Open-end lease — A lease where you're responsible for any difference between the residual and the car's actual end value. We reserve these for select commercial and exotic vehicles only.
• Purchase option — Your right to buy the leased vehicle, either during the lease or at the end, at a price set in the contract.
• Residual value — The vehicle's set value at lease-end, fixed when you sign. It drives both your payment and your buyout price.