Leasing Terms Explained

Leasing Terms | What Leasing Means

Leasing terms can be hard to understand. When you are working with the dealership on the lease of a new vehicle this can give them an advantage. Obviously, this can make you feel very uncomfortable and intimidated. I have over 20 years of sales and finance experience in a dealership. I am going to do my best to use my experience to help explain leasing terms in an easy to understand approach.

List of Leasing terms

Capitalized Cost

This is the selling price of the vehicle this cost also includes any fees or added accessories.  Also, this is the price after negotiation. If you are getting a discount this is where you should see the difference in price.

Acquisition Fee

An acquisition fee is the fee the leasing company charges for the set up of the lease. Sometimes this is waived but is not something the dealer has control over.

Capitalized Cost Reduction

This is anything after the selling price that lowers the amount of the lease. Such as, trade equity, money down or rebates from the manufacturer.

Adjusted Capitalized Cost

This is the bottom number, sometimes referred to as Net Cap Cost. Net Cap Cost is after all fees, equity, money down, factory rebates and or any added accessories. This number is used to calculate your monthly payment.

Residual Value

The Residual Value is the estimated value of your vehicle at the end of the lease. This is the amount you don’t pay for during the lease. This is also usually the amount you can buy the vehicle for at the end of the lease. Vehicles that hold there value better generally have a higher residual value. As a result, your payment will be lower because the amount you don’t pay is greater.

Money Factory

The money factory is the interest rate that is used in a lease. It is just calculated a little different than a retail installment contract.

Security Deposit

Most leases today do not require a security deposit. There are cases where less than perfect credit may make it necessary. This is controlled by the leasing company.


A lease term is the length of the lease. If you have a term of 48 months. Simply put, you have a 48 month lease.

Disposition Fee

A disposition fee is a fee the lease company may charge at the end of the lease. This is broke out on the contract. This fee is usually $200 up to $300 dollars.


The lessee is the customer that is assuming the lease.


The Lessor is generally the leasing company that the dealer is using for the lease. This is broke out on the contract.

We hope this list of Leasing Terms helped you.

What Leasing Means

What Leasing Means

A Lease is simply a legal agreement that allows someone to use a vehicle for a set amount of time in return for money.

What leasing means in more detail is between the time you drive the vehicle off the lot and the lease end you pay the estimated depreciation. Leasing has become more and more popular. A lease makes it easy to stay in a newer vehicle. Typically, at a lower monthly payment. Most of the time you are under warranty for the term of the lease. If for some reason your lease is longer than the factory warranty you can look into a Mopar Extended Warranty. Mopar has been giving customers the additional peace of mind a extended warranty gives you since 1979.  The amount you do not pay is called the residual value. This term is explained above under leasing terms.

Leasing is not a purchase. Given that, don’t be misled to believe that you will own the vehicle at the end of the lease. At the end of the lease you will have a purchase option. This will include paying the stated residual value.  Most of the time a lessee will choose to enter into a new lease and turn in the old lease.


Why Lease Instead Of Finance

So you have the question. “Why Lease Instead Of Finance?” Leasing is a good way to keep in a newer vehicle. Typically, at a lower monthly payment. At the end of the lease term you return the vehicle to the dealership and walk away from the vehicle and ideally into your new lease. The term of a lease is generally between 2 and 4 years. A lease is a good way to know exactly what you are paying to drive a vehicle per month. A lease does have certain parameters you have to take into consideration. Such as, you will have mileage limits and you will have to maintain and insure the vehicle same as if you were financing it.

The standard lease mileage per year is 12,000 miles. You can generally up the mileage or lower it. This will reflect in the payment as you will use more or less of the vehicle value depending on how much it is driven. You will want to make sure you get enough mileage up front. The fee for going over on mileage at the end is substantially higher than getting the extra miles upfront.

For all of these reasons leasing appeals to more and more people. If you visit any of your local dealers and mention you want to see some of there lease specials. You will be surprised on just how well versed and prepared they are to lease you a car. Leasing easily accounts for over 25% of new cars that leave most dealerships today.

Here is a good resource to get an idea of what kind of a payment to expect on different makes and models. https://www.edmunds.com/calculators/car-lease.html


How To Negotiate Car Lease Terms

Here we will give you some easy to use tips to help you know how to negotiate a care lease and terms.

Negotiating a lease isn’t hard if you have a little time and know the correct terms. First, you need to know your terminology. The list of terms above is more than adequate. Secondly, research pricing and lease deals. You can do this on your local dealer sites usually. Another great resource is cars.usnews.com/cars-trucks/best-car-deals/car-lease-deals. They do a great job of showing you the best up to date lease deals.  Thirdly, be prepared to look at multiple models to find the better lease deal. Last but not least, shop different dealers. It is a fact the dealers will compete for your business. For this reason you should visit a couple of dealers and let them know right up front you are shopping them.



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