Car Lease Terminology: Every Term You Need to Know

Understanding lease terminology is crucial to getting a good deal. Dealers rely on confusing jargon to obscure the real costs. Here's every term you need to know.

Essential Lease Terms

Money Factor

The interest rate on a lease, expressed as a small decimal. To convert to APR, multiply by 2,400. For example, a money factor of 0.00125 = 3.0% APR.

Residual Value

The projected value of the vehicle at lease end, expressed as a percentage of MSRP. Higher residual = lower monthly payment. This is set by the manufacturer and is generally not negotiable.

Capitalized Cost (Cap Cost)

The negotiated price of the vehicle — essentially the "selling price" in a lease. This IS negotiable, just like buying.

Cap Cost Reduction

Any amount that reduces the capitalized cost, including down payments, trade-in value, or rebates.

Acquisition Fee

A fee charged by the leasing company to initiate the lease. Typically $595-$1,095. Sometimes negotiable, sometimes not.

Disposition Fee

A fee charged when you return the vehicle at lease end. Usually $300-$500. Often waived if you lease another vehicle from the same brand.

Excess Mileage Charge

The per-mile fee for exceeding your mileage allowance. Typically $0.15-$0.30 per mile, depending on the vehicle class.

Gap Insurance

Insurance that covers the difference between what you owe on the lease and the car's actual value if it's totaled. Often included in leases but not always.

Lease Factor / Rent Charge

Another name for the finance charge portion of your monthly payment.

The Bottom Line

Master these terms before walking into any dealership. Knowledge is your best negotiating tool.