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Leasing Terms - A Quick Reference
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| Acquisition Fee (also Bank Fee or an Assignment Fee) |
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| Updated |
Jun 10, 2004 21:19:59 |
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 178 ( -19 -10.67% ) |
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Description:
This short dictionary gives you, the consumer, a working knowledge of basic terms used in vehicle leasing. Leasing terms can be used differently depending on the situation, and their precise definitions can be interpreted differently in state and federal laws. Some definitions refer to monthly payments. If your particular lease has a different schedule (bi-weekly, annually) substitute that period for each definition. These terms should work for both single-payment and multiple-payment leases.
TIP: Print this page for quick reference when leasing your new vehicle!
A charge that is either paid up-front or is included in the gross capitalized cost. This fee covers a variety of the lessor's administrative costs, like getting a credit report, verifying your insurance, checking documentation, etc.
Amortized Amounts
Amounts such as taxes, fees, charges for service contracts, payments for insurance, and any balance from a credit or lease, that is included in the gross capitalized cost--and are paid as part of the base monthly payment.
APR
Annualized Percentage Rate: the annualized cost of credit, figured as a percentage, in a financing agreement.
NOTE: Leases have a money factor, not an APR. It is very difficult to convert the money factor to an APR and can confuse the situation.
Base Monthly Payment
The part of your monthly payment that covers depreciation, rent charges, and any 'amortized' amounts. Monthly taxes and fees are added to this base monthly payment to get the total monthly payment.
TIP: When you are thinking about check you have to write each month for your new lease, remember that monthly taxes and fees can add up. For example, a $399 monthly payment can actually equate to a $425 monthly out-of-pocket expense once taxes and fees are included. Make sure this final amount is still in your budget.
Capitalized Cost
Also gross capitalized cost or adjusted capitalized cost, it is the negotiated selling-price of the vehicle. This is the price that the leasing company actually purchases the vehicle for and contributes to the price that determines the base monthly payment. This must be disclosed under federal law and some states require that the term "capitalized cost" be used in leases.
Capitalized Cost Reduction
A down payment, in the form of cash, a trade-in or a rebate, which reduces the base monthly payment. This is not to be confused with drive off costs.
Closed-End Lease (or "walk-away" lease)
A type of lease where the value for the vehicle at lease end is predetermined and stated in the lease agreement. Therefore, if the real value of the vehicle at the end of the lease term is less than its residual value you are NOT responsible for the difference. The lessor takes full financial responsibility for a decline in the value of the vehicle. However, the lessee is responsible for the other lease requirements, including extra mileage or wear and tear.
Dealer Preparation Fee
This is a mandatory fee paid by the dealer to the manufacturer to get the vehicle ready for delivery to the consumer.
Disposition Fee or Disposal Fee
A fee determined by the leasing company and paid at the end of a lease.
NOTE: Many leases do not have a disposition fee. The leasing company, not the dealer, sets this fee.
Excess Mileage Charge
A charge for any miles driven over the original lease agreement. Between 10 and 25 cents per mile is normal. Say, you had a lease that gave you 36,000 miles, and you returned it with 37,000, at 15 cents per miles--you'd owe $150. Open-end leases typically don't have excess mileage fees.
Gap Amount
If a leased vehicle is stolen or totaled, the gap amount is the difference between the payoff and the amount for which the vehicle is insured before the deductible and other policy deductions are subtracted. The gap amount can vary by state or lease agreement. Gap Coverage is a plan that gives financial protection if the vehicle is stolen or totaled, either a waiver by the lessor or a contract by a third party.
Lease Term
The period of time for which a lease agreement is written. Most are 24 to 60 months long.
Lessee
The customer that leases the vehicle. (You!)
Lessor
The financial institution that owns the vehicle.
Open End Lease
A lease agreement that holds you responsible for the difference between a vehicle's residual value and its market value at the end of a lease.
TIP: PROCEED WITH CAUTION, THIS IS A RISKIER KIND OF LEASE!
If the vehicle is worth less than the lease's residual value the lessee (yep, that's you) must pay the difference. In this kind of lease, assuming you've met mileage and wear and tear standards, the residual value is considered unreasonable if it exceeds the real value by more than three times the base monthly payment (sometimes called the "three-payment rule"). If you think the amount owed at the end is unreasonable and refuse to pay, the lessor may try to prove that the residual value was reasonable when it was set at the beginning of the lease. However, if you stalemate, you can't be forced to pay the excess amount unless the lessor brings a successful court action, and pays your attorney's fees.
NOTE: Open-end leases are outlawed in many states.
Purchase Option
Your right to buy the vehicle, before or at the end of the lease term, according to the terms in your agreement. Some leases don't have these. The Purchase Option Fee is the amount you may have to pay to buy the vehicle which is in addition to the purchase price.
Residual Value (Or Lease-End Value)
Set at the beginning of the lease, this is the projected market value of the vehicle at the end of the lease. The higher the residual value, the lower the monthly payments. High residuals are good in a closed-end lease. They are often determined using residual value guidebooks and different ones are popular with different lessors and in different regions.
Single Payment Lease (One-Payment Lease)
A lease that requires a single payment made in advance rather than periodic ones made over time. This lump-sum payment may be, and often is, less than the total amount you would pay making multiple payments.
Wear and Tear
Damage or depreciation due to normal use of the vehicle. A lease will state that a lessee is not responsible for normal wear and tear, and will define what "normal" really means. The lease sets forth what the vehicle should be like at lease's end. They may address things like the amount of tread left on the tires, and the types of dents and scratches that are ok. Make sure these standards seem reasonable before you sign your lease! |
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