Lease Glossary
Every leasing term explained in plain English.
A
Acquisition Fee
A fee charged by the leasing company to arrange the lease. Typically $595-$1,095, it covers the administrative costs of setting up the lease agreement.
Example: BMW charges a $925 acquisition fee on most leases, which can be paid upfront or rolled into the monthly payment.
Related guide →Adjusted Capitalized Cost
The final negotiated price of the vehicle after subtracting cap cost reductions (down payment, trade-in, rebates). This is the amount used to calculate your lease payment.
Example: If the negotiated price is $35,000 and you put $2,000 down, the adjusted cap cost is $33,000.
Related guide →B
Base Money Factor
The interest rate set by the manufacturer's financial arm, before any dealer markup. Also called the 'buy rate.'
Example: Toyota Financial Services might set a base money factor of 0.00100 (2.4% APR) on the Camry.
Related guide →Buyout Price
The amount you would pay to purchase the vehicle during or at the end of the lease. At lease end, this equals the residual value plus any applicable fees and taxes.
Example: If your residual value is $20,000 and the purchase fee is $300, your lease-end buyout price would be $20,300 plus tax.
Related guide →C
Cap Cost Reduction
Any amount that lowers the capitalized cost of the lease, including down payments, trade-in equity, manufacturer rebates, and negotiated discounts.
Example: A $2,500 manufacturer rebate applied as a cap cost reduction would lower a $40,000 cap cost to $37,500.
Related guide →Capitalized Cost
The negotiated selling price of the vehicle in a lease, equivalent to the purchase price when buying. This is the most important number to negotiate.
Example: The MSRP is $42,000, but you negotiate the capitalized cost down to $39,500.
Related guide →Closed-End Lease
The most common type of consumer lease where the lessee can return the vehicle at lease end with no further obligation (assuming normal wear and mileage limits are met). The lessor bears the risk of the vehicle's future value.
Example: Most consumer car leases are closed-end, meaning you can walk away at the end of the term.
Related guide →Conquest Incentive
A bonus or discount offered to lessees who are switching from a competing brand. Designed to 'conquer' customers from rivals.
Example: BMW offers a $1,000 conquest bonus to current Audi, Mercedes, or Lexus owners/lessees.
Related guide →D
Depreciation
The loss of value a vehicle experiences over time. In a lease, you pay for the depreciation that occurs during your lease term — the difference between the cap cost and residual value.
Example: A car with a $40,000 cap cost and $24,000 residual has $16,000 in depreciation over the lease term.
Related guide →Disposition Fee
A fee charged when you return the vehicle at lease end. Covers the cost of inspecting and reselling the vehicle.
Example: Mercedes-Benz charges a $595 disposition fee at lease end, but waives it if you lease or buy another Mercedes.
Related guide →Down Payment
An upfront cash payment that reduces your capitalized cost and monthly payment. Also called a 'cap cost reduction.' Note: most experts advise against large down payments on leases.
Example: Putting $3,000 down on a lease would reduce your monthly payment by about $83 over 36 months.
Related guide →Drive-Off Amount
The total amount due when you sign the lease, including first month's payment, acquisition fee, taxes, registration, and any down payment.
Example: A lease with '$2,999 due at signing' means you pay $2,999 as your total drive-off amount.
Related guide →E
Early Termination
Ending a lease before the scheduled term expires. Typically involves significant penalties including remaining payments and early termination fees.
Example: Terminating a 36-month lease at month 24 might require paying the remaining 12 payments plus a $500 termination fee.
Related guide →Excess Mileage Charge
A per-mile fee for driving more than the mileage allowance specified in your lease agreement.
Example: At $0.25 per mile, exceeding your 36,000-mile allowance by 5,000 miles would cost $1,250 at lease end.
Related guide →Excess Wear and Tear
Damage to the leased vehicle beyond what is considered 'normal use.' This can result in charges at lease return.
Example: A dent larger than a credit card, cracked windshield, or bald tires would typically be considered excess wear.
Related guide →G
Gap Insurance
Insurance that covers the difference between what you owe on the lease and the vehicle's actual cash value if the car is totaled or stolen. Often included in lease agreements.
Example: If you owe $25,000 on your lease but the car is only worth $20,000 when totaled, gap insurance covers the $5,000 difference.
Related guide →Gross Cap Cost
The total capitalized cost before any reductions, including the vehicle price, acquisition fee, and any items rolled into the lease.
Example: If the negotiated price is $38,000 and the $925 acquisition fee is rolled in, the gross cap cost is $38,925.
Related guide →I
Incentive
Manufacturer-offered bonuses that reduce the cost of leasing, including cash rebates, reduced money factors, increased residual values, or loyalty/conquest bonuses.
Example: A $2,000 manufacturer incentive applied to a lease reduces the cap cost by $2,000, lowering monthly payments.
Related guide →L
Lease Assumption
The process of transferring a lease from one person to another. The new lessee takes over the remaining payments and obligations.
Example: Using a service like Swapalease, you can find someone to assume your remaining 18 months of lease payments.
Related guide →Lessee
The person who leases the vehicle — you, the driver. The lessee makes monthly payments and is responsible for maintaining the vehicle.
Example: As the lessee, you're responsible for insurance, maintenance, and returning the car in good condition.
Related guide →Lessor
The company that owns the vehicle and leases it to you. Typically the manufacturer's financial arm (e.g., Toyota Financial Services, BMW Financial Services).
Example: BMW Financial Services is the lessor on most BMW leases, retaining vehicle ownership throughout the term.
Related guide →M
Mileage Allowance
The maximum number of miles you can drive during the lease term without incurring excess mileage charges. Typically 10,000, 12,000, or 15,000 miles per year.
Example: A 36-month lease with 12,000 miles per year gives you a total mileage allowance of 36,000 miles.
Related guide →Money Factor
The interest rate on a lease expressed as a small decimal number. Multiply by 2,400 to convert to approximate APR.
Example: A money factor of 0.00125 equals approximately 3.0% APR (0.00125 × 2,400 = 3.0%).
Related guide →MSRP
Manufacturer's Suggested Retail Price — the 'sticker price' of the vehicle. Residual values are calculated as a percentage of MSRP.
Example: A vehicle with an MSRP of $42,000 and a 58% residual has a lease-end residual value of $24,360.
Related guide →N
Net Cap Cost
The adjusted capitalized cost after all reductions. This is the number used in the lease payment calculation.
Example: Gross cap cost of $39,000 minus $3,000 in rebates = net cap cost of $36,000.
Related guide →O
One-Pay Lease
A lease where the entire amount is paid upfront in a single payment, often resulting in a lower total cost due to reduced money factor.
Example: Instead of paying $450/month for 36 months ($16,200), a one-pay lease might cost $15,000 upfront.
Related guide →Open-End Lease
A type of lease (common in commercial/fleet leasing) where the lessee bears the risk of the vehicle's residual value. If the car is worth less than projected at lease end, you pay the difference.
Example: Commercial fleet leases are often open-end, meaning the business might owe additional money if the vehicle depreciates more than expected.
Related guide →P
Purchase Option
The right to buy the leased vehicle at the end of the lease term at the predetermined residual value price.
Example: Your lease agreement states a purchase option price of $22,000 at the end of the 36-month term.
Related guide →R
Residual Value
The projected value of the vehicle at lease end, expressed as a percentage of MSRP. Set by the manufacturer's financial arm. Higher residual = lower monthly payment.
Example: A $40,000 MSRP vehicle with a 60% residual has a lease-end value of $24,000.
Related guide →S
Security Deposit
A refundable deposit sometimes required at lease signing. Some manufacturers offer multiple security deposits (MSDs) in exchange for a lower money factor.
Example: BMW allows up to 7 MSDs of $825 each, reducing the money factor by 0.00007 per deposit — potentially saving $30+/month.
Related guide →Subvented Rate
A below-market interest rate (money factor) subsidized by the manufacturer as an incentive to lease. These represent the best financing deals available.
Example: While market rates are at 5% APR, Honda offers a subvented rate of 2.9% APR on the CR-V to boost leasing volume.
Related guide →T
Term
The duration of the lease agreement, typically 24, 36, or 48 months. 36 months is the most common and usually offers the best balance of payment and flexibility.
Example: A 36-month lease on a 2025 model year vehicle would end in 2028.
Related guide →Turn-In Fee
Another name for the disposition fee — charged when you return the vehicle at lease end.
Example: The $350 turn-in fee is due when you return the vehicle, but may be waived with a new lease from the same brand.
Related guide →W
Wear and Tear Guide
A document provided by the leasing company that defines what constitutes 'normal' vs. 'excess' wear and tear on a leased vehicle.
Example: BMW's wear-and-tear guide allows tire tread depth of 4/32' or more and dents smaller than a credit card.
Related guide →