Leasing Terms You Auto Know

2013 Ford Fusion

Let’s start out your leasing vocabulary lesson with the two types of leases: an open-ended lease and a close-ended lease and a few terms associated with them.

An open-ended lease means that you are planning on purchasing the vehicle at the end of your initial lease term, in which case you pay the difference between the residual value stated in your contract and the realized value.  You may receive a refund if the realized value is larger than the residual value if you have complied with mileage and the wear and tear standards.

Residual/Appraised/Resale Value: This figure represents the estimated value of the car at the end of the lease and is used to calculate the monthly payment.  It accounts for the car’s depreciation over the lease period.  Sometimes the residual is expressed as a percentage of the retail price (MSRP) of the car.

Depreciation: The dollar amount difference between a vehicle’s value at the beginning of the lease and at the end.

A close-ended lease means that you are going to return the vehicle to the dealer.  You may be required to pay end-of-lease charges such as excess mileage, wear and tear, and disposition.

Excess mileage: If you exceed the number of miles specified in your lease term, you will have to pay an excess mileage fee, which is usually expressed as a number of cents per mile.

Wear and tear: Wear and tear fees cover the cost of repairing any excessive damage.

Disposition: A disposition fee is a payment you must make if you do not end up purchasing your vehicle.

Other terms

Lease inception fee: This is a payment that you must make when the lease starts, and may include a down payment, security deposit, acquisition fee, first month’s payment, taxes and title fees.

Capitalized (cap) cost: This is the price of the vehicle at the beginning of the lease.  It is the amount that you will be financing throughout the duration of your lease.

Capitalized cost reduction: This is similar to a down payment.  This results in a lower monthly payment.

Let us know if you have any questions in the comments section below.

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  1. […] you have a close-ended lease, you are required to pay off the actual amount of any damages that exceed normal wear and tear at […]

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