Capitalized Cost: The selling price of the car, options, warranties, insurance, rust proofing, or other goodies. Think of this as the value of your car at the beginning of the lease, whereas the residual value is the value of the car at the end of the lease.

Capitalized Cost Reduction: A fancy name for cash down. It's anything that reduces the capitalized cost before the monthly payment is calculated. It includes cash down, trade-in credit and manufacturer's rebate, etc. Usually they try not to give you the factory rebate if you lease. As far as the factory is concerned, the dealer still sold the car and still qualifies for the rebate.

Closed End Lease: The only kind of lease you ever want to get. At the end just return the car, no obligations. You can buy it if you like at the residual value, but no obligated.

Dealer Service Fee: A useless fee tacked on for more profit. If they lease you the car at MSRP, they are already making too much money. They should call it the put my wife in a Beamer fee. See also Bank Fee.

Depreciation: The drop in value that the car is predicted to have during your lease. It's the difference between the adjusted capitalized cost and the residual value. Depreciation is part of what your monthly payments are paying for. That's why you want the lowest cap cost and the highest residual value:

Monthly Depreciation Fee = ( Net Cap Cost - Residual ) ÷ Lease Term

If you lease a car for 36 months whose net cap cost is $18000 and the dealer says the car is worth $14000 at lease end, your monthly depreciation fee is (18000-14000) ÷ 36 = $111.11. This is 1 of 3 components of your monthly payment, along with finance fee (interest) and taxes.

Disposition Fee: A charge by the leasing company at lease end to "fix it up for resale". Many people don't realize this fee is not declared on the first page of the lease with the other numbers, it's buried in the fine print of the "end of lease requirements" section. Some dealers claim this helps pay for cleaning up the car before resale. But they charge the next owner for that, right? Did you ever hear the dealer justify their high cost on a used car by saying they "had to recondition it"? The dealer is trying to collect twice. Tell them to let the next owner of the car pay for it, not you.

Down Payment: The amount of cash you put down to reduce the capitalized cost, and hence your monthly payments. It is subtracted from the car's capitalized cost, before the monthly payment is calculated.

Early Termination Fee: A very nasty penalty that you must pay if you terminate your lease early or total the car in a wreck. This could be several thousand dollars. Early lease termination should be avoided at all costs. Ending a lease is like ending a marriage. It's very painful and costs a lot of money. It's similar to a red neck divorce: somewhere, somehow, somebody's going to lose a trailer. People With Ford Leases Click Here.

Excess Mileage: You are limited to 10,000 - 15,000 miles annually. Any more and you'll pay fines of 15 cents per mile. Watch the mileage, or you'll owe a lot at the end. An extra 2,000 miles a year on a 3 year lease could cost you $900. Don't pay for extra mileage up front, you won't get a refund if you don't drive excess miles. The dealers don't tell you about this little clause, it's buried in the writing, and by signing the lease you effectively said that you read and understood everything.

Excess Wear & Tear: Damage or wear on the car beyond normal wear and tear. Many people are frustrated when hit with a large bill for "wear and tear" at the end of the lease, even if the car is in good condition. Read the lease and understand what it says about excess wear and tear. Have the dealer explain their standards of "excess" wear. Try to get out of paying a security deposit. The car must have 4 matching tires, or they'll bill you for 4 new tires at full retail.

Finance Fee: Also called Lease Charge, or more commonly, Rent Charge, this is the "interest" or profit that the leasing company charges you. Here's how they calculate it:

Finance Fee = ( Net Cap Cost + Residual ) × Money Factor.

Gap Insurance:If your leased car is stolen or totaled, your insurance will pay for the damage or loss. It won't help you make payments still owed to the leasing company. Gap insurance covers the gap, between the value of your car and the amount you still owe on your lease, including a possible penalty for early termination of the lease. It's illegal for a dealer to require that you buy it for any reason, including bad credit, or qualifying for a loan. If they say it's required, tell them to put that in writing, then turn it over to the State Attorney's office. Everyone who leases should buy gap insurance, but try to buy it through your insurance agent instead of the dealer, or you'll be charged double the cost.

Gross Capitalized Cost: Selling price of the car. Sometimes dealer acquisition fees are included in this amount.

Insurance: Leases require huge insurance coverage: bodily injury or death liability: $100,000 per person / $300,000 per occurrence, property damage liability: $50,000, comprehensive & collision for full vehicle value with a maximum $500 deductible.

Interest Rate: They don't quote interest rates with car leases. This way you can't check their numbers and discover that they forgot to give you credit for your trade-in, or slipped in that credit life insurance undetected. They quote "Money Factors" See definition below. To arrive at the equivalent APR interest, multiply the money factor by 2400.

MSRP: Manufacturer'sSuggested Retail Price, or "sticker price. "Never pay MSRP.

Money Factor:A number used to calculate finance charges (interest) for your monthly payment. To get the APR, multiply the money factor by 2,400. For example, a money factor of .003333, yields an interest rate of (.003333*2400) = 8%. If you were unaware of the 2400, how could you check their numbers? This is how they hide extras, and slip in credit life insurance, because you can't tell what makes up your monthly payment, or even how to calculate it, until now. When converting money factor to APR, it should at least be comparable to, or lower than local new car loan interest rates. Like interest, the lower the money factor, the lower your monthly payments. Ford has a strange way of calculating money factor that is different from the rest of the industry. People With Ford Leases Click Here!

Monthly Payment: The monthly lease payments made over the term of the lease. Monthly lease payments are made up of 3 parts: 1) depreciation, 2) rent charge and 3) sales tax. You pay the leasing company for the loss in value of its car, as well as interest on the money they have tied up in the car. Beware, many ads show a low ball monthly payment that don't include tax. The ad for a BMW or Lexus for a $399 a month has fine print that says "plus tax", meaning they are understating the real monthly payment by $23.94 (6% tax in Florida).

Moron: A person who leases a car and does not obtain gap insurance. A person who leases a car and 2 weeks later decides he wants out and thinks he can just take the car back and dump it off.

Net Trade-in Allowance: This is the amount the dealer is giving you for your trade-in, after paying off any loan balance on your trade-in. If you were upside down on your loan, whatever is left is financed into the lease, effectively increasing the adjusted capital cost of the leased car. They don't go out of their way to inform you about this either. Many dealers run ads yelling out "We'll pay off your car no matter how much you own". So you are tricked into thinking your old loan is gone, but it's not. They just moved your loan balance over to the lease and blended it in.

Purchase Option Fee: A fee charged if you opt to buy the vehicle at the end of a lease. Negotiate it out. That's icing that belongs on your cake, not theirs.

Purchase Option Price: Selling price of the vehicle if you buy it at the end of the lease. This is usually the residual value.

Residual Value: The value leasing companies estimated the car will be worth at lease end, expressed as % MSRP. The residual value affects the amount of your monthly payment. Dealers have books estimating the residual value and the higher the residual value, the less you will pay each month to lease your car. You may get lucky and it will be lower than market value when the lease is up. You can then buy and sell the car, trade it in for something else, or just walk away. Ask your bank or credit union for residual values. I'll point you to sites that give the residual values later on in this article.

Always know the residual value of the car by looking it up so you can verify they are not quoting too low an amount. If they quote a low residual value, your monthly payments will be higher because the depreciation is higher.

Click Here to get ALG Residual Values

Security Deposit:Usually equal to one month's payment paid up front as security for excess wear and tear. They usually call it "refundable", but you know they'll come up with some excuse to keep it at the end to keep it due to excess wear, or for new tires.

Termination Fee: Another wasted fee. I still don't know why they need to charge this fee at the end, especially if they are already charging a disposition fee to "clean up the car" afterwards. Negotiate this toxic waste off the contract.

Go To Part 3: Real world lease calculations: How lease payments are calculated.

Jump to any section. I suggest you read each chapter in order.
Part 1: Car Leasing Intro What leasing means, how it works, the advantages and disadvantages of leasing, and how to finance a lease.	Part 2: Leasing Glossary Glossary terms used in leasing, and how they are used against you so you'll be prepared for decisions in leasing your dream car.	Part 3: Lease Examples Real world leases with fees attached. A free Excel spreadsheet to calculate your monthly lease payments. How car dealers calculate lease payments.	Part 4: Web Sites To Use Reviews of discount car buying sites, determine how much dealers pay for cars, how to get ALG lease residual values. How to price your trade-in.
Part 5: Leasing Scams Federal leasing laws, and all the common car dealer leasing scams.	Part 6: Lease Dilemmas Money saving tips, getting out of common leasing dilemmas. What to do when your current lease is due.	ALG Residual Values Reviews of top leasing software and where to get ALG residual values. How to avoid lease payment scams.
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