Glossary of Lease Terms

Acquisition fee
A fee charged by a lessor to cover the administrative costs of preparing, approving and administrating the lease. May be paid up front or included in the gross capitalized cost.

Adjusted capitalized cost
The amount capitalized at the beginning of the lease, after adding any fees or other charges to be included, and subtracting any capitalized cost reductions, such as rebates, trade-in allowances and cash reductions.

Capitalized-cost reduction
The total of any cash payment, trade-in allowance or rebate used to reduce the gross capitalized cost. The capitalized cost reduction is subtracted from the gross capitalized cost to get the adjusted capitalized cost.

Captive finance company
A leasing or finance company that is owned by or otherwise associated with a particular vehicle manufacturer or distributor.

Closed-end lease
A lease that allows the lessee to return the vehicle at the end of the lease term with no further financial obligation, assuming that the lessee has complied with all of the terms of the lease. The lessee may be responsible for a disposition fee, if it is part of the lease agreement. There may be additional charges according to the terms of the lease for any excess mileage or excess wear. The lessee is not responsible for any difference between the residual value, as stated in the lease, and the actual value of the vehicle at the end of the lease.

Depreciation
The amount the vehicle declines in value over the term of the lease. The depreciation may be calculated by subtracting the residual value from the adjusted capitalized cost. Using this method, the depreciation amount will also include any amounts that were added by agreement to the price of the vehicle to arrive at the gross capitalized cost.

Disposition fee
The fee charged by the lessor if the lessee does not purchase the vehicle at lease-end, for costs associated with preparing the vehicle for resale and selling the vehicle. The disposition fee must be disclosed in the lease agreement.

Early termination
Ending a lease before the scheduled termination date. The lessee typically will be required to pay an early termination charge as described in the lease agreement.

Early termination charge
The fee charged to a lessee in the event of an early termination of a lease. Penalties vary from lease to lease and the method of calculation is determined at lease inception and explained in the lease agreement.

Early termination payoff
The total amount the lessee owes if the lease is terminated early, before subtracting any credit for the value of the vehicle. The payoff is calculated as described in the lease agreement.

Excess mileage charge
The fee charged for each mile in excess of the predetermined mileage limit, as set forth in the lease agreement. The excess mileage charge varies depending on the type of vehicle, and is typically between 10 cents and 25 cents per mile.

Excessive wear and tear charge
A charge collected by the lessor at the end of the lease for damage to the vehicle that is beyond what is allowed by the terms of the lease. In a consumer lease, excess wear and tear or normal wear and tear will be specifically defined.

Gap coverage
A type of insurance coverage that covers the difference between the payoff of the lease and the amount covered by other insurance coverage, when a vehicle is damaged or stolen during the term of the lease. Most gap coverage requires that the lessee not be in default under the terms of the lease.

Lease term
The period of time covered by the lease agreement.

Lessee
The party entitled to possession and use of the vehicle according to the terms of the lease.

Lessor
The legal owner of the property that is leased.

Mileage allowance or mileage limit
The total amount of mileage the vehicle may be driven over the term of the lease, without incurring liability for additional mileage charges.

MSRP
The manufacturer's suggested retail price.

Open-end lease
A type of lease in which the lessee is responsible for the difference between the residual value and the realized value at the end of the lease. The lessee may be entitled to a refund if the realized value is greater than the residual balance.

Purchase option
The lessee's right to purchase the leased vehicle, either at the end of the lease or during the lease term, as specified in the lease agreement. The lease agreement may or may not include a purchase option.

Purchase option fee
A fee in addition to the purchase price that is required to exercise a purchase option, according to the terms of the lease.

Realized value
A value assigned to the vehicle at lease termination. Check your lease agreement for a definition that may range from the value actually received by the lessor, the highest offer received by the lessor, the vehicle's "fair market value," the wholesale value or the retail value.

Rent or rent charge
The portion of the monthly lease payment that is in addition to the depreciation and amortized amounts.

Residual value
The lease-end value of the vehicle, established at the beginning of the lease. This value is used in determining the monthly lease payment. The residual value is also used to determine the depreciation and other amortized amounts that go into determining the monthly lease payment.

Security deposit
A refundable deposit, usually equal to one monthly payment, collected by the lessor at the beginning of the lease to offset any amounts due under the term of the lease.

Subvented lease
A lease that is subsidized by the manufacturer or other lessor. Many subvented leases offer lower monthly payments by utilizing a higher residual value than other lessors, or by offering a lower rent portion of the monthly payment.