Adjusted Capitalized Cost
The basis used to calculate lease payments, including the vehicle price, any associated fees, optional services, and then subtracting any cap cost reduction (down payment). Also known as Net Capitalized Cost. See definition for Capitalized Cost.

Base Monthly Payment
The monthly lease payment before any applicable taxes or fees have been added to it. It is computed using two factors; the total lease term Depreciation and total lease term Rent Charge. Each factor is converted to a monthly figure and both components are added together.

Capitalized Cost Reduction
A reduction in the capitalized cost resulting from cash down, trade-in allowance, factory rebate, or dealer discount. Simply referred to as a down payment. Typically shortened to Cap Cost Reduction or Cap Reduction.

Closed-End Lease
Lease structure in which the lessor assumes all of the residual value responsibility. In plain English; the lessee does not have to worry about the vehicle being sold at lease end for its predetermined value. This is the opposite of an Open-End lease.

Co-lessee
An individual who signs the lease with another individual or company and is responsible for compliance with the lease terms in the event the lessee does not fulfill his or her obligations. A co-lessee may be utilized to help obtain credit approval or simply to put two people such as a husband and wife on a lease together. See also Lessee.

Current Lease Buyout
This is the figure that one may purchase a leased vehicle for prior to scheduled lease termination. Typically, this fee is calculated by adding the residual value, the total of the remaining monthly payments, and any early termination or purchase option fees, which may apply. In some instances this fee is negotiable with the Lessor

Depreciation
A reduction or decline in vehicle value over the lease term. It is one of the factors used in establishing Base Monthly Payment.

Disposition Fee
A fee charged by many lessors to cover the expenses associated with the reselling of a vehicle at lease end. Also known as a Termination Fee.

Early Termination
The termination of a lease before it's maturity date.

ESC (Extended Service Contract)
An agreement purchased to supplement the factory warranty of a vehicle used to cover against breakdown and mechanical failures. These agreements can prove valuable, however they vary widely in coverage, and cost. The terms and conditions of a particular contract should be reviewed carefully.

Excess Mileage Charge
A charge per mile for miles driven over the amount contracted in the lease. This charge may vary not only by lessor, but also by the amount of miles contracted per lessee.

Excess Wear And Tear
Potential additional charges if the vehicle is damaged or has wear beyond what is normally expected for the lease term. Examples of Excess Wear include cracked windshields, body damage, broken equipment, defaced interiors, etc.

Federal Consumer Leasing Act Disclosures
These disclosures outline the fundamental aspects utilized to calculate the lease and include any warnings of fees or penalties, which may be assessed by the lessor at lease termination. Federal Consumer Leasing Act Disclosures will be found on all lease contracts written in the last several years.

Gap Insurance
Covers your termination liability under the lease contract if your vehicle is deemed a complete loss before the end of your lease term. Covers the difference between what you owe, and what the vehicle is worth at time of loss. This is typically associated with totaled or stolen vehicles. Lease contracts may or may not contain gap insurance and lessors may or may not make gap insurance coverage available.
Also known as Gap Coverage or Gap Protection.

Gross Capitalized Cost
Refers to the agreed upon value of the vehicle and any other items the lessee pays over the lease term such as an Extended Service Contact, Acquisition Fee, Gap Insurance, Luxury Tax, and any outstanding prior credit or lease balance.

Late Charge
A penalty assessed by the lessor to the lessee for failing to pay his or her payment in full by the contractual due date or within a specified grace period after that due date.

Lease
It is a written contract or agreement by which one party transfers a vehicle to another for a specified term and for a specified payment.

Lease Charge
See Rent Charge.

Lease Assumption
Refers to an outside party taking over a lease from the original lessee under the terms and conditions outlined in the original contract. Typically, a lease assumption means the original lessee walks away from the lease without any future liability and the new lessee assumes all liability for the lease contract.

Lease-End Buyout
This is the originally contracted amount that the lessee can purchase the leased vehicle for at scheduled lease termination. This figure consists of the Residual Value plus the Purchase Option Fee if applicable. In some cases this figure may be viewed as a worst-case scenario because many leasing companies will negotiate this amount with the lessee in order to hedge potential losses associated with the sale of the vehicle through other channels.

Lessee
The primary driver of the vehicle who signs the lease and is responsible for compliance with the contracts terms and conditions set forth. The lessee can be an individual or company.

Lessor
The owner of the leased vehicle and the entity who sets forth the lease terms and conditions. Typically the lessor is a bank or vehicle manufacturer's financial subsidiary.

Money Factor
A fraction that is used by many lessors to calculate the Rent Charge associated with a lease payment. This is the interest portion associated with a lease; although, it is not an annual percentage rate like that would be found on a retail installment loan contract.

Monthly Sales/Use Tax
Unlike purchasing a vehicle the customer does not pay a lump sum sales tax amount upfront in a lease. Instead the lessee will pay tax on a monthly basis for the duration of the lease period. This tax amount is typically determined by where the vehicle will primarily be garaged. For instance, if a vehicle is leased and will be garaged in a county or locale where sales tax is figured at six percent the lessee will pay an additional six percent on top of the Base Monthly Payment.

MSRP (Manufacturer's Suggested Retail Price)
Is the sticker price of a new vehicle and is important because it is typically used to determine a vehicle's residual value.

Odometer Statement
A federal form used to disclose a vehicle's mileage in connection with a transfer of vehicle ownership. A specific lease odometer statement is utilized in various lease transactions including terminations as well as Lease Assumptions and Transfers of Equity. Individuals should be aware that failure to complete a disclosure or false statements might result in fines or imprisonment.

Open-End Lease
A lease structure in which the lessee guarantees the residual value of the vehicle at scheduled lease term. This is the opposite of a Closed End Lease and is typically utilized by businesses and not individuals due to potential financial liability.

Purchase Option Fee
A fee that may or may not be charged by the lessor to cover costs associated with the selling of a leased vehicle to the original lessee at lease termination. The Purchase Option Fee typically ranges from $300.00 to $500.00.

Rent Charge
The interest paid on a lease. It can be thought of as the equivalent of interest on a conventional installment loan. It is one of the factors used in establishing Base Monthly Payment. Also known as the Lease Charge.

Required Vehicle Insurance
Refers to the liability and physical damage policy requirements set forth by the lessor. Not only will specific dollar amounts be set, but also limits on deductibles will be included. Most contracts contain provisions for the lessor to be provided proof of insurance on request and the ability to collect for minimum insurance requirements if necessary.

Residual Value
The original estimate of the wholesale value of the leased vehicle at scheduled lease maturity. This value will vary depended on miles contracted in lease. You may or may not be able to purchase the vehicle at lease end for residual value because some leasing companies charge an additional Purchase Option Fee.

Security Deposit
Refundable amount collected at lease signing that is used to cover lessee amounts owed, but not paid, at lease end. This amount is typically the Total Monthly Payment rounded to the next $25.00 increment

Termination Fee
See Disposition Fee.

Total Monthly Payment
This is made up of the following three factors broken down to a monthly basis and added together: Depreciation, Rent Charge, and Monthly Sales/Use Tax.