The Leasing Glossary Articles | Automotive

When you are searching for a vehicle you will be tempted to lease and you should know what that involves and all the basics. Reading this glossary can give you a rundown of the basic terms you might hear when leasing a vehicle. Make sure that you have some understanding before signing a lease so that you are not charged more than necessary.

Acquisition fees: The Acquisition fee is a fee given by the dealer to get the lease going more like a processing charge. Some dealers do not charge this fee but if it is used the starting rate is on average $300 this fee is not usually negotiated. You may want to look around if you are not comfortable paying it.

Capitalized Costs: This is the total selling price of the vehicle you are leasing. There are other fees included like taxes, license fees, and title and acquisition fees. Sometimes they add in the insurance and warranty items if you are looking to pay them over a length of the lease instead of up front.

Depreciation Fee: The depreciation fee is the amount that is spent throughout the length of the lease. Every vehicle loses value after it leaves the lot. This is the amount of value the car will lose while you have it. It also is a component in the monthly payment.

The list price or sticker price - the residual value at the end of the lease is divided by the number of months the car is leased which gives you the depreciation fee.

If the retail price = $23,500 and the company says that your car will be worth 35% less than its retail value after your lease of 36 months , or $8,225.

$15,275 the difference is / by 36 months = $424 or the depreciation fee.

GAP Insurance: Covers the costs if the car is totaled or stolen.

Inception fees: These are fees that are due at the beginning of your lease which include your security deposit, first payment, taxes and title or registration fees.

Mileage Limit or Allowance: This is the amount of mileage the lease allows for free before you will be charged a fee. These fees can go up to $.20 cents per mile which can add up quite quickly and you should find out how many miles per year and if you can stay under it before signing any contract. The mileage limits can often be negotiated with the dealer if you make sure to ask about it. Otherwise the dealer will keep it as is. There are heavy fees for leaving a lease early.

Money-factor: This fraction is used to calculate your monthly charges. With all the components you can estimate you percentage rate on the lease or contract if you multiply this number by $2,400.

Residual Value: This amount is the value of the car after your lease ends. All vehicles lose value like any other asset when you leave the lot with it. It the residual value is higher your monthly payment will be lower but you will pay a higher lease-end purchase if you want to keep the vehicle.

Security deposits: This is a payment you will pay up front which is required by the company at the beginning of the lease to protect them in the event that you do not pay the monthly payment. You can generally get this back when the lease ends.

Termination or Disposition fee: This charge is the price you pay at the end of the lease if you decide not to purchase the vehicle.

Wear-n-tear: This is the fees you have to pay at the end of the lease for any wear to the vehicle that the company says is not usual wear. With this fee you are at the mercy of the company so it is wise to make sure you check the car thoroughly before you bring the vehicle in to protect yourself. It is also smart to replace anything that is damaged yourself because even changing a simple light bulb could cost you.