Common Lease Definitions
1. Mileage Allowance: The number of miles you can drive during the period you lease the vehicle lease without penalty. It is stated in terms of monthly allowance, or the total cumulative mileage. Typical mileage overage fees if you go over the allowance are 15-25, or .35, if it is a high performance vehicle, cents per mile.
2. Acquisition Fee: The fee charged by leasing companies and banks to cover costs of administering the lease terms. They average about $400 and are rarely negotiable.
3. Adjusted Capitalized Cost: This is the amount you are financing in the lease or also known as the bottom line. The cost of the car you are leasing, including the tax, title, and license, minus any down payment, trade allowance, or rebates.
4. Capitalized Cost Reduction: A down payment or other credit that lowers the capitalized cost of a lease. The down payment may come in the form of cash and/or a rebate, trade-in allowance or other credit.
5. Closed-end lease: A lease that doesn't require the consumer to buy the vehicle at the end of the lease for the predetermined residual value. Closed-end leases, which are by far the most common type, usually allow lessees to buy the car if they want, as opposed to walking away from it, or trading it in.
6. Money factor (or interest rate): A fractional number, such as .0075, used to calculate a lease fee or charge. The money factor is based on a formula that lessors devise to determine their profit. Buyers should look for a lower number. While lessors are not required to disclose the money factor, you can insist on knowing it before entering a lease. You can get a rough equivalent of an annual percentage rate if you multiply the money factor by 2,400 to get really close to the actual APR equivalent. When automakers are running lease specials, the money factor can be as low as .00001.
7. Residual value: The car's wholesale value, at the end of the lease, which is projected at the beginning by the lease company. Higher residual values translate to lower monthly payments but increase the cost to buy the car at the end of the lease. This number is set in stone and you will know how much the residual value is when you enter into the lease.
8. Single-payment lease: A lease in which you can pay all of the lease fees and payments at the beginning. A likely user is a buyer who could pay cash to buy a car but wants to have a new vehicle every three years or so and doesn't want to bother with selling or trading the old one, or with making monthly payments. There is often a lower interest rate on the lease since the lease company gets all its money up front.Â