| So, you've decided that you want to lease that next | | | | coverage that covers the difference between the |
| vehicle. Can't really blame you. With today's incentives, | | | | actual cash value of the leased vehicle and what is still |
| rebates, and favourable lease rates why wouldn't you. | | | | owed on the lease contract. If a leased vehicle is |
| Not only do you get to drive a new car, but a new car | | | | destroyed in an accident or stolen, gap insurance |
| that you wouldn't otherwise be able to afford if you | | | | coverage protects the lessee against additional losses |
| were to purchase and finance it. Buyer beware | | | | due to "gaps " between the insurance settlement and |
| though. With leasing comes new and sometimes rather | | | | the lessee's financial obligations set out in the lease |
| confusing vocabulary. Don't get lost in a sea of leasing | | | | contract. |
| jargon. Protect yourself. Learn and understand the | | | | Independent Lessor: These are non-traditional lessors, |
| industry language. For those seriously thinking of leasing | | | | usually an individual business, that can structure and |
| that next vehicle, here is a useful glossary of "new" | | | | write a lease for most makes and models of vehicles. |
| terminology that you should familiarize yourself with | | | | The terms and conditions of the lease agreement can |
| BEFORE you negotiate a lease: | | | | be customized to accommodate different lease and |
| Acquisition Fee: An administrative charge levied by the | | | | mileage conditions. |
| leasing company for processing a lease. This fee is | | | | Lease Extension: This is the continuation of a lease, |
| typically NOT negotiable and can have a significant | | | | beyond the original lease contract. Payments are |
| bearing on the overall cost of the lease. | | | | continued on a month-by-month basis at the same |
| Base Interest Rate: This is the cost of leasing and | | | | sum negotiated at the beginning of the lease term. |
| using a vehicle and is measured by the interest paid | | | | Lease Term: This is the length of the lease contract. |
| over the lease term. | | | | Most vehicles can be leased for 12, 24, 36, 48, and 60 |
| Buy at end-of-term interest rate: This is the net interest | | | | month lease terms. The monthly payment of a lease |
| rate for the lease if the lessee, at the end of the lease | | | | will vary depending on the length of the lease term. |
| term, purchases the vehicle at the end-of-lease | | | | Lessee: Name assigned to a person or party who |
| purchase price. | | | | signs a lease and agrees to assume responsibility for |
| Capitalized Cost: This is the total purchase price of the | | | | a vehicle and the lease payments. |
| vehicle. The price includes the cost of all extras such | | | | Lessor: Name assigned to a person or party that |
| as vehicle options, extended warranties, life insurance, | | | | owns the vehicle and agrees to lease it to the lessee. |
| and rustproofing. The capitalized cost equals the | | | | Mileage Allowance: Lease agreements establish a |
| amount you would pay for the vehicle if the vehicle | | | | maximum mileage allowance that the car may be |
| were being purchased. | | | | driven over the life of the lease. The agreement will |
| Capitalized Cost Reduction: A capital cost reduction is | | | | also specify the cost per mile or kilometer the car is |
| a down payment, in the form of cash or trade-in, that | | | | driven over and above the allowance that is due and |
| is applied to the final purchase price of the vehicle | | | | payable at the end of the lease term. |
| reducing the monthly lease payment. | | | | Money Factor: This is a number used to calculate the |
| Closed End Lease: Leases in which the lessee's | | | | base interest rate of a lease. To arrive at a base |
| financial obligation rests only with the negotiated | | | | interest rate, leasing companies will multiply a money |
| monthly lease payment. Since the residual value of the | | | | factor by 2400. The money factor of a lease is |
| vehicle is stated in the lease contract, the lessee is not | | | | known by the leasing and sales consultant at the |
| financially responsible if the actual value of the vehicle | | | | dealership and is used to calculate the cost of money |
| is less than the stated residual value. The lessee need | | | | in the same fashion as an interest rate does. The |
| only return the vehicle at the end of the lease term | | | | lower the money factor, the lower the monthly lease |
| with no further obligation. | | | | payments. |
| Dealer Participation: A rebate or discount, contributed | | | | Monthly Payment: A payment made on a specified |
| by the dealer, reducing the final purchase price of the | | | | date each and every month as specified in the lease |
| vehicle. | | | | contract. Monthly lease payments calculated on a |
| Depreciation: The decrease in value of a vehicle over | | | | lease contract typically include all applicable taxes. |
| time. Depreciation in automobile leasing is the | | | | Net Interest Rate: This is the total interest rate for a |
| difference in value between the cost of a new vehicle | | | | lease and represents the true cost of the lease. The |
| and the value of the vehicle at the end of the lease | | | | lower the net interest rate, the lower the cost of the |
| term. | | | | lease. |
| Disposition Fee: A fee charged by the lessor at the | | | | Open-End Lease: Leases in which the lessee's financial |
| end of a lease to ready the car for sale. The lessor | | | | obligation may exceed the negotiated monthly lease |
| may apply this fee against the deposit made by the | | | | payment. In an open-end lease the residual value is set |
| lessee at the beginning of the lease term. | | | | at the beginning of the lease term. The lessee is |
| Down Payment: A sum of money paid at the | | | | financially responsible if the actual value of the vehicle |
| beginning of a lease contract, usually at the time of | | | | is less than the stated residual value. |
| signing, that is applied to the final purchase price. In | | | | Purchase Option: Option extended to the lessee, at the |
| leasing, the down payment is referred to as the | | | | end of a lease contract, to purchase the vehicle at the |
| capitalized cost reduction. Typically, the larger the | | | | pre-determined purchase price. The pre-determined |
| down payment, the smaller the lease payment. | | | | purchase price is normally the stated residual value in |
| Early Termination Fee: A penalty paid by the lessee | | | | the lease contract. |
| for terminating a lease contract early. A lessee pays | | | | Residual Penalty: This is the penalty a lessee pays if |
| for the depreciation of a vehicle in equal monthly | | | | the end-of-lease purchase price is greater than the |
| payments. Since a vehicle's depreciation is highest in | | | | expected value of the vehicle at the end of the lease |
| the first months of a lease, terminating a lease early | | | | term. |
| results in the lessee using more of the vehicle's value | | | | Residual Value: This is the expected or pre-determined |
| than what they've paid for subjecting the lessee to | | | | value of a leased vehicle at the end of the lease |
| penalty. | | | | contract. The stated residual value on a lease contract |
| End-of-Lease Purchase Price: Also known as the | | | | is normally the buyout price at the end of a lease term. |
| residual value. This is the price at which the lessee | | | | The residual value also determines whether the lessee |
| may purchase the vehicle at the end of the lease | | | | should purchase the vehicle at the end of the lease |
| term. | | | | term. If the residual value is less than the actual market |
| Excess Wear & Tear: Wear and tear beyond what is | | | | value it would be advantageous for the lessee to buy |
| deemed acceptable by the leasing company. It is the | | | | the vehicle and sell it to a third party. |
| responsibility of the lessee to take reasonable care of | | | | Security Deposit: This is a sum of money, paid up front, |
| the car and to ensure it is returned at the end of the | | | | as security for excess wear and tear on the leased |
| lease term in good condition. Bald tires, body dents, and | | | | vehicle. The amount is refunded if the vehicle is |
| engine trouble due to neglect could subject the lessee | | | | returned in good condition. In some cases, the deposit |
| to repair and replacement charges. | | | | may be applied against the final monthly payment. |
| Gap Insurance: The name given to a type of insurance | | | | Good luck and happy negotiating! |