Car Lease Glossary: 40 Terms in Plain English

Price and cap-cost terms

1. MSRP

Manufacturer’s suggested retail price: the sticker-price reference. A residual percentage is commonly applied to MSRP rather than the negotiated selling price.

2. Selling price or agreed value

The negotiated value of the vehicle used in the proposed transaction before the rest of the lease structure is fully applied.

3. Gross capitalized cost

The total amount placed into the lease before cap-cost reduction. It can include the agreed vehicle value plus capitalized fees, products, insurance, or prior balance.

4. Capitalized item

A charge added to gross cap cost and paid through the lease rather than entirely upfront.

5. Capitalized cost reduction

Cash or credit applied like a down payment to reduce the amount capitalized. It is not the same as every dollar due at signing.

6. Adjusted capitalized cost

Gross cap cost after capitalized cost reductions are applied. It is a central input in depreciation and rent-charge math.

7. Rebate or incentive

A credit provided under a specific program. Eligibility and stackability can depend on vehicle, location, timing, membership, prior ownership, or other conditions.

8. Negative equity

The amount by which the payoff on a traded vehicle exceeds its agreed trade value. It may be paid in cash or added to the new transaction.

9. Positive trade equity

The amount by which trade allowance exceeds payoff. It can fund due-at-signing items or cap reduction, but should remain visible.

Rate and payment terms

10. Money factor

A decimal used to calculate the lease rent charge. Multiplying by 2,400 gives an approximate APR-equivalent.

11. Buy rate

The lessor’s base program rate for an approved transaction before a permitted dealer adjustment. It must be confirmed for the exact program.

12. Rate markup

The difference between a lender’s buy rate and the quoted rate when the program permits an adjustment.

13. Rent charge

The lease’s financing or rental charge. In common simplified math, monthly rent charge equals adjusted cap cost plus residual, multiplied by money factor.

14. Depreciation charge

The portion of payment covering the difference between adjusted cap cost and residual over the term.

15. Base monthly payment

Depreciation plus rent charge before applicable tax and separately handled items.

16. Scheduled payment

The contract payment due at stated intervals, which may include tax and other recurring amounts.

17. Effective monthly cost

A comparison figure that spreads upfront cash other than an already-counted first payment across the term and adds it to the scheduled payment.

18. Total of payments

The sum of scheduled periodic payments disclosed under the lease. It may not equal every dollar that can be paid under every future scenario.

19. Term

The length of the lease, commonly stated in months.

Residual and lease-end terms

20. Residual value

The vehicle’s stated estimated end value used in lease calculations and often related to a purchase option.

21. Residual percentage

Residual value expressed as a percentage, commonly of MSRP.

22. Purchase option

A contractual right, if offered, to buy the vehicle at a stated time and amount or under a stated method.

23. Buyout or payoff quote

A current amount supplied by the lessor for a permitted purchase transaction. It may differ from residual because of timing, tax, fees, or remaining obligations.

24. Disposition fee

A lessor charge that may apply when the vehicle is returned at lease end.

25. Excess wear

Vehicle condition outside the lessor’s contract standard, potentially producing a return charge.

26. Closed-end lease

A lease where the lessee generally does not bear ordinary market-value decline at term end beyond contract obligations such as mileage or abnormal wear. Read the agreement for exact liability.

27. Open-end lease

A structure that can make the lessee responsible for a difference involving estimated and realized value. It is less typical for ordinary consumer auto leases.

28. Early termination

Ending the lease before scheduled maturity under the contract’s method. It is not necessarily accomplished by returning the keys and stopping payment.

29. Lease extension

A lessor-approved continuation beyond the original maturity. Payment, mileage, residual, registration, and other terms require written confirmation.

Mileage and use terms

30. Mileage allowance

The miles the contract permits over a period or the complete term.

31. Excess-mileage charge

The stated amount charged for miles beyond the allowance when applicable.

32. Prepaid miles

Additional mileage purchased under a lessor program, potentially at a different rate or refund rule than end-of-term overage.

33. Normal wear and use

Condition the lessor accepts without an excess-wear charge, as defined in its contract or guide.

Signing, fee, and protection terms

34. Amount due at signing or delivery

The total required at the start. It can include first payment, tax, fees, deposit, and cap reduction.

35. Customer cash

The portion funded directly by the customer. It is not always equal to total due because rebates or trade credit can also fund that total.

36. Acquisition fee

A lessor charge for originating the lease, paid upfront or capitalized depending on the structure.

37. Documentation or processing fee

A dealership charge for administrative work where permitted. Name, amount, and regulation vary.

38. Security deposit

Cash held to secure lease obligations and potentially refundable under the contract. It is not automatically cap reduction.

39. Multiple security deposits (MSDs)

A lender-specific program in which additional refundable deposits may reduce the money factor. Rules and reductions must be confirmed.

40. GAP

Coverage or a contractual waiver intended to address some difference between an obligation and insurance settlement after a covered total loss or theft. Inclusion, exclusions, and refund treatment vary.

Use definitions to ask better questions

Knowing a term does not establish its amount. Ask the worksheet to show the dollars and the contract to show the obligation. When the vocabulary is clear, the useful questions become specific: “What is included in gross cap cost?”, “Is this cash refundable?”, “What is the confirmed buy rate?”, and “Which amount applies if I return rather than buy?”

Use the worksheet guide for the order in which to review those figures, or upload the page to LeaseWorth and confirm the extracted fields before calculation.