The following is a list of commonly used leasing terms to further assist you in understanding vehicle leasing. While we may not have used some of this terminology throughout this section, you may come across some commonly used leasing lingo in your research and shopping process. We hope this glossary will help you in understanding the logistics associated with vehicle leasing.
- Cap Cost
The leasing term that refers to the sales price of a vehicle.
- Cap Reduction
A down payment that will reduce the amount leased.
- Residual Value
The depreciated value of a vehicle during the lifetime of a lease and/or the end-of-term cost to purchase a vehiclean amount that has been set by the lender.
- Money Factor
The interest rate of a lease. This number is calculated into decimal form by dividing the actual interest rate percentage by 24 to determine the money factor.
- Sales Tax
Tax that is collected by the state in which a vehicle is purchased. When leasing, sales tax is only collected on the down payment and the monthly payment of the vehicle.
- Excessive Mileage Leasing
Programs that offer a pre-determined number of miles you're allowed to drive a vehicle without additional cost (or penalty). You can increase the amount of miles at the inception of the lease, which will lower the residual value and increase your payment. Or, you may reduce the pre-determined mileage allowance at the inception of the lease a process that will ultimately reduce your monthly payment. If you exceed the mileage as per the terms of the lease, you will be charged a penalty.
- Lease Term
Defined as the number of months you agree to lease the vehicle.
- Payment Options (end of lease)
Several payment options are available to you at the end of a lease, including refinancing, cash payments or extending your lease payments.
- Dealer Add-ons
Dealer add-ons are considered factory accessories, such as a moon roof, a CD-changer or leather interior. Some dealer add-ons are factored into a vehicle's residual value by the lender. However in most cases, aftermarket accessories such as custom wheels and tires are not considered dealer add-ons and are not factored into the vehicle's residual value.
- Minimum Advance
Some lenders set a minimum dollar amount they will consider for leasing a vehicle.
- Maximum Advance
Some lenders set a maximum dollar amount they will consider for leasing a vehicle.
- Over Advance
In some cases, when a person's credit is exceptional, the lender may extend the dollar amount beyond the maximum advance.
- Lease Assumption
In most cases, leases are not transferable from party to party. Check with your lender to determine individual policies in your area.
- GAP Insurance Leasing
An agreement to make a certain amount of monthly payments plus a pre-determined end-of-term value. In most cases, you may owe more than the vehicle is worth, yet your insurance company may only pay fair market value in the instance of total loss of the vehicle or theft of the vehicle. GAP insurance covers the difference between the cost to pay off the lender and the amount the insurance company will cover.