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Welcome to America’s “ONLY” Full Service Automobile Lease Transfer Marketplace.
In this section you'll find all the necessary information to understand,
the auto lease transfer and assumption process and how to take advantage of our site.
Car Leasing Glossary - Auto Leasing 101
Acquisition Fees.
A charge included in most lease transactions that is either paid up front or is included in the gross capitalized cost. It may be called a bank fee, an administrative fee, or an assignment fee. This fee usually covers a variety of administrative costs, such as the costs of obtaining a credit report, verifying insurance coverage, checking the accuracy and completeness of the lease documentation, and entering the lease in data processing and accounting systems.
Acquisition Fee Rate Penalty.
This is the impact on the net interest rate of any acquisition fee.
Additional insured
A party that is covered by another party's insurance policy. The lessor typically requires you to name the lessor or assignee as an additional insured under your vehicle insurance policy.
Adjusted capitalized cost (adjusted cap cost)
The amount capitalized at the beginning of the lease, equal to the gross capitalized cost minus the capitalized cost reduction. This amount is sometimes referred to as the net cap cost.
Amortized amounts
Amounts such as taxes, fees, charges for service contracts, payments for insurance, and any prior credit or lease balance that are included in the gross capitalized cost and are paid as part of the base monthly payment.
Amount due at lease signing or delivery
The total of any capitalized cost reduction, monthly payments paid at signing, security deposit, title and registration fees, and other amounts due before you take delivery of the vehicle.
APR (annual percentage rate)
The annualized cost of credit expressed as a percentage in a finance agreement. In a lease, there is no annual percentage rate or equivalent rate.
Arranger (Broker)
An entity that arranges for the sale or lease of vehicles through another party.
Assignee
A third party that buys a lease agreement from a lessor. You become obligated to the assignee, and the assignee generally assumes the responsibilities of the lessor, although some obligations may remain with the lessor. An assignee may be a lessor for purposes of Regulation M when the assignee has substantial involvement in the lease.
Assignment
The sale of a lease agreement and transfer of the ownership rights for the leased vehicle from the lessor to an assignee. Many leases are assigned at the time the lease is signed.
Assignor
A lessor that sells the lease agreement and transfers the ownership rights for the leased vehicle to an assignee.
Auto Lease Assumption
An Auto Lease Assumption is when a person takes over the payments of a leased vehicle with the approval of the original lease company or lessor from the original lessee and assumes the rights and responsibilities under the current term of the auto lease agreement. LeaseTrader.com is a good Example of a Company that does Auto Lease Assumptions.
Auto Lease Transfer
An Auto Lease Transfer is when a person takes over the payments of a leased vehicle with the approval of the original lease company or lessor from the original lessee and assumes the rights and responsibilities under the current term of the auto lease agreement. LeaseTrader.com is a good Example of a Company that does Auto Lease Assumptions.
Bank Loan Rate.
Based on published rates for new car loans with 20 percent down and 48 month terms, IntelliChoice calculates the average loan interest rate for the month. Rates available in any market may differ substantially from this average and this average is only intended as a guide.
Base Interest Rate.
Represents the interest paid on the usage of the vehicle in a lease. It is the 'cost' of a lease before factoring in discounts, fees, and penalties. Sub vented leases are often less costly because manufacturers lower the base interest rate. The phrase 'money factor' measures the same cost, but expresses it in a less understandable fashion.
Base monthly payment
The portion of the monthly payment that covers depreciation, any amortized amounts, and rent charges. It is calculated by adding the amount of depreciation, any other amortized amounts, and rent charges and dividing the total by the number of months in the lease. Monthly sales/use taxes and other monthly fees are added to this base monthly payment to determine the total monthly payment.
Broker (arranger)
An entity that arranges for the sale or lease of vehicles through another party.
Business lease
A lease of personal property to (1) an individual to be used primarily for business, commercial, or agricultural purposes or (2) an organization, such as a partnership, corporation, or government agency. The Consumer Leasing Act and Regulation M do not apply to business leases.
Buy at end-of-term interest rate.
This is the effective interest rate for the lease if, at the end of the lease, the car is purchased at the end-of-lease purchase price.
Capitalized (Cap) Cost.
This is the total price of the vehicle-its purchase price. In theory, the cap cost should equal the amount you would pay for the vehicle if you were purchasing the vehicle. When a lease is made, the dealer sells that vehicle to the leasing company, who then leases the vehicle to you. The capitalized cost is the price the dealer actually receives for the vehicle.
Capitalized (Cap) Cost Reduction.
This is a fancy name for a cash down payment, money you pay up front that is applied to the final purchase price. A large cap cost reduction will, of course, reduce the monthly payments, but it will also negate one of the big advantages of leasing. However, if you own your present car, you may be able to use it to satisfy the cap cost reduction to start the lease. Since you are putting a 'down payment' on something you do not own, a capitalized cost reduction is really just a fancy word for a fee.
Another source of capital cost reduction may be dealer or manufacturer participation. Dealers and manufacturers will sometimes simply lower the cap cost or offer a rebate that reduces the cap cost. A dealer or manufacturer cap cost reduction does lower your cost, unlike a cap cost reduction that you must pay.
Captive finance company
A finance company related to a particular automobile manufacturer or distributor.
Car Lease Transfer or Assumption
A Car Lease Transfer or a lease assumption is when a person takes over the payments of a leased vehicle with the approval of the original lease company or lessor from the original lessee and assumes the rights and responsibilities under the current term of the auto lease agreement. LeaseTrader.com is a good Example of a Company that does Auto Lease Assumptions.
Consumer lease
A lease of personal property to an individual to be used primarily for personal, family, or household purposes for a period of more than 4 months and with a total contractual obligation of no more than $25,000. A lease meeting all of these criteria is covered by the Consumer Leasing Act and Federal Reserve Board's Regulation M. If any one of these criteria is not met, for example, if the leased property is used primarily for business purposes or if the total contractual obligation exceeds $25,000, the Consumer Leasing Act and Regulation M do not apply. SeeTotal contractual obligation.
Consumer Leasing Act
A 1976 amendment to the Truth in Lending Act that requires disclosure of the cost and terms of consumer leases and also places substantive restrictions on consumer leases. See Consumer lease.
Constant Yield Method (actuarial method)
The method of earning rent charges in which the rent charge earned each month is proportional to the remaining lease balance. Under this method, the lessor or assignee earns rent charges at an equal rate over the term, similar to most home first mortgages.
Consummation
Generally, the time at which you and the lessor sign the lease agreement.
Closed and Open End Leases.
Most leases today are closed-end leases also better known as "walk away" lease, meaning that the residual value is fixed and stated in the lease contract (the stated residual value). The lessee's financial obligations are unaffected by what the vehicle is actually worth when the lease ends. In other words, the lessee assumes no risk for the depreciation of the vehicle.
With an open-end lease, there is still a residual value set at the beginning of the lease. However, if the car is worth less than the residual value at the lease's end, the lessee must pay the difference. In other words, the lessee is assuming the risk for depreciation with an open-end lease.
Credit Union Loan Rate.
Based on published rates for new car loans with 20 percent down and 48 month terms, IntelliChoice calculates the average loan rate for the month. Rates available in any market may differ substantially from this average and this average is only intended as a guide.
Dealer documentation fee
See Documentation fee.
Dealer Participation.
This is the amount contributed by the dealer to reduce the final purchase price in the lease contract. Dealer participation can take the form of a rebate or simply a discount. The dealer participation is reflected in the lease contract as a capital cost reduction.
Dealer preparation fee
A fee charged by some dealers to cover the expenses of preparing a vehicle for lease. The dealer may be reimbursed by the manufacturer for this expense.
Default
Your failure to meet one or more conditions of your lease agreement. Default may result in early termination of the lease.
Deposit Rate Penalty.
This measures the impact on the interest rate of any cash deposit that is usually made at lease inception. Even though you get the deposit back, you lost any interest that your deposit would have earned for the duration of the lease.
Depreciation.
The amount by which property loses its value. In leasing, depreciation is
the difference between the new car cost and the value of the car at the end
of the lease.
Depreciation and
any amortized amounts
Total amount charged to cover the vehicle's projected decline in value
through normal use during the lease term and other items that are paid for
over the lease term. It is calculated as the difference between the adjusted
capitalized cost and the vehicle's residual value. This amount is a major
part of your base monthly payment.
Disclosures
Information on the financial and other terms and conditions of a lease,
including information required by federal regulation (Regulation M) and by
state laws. Required disclosures must be made in writing before the lease is
consummated. Advertisements that include key lease terms (the amount of any
payment or a statement of payments due before consummation or delivery) must
also include certain disclosures. Under Regulation M, certain disclosures
must be grouped together and segregated from other information (see
Segregated disclosures). Other required disclosures appear elsewhere in the
lease documents (see Nonsegregated disclosures).
Disposition
Fee.
This is a fee you pay up front to the lessor that covers the lessors cost
of getting the vehicle ready for sale after you have returned the vehicle.
Disposition Rate Penalty.
This measures the impact on the net interest rate of any disposition fee
that must be made at lease termination.
Documentation fee
A fee to cover the cost of preparing lease documents charged by some
dealerships (sometimes called a dealer documentation fee) or other lessors.
"Down" Payment.
See Cap cost
reduction.
Early Termination.
A vehicle's depreciation is the highest in the first few months after it
leaves the dealer's lot. Since a lessee pays for depreciation in equal
monthly payments, lessees who end a lease early have almost always used up
more of a car's value than they've paid for.
So lease contracts generally carry penalties for early termination. Be aware
of what those penalties are before you sign the lease contract.
Early termination
charge or fee
The amount you owe if your lease ends before its scheduled termination
date, calculated as described in your lease agreement. The earlier your
lease is terminated, the greater this charge is likely to be. The charge is
generally the difference between the early termination payoff and the amount
credited to you for the vehicle. Suppose, for example, that your early
termination payoff amount is $16,000 and the amount credited for the vehicle
is $14,000. The early termination charge would be $16,000 minus $14,000, or
$2,000 in this case.
Early termination payoff (early termination balance or gross payoff)
The total amount you owe if your lease is terminated before the scheduled
end of the term before subtracting the value credited to you for the
vehicle. The payoff is calculated as described in your lease agreement. The
early termination payoff may include the unpaid lease balance and other
charges.
Equal Credit Opportunity Act
A federal law that prohibits discrimination in credit transactions on the
basis of race, color, religion, national origin, sex, marital status, age,
source of income, or the exercise of any right under the Consumer Credit
Protection Act.
Equity
In an installment sale or loan, the positive difference between the trade-in
or market value of your vehicle and the loan payoff amount. When the loan is
paid off, the equity is the market value of the vehicle.
End of Lease Purchase Price.
If there is a purchase option in the lease contract or agreement, this
will be the agreed upon price for the purchase of the vehicle at the end of
the lease-the stated residual value.
Excess mileage
charge
A charge by the lessor or assignee for miles driven in excess of the maximum
specified in the lease agreement. The excess mileage charge is usually
between $0.10 and $0.25 per mile. Suppose, for example, that your lease
specifies a maximum of 36,000 miles and a charge of $0.15 per mile over the
maximum. If you drive 37,000 miles, the excess mileage charge will be $0.15
x 1,000, or $150. Open-end leases typically do not include an excess mileage
charge.
Excessive
wear-and-tear charge
Amount charged by a lessor or assignee to cover wear and tear on a leased
vehicle beyond what is considered normal. The charge may cover both interior
and exterior damage, such as upholstery stains, body dents and scrapes, and
tire wear beyond the limits stated in the lease agreement. Open-end leases
typically do not include an excessive wear and use charge.
Excessive
wear-and-tear coverage
A plan that you may purchase that covers some or all of the charges for
excessive wear and tear defined under the lease agreement. The coverage of
these plans varies in the amounts and types of charges covered. Most plans
deny coverage at early termination or if you are in default. Generally,
these plans do not cover excess mileage.
Excessive
wear-and-use charge
Sum of excess mileage charge and excess wear and tear charge.
Extended warranty
See Service contract.
Fair market value
The amount that a willing buyer would pay to a willing seller to purchase
certain property at a particular point in time.
Fair market value purchase option
Your right to purchase the vehicle at scheduled termination, according to
terms specified in your lease agreement for a price determined by referring
to a readily available guide to used car values or to another independent
source.
Federal Reserve
Board
The federal agency with rule-writing authority for the Truth in Lending Act,
of which the Consumer Leasing Act is part; officially known as the Board of
Governors of the Federal Reserve System. The Board also performs other
functions related to U.S. monetary policy, financial system stability, bank
supervision and regulation, and the nation's payments system.
Federal Trade
Commission
The federal agency responsible for enforcing the Truth in Lending Act, of
which the Consumer Leasing Act is part, among leasing companies, finance
companies, lessors, and assignees not regulated by other federal agencies.
The Federal Trade Commission also performs other functions related to its
role of ensuring that the nation's markets function competitively; enforcing
other statutes affecting consumer financial services; and enforcing the
Federal Trade Commission Act, which prohibits unfair or deceptive acts or
practices.
Fees and taxes (or
official fees and taxes)
The total amount you will pay for taxes, licenses, registration, title, and
official (governmental) fees over the term of your lease. Because fees and
taxes may change during the term of your lease, they may be stated as
estimates.
Final Purchase Price.
This price is equivalent to the amount you would pay for the vehicle if
you were buying or financing rather than leasing. The final purchase price
does not include any 'down' payment by the lessee.
Fixed price
purchase option
Your right to purchase the vehicle at scheduled termination for a fixed
price specified in your lease agreement.
Full maintenance lease
A lease in which the lessor or assignee assumes responsibility for all
manufacturer-recommended maintenance and service on the vehicle. The lease
may also cover additional mechanical repairs and servicing during the term
of the lease. The cost of this service usually is included in the gross
capitalized cost or is added to the base monthly payment.
Gap
amount
In the event a leased vehicle is stolen or totaled, the difference between
the early termination payoff amount, not including any past-due amounts, and
the amount for which the vehicle is insured before the insurance deductible
and any other policy deductions are subtracted. The definition of gap amount
may vary in different states or in different lease agreements.
Gap coverage
(guaranteed auto protection, or GAP)
A plan that provides you financial protection in case your leased
vehicle default at the time of the loss. There are two types of gap
coverage. One is a waiver by the lessor or assignee of the gap amount if the
vehicle is stolen or totaled. The other is a contract by a third party to
cover the gap amount. Under either type, you may remain responsible for the
insurance deductible, for other amounts deducted from the insured amount of
the vehicle by your insurance company, and for any past-due or other amounts
you owe under the lease. You may also be responsible for your monthly
payments until the lessor receives your insurance proceeds.
Gap Insurance.
Gap insurance covers you against additional losses not covered by your
auto insurance in the case of an accident in which the vehicle was totaled.
Your auto insurance will cover the actual cash value of the car at the time
of its loss. Gap insurance covers the difference (gap) between the actual
cash value of the vehicle and what is owed on the lease contract, including
early termination fees. Gap insurance is most important in the early years
of a lease when the difference between the value of the car and what is owed
are greatest. Some manufacturers now include Gap insurance in their leases.
Gross capitalized cost (gross cap cost)
The agreed-upon value of the vehicle, which generally may be negotiated,
plus any items you agree to pay for over the lease term (amortized amounts),
such as taxes, fees, service contracts, insurance, and any prior credit or
lease balance.
Incentives
Amounts rebated or credited, or special programs offered to encourage the
lease of certain vehicles.
Independent leasing
company
A leasing company that offers leases directly to consumers and businesses
and is generally not affiliated with a particular automobile manufacturer.
Independent Lessor.
Independent Lessors are usually individual businesses that can provide
for the lease of virtually any make or model of vehicle. Independent
lessors, like dealers, can write custom leases including those with
different conditions and special mileage considerations.
Insurance
A contract in which one party agrees to pay for another party's financial
loss resulting from a specified event (for example, a collision, theft, or
storm damage). Lease agreements generally require that you maintain vehicle
collision and comprehensive insurance as well as liability insurance for
bodily injury and property damage.
Insurance
verification
The process of obtaining verbal or written confirmation of required coverage
from your insurance agent or company.
Late
charge
A fee charged for a past-due payment. This charge is usually either a
percentage of the lease payment or a fixed dollar amount.
Late payment
A payment received after the specified due date. In most cases, after any
grace period, a late payment triggers a late charge.
Lease
A contract between a lessor and a lessee for the use of a vehicle or other
property, subject to stated terms and limitations, for a specified period
and at a specified payment.
Lease Assumptions
A Lease Assumption is when another person takes over your lease and vehicle
from you and assumes the rights and responsibilities under the current term
of the auto lease agreement.
Visit LeaseTrader.com this is a good Example of a Company that does Auto
Lease Assumptions.
Lease balance
(adjusted lease balance)
The unpaid portion of the adjusted capitalized cost of the lease. The lease
balance is reduced as you make your monthly payments, usually by use of a
standard methodology such as the constant yield (actuarial) method. The
lease balance is often a primary component of the early termination payoff
amount.
Lease charge
See Rent or rent charge.
Lease extension
Continuation of a lease agreement beyond the original term, often one month
at a time. There may be a charge for extending the lease. If the extension
continues beyond six months, new lease disclosures must be provided.
Lease factor
See Money factor.
Lease payments
The number of payments in the lease agreement. Generally, the number of
payments and the number of months in the lease term are the same. However,
there are some leases in which the numbers may be different, such as a
single-payment lease that would disclose "1" as the number of payments and
may disclose "24 months" as the lease term.
Lease rate
A percentage used by some lessors or assignees to describe the rent charge
portion of your monthly payment. However, no federal standard exists for
calculating the lease rate. Any rates or factors used in lease calculations
do not have to be disclosed under federal law. If a lease rate is given as a
percentage in an advertisement or on any lease form, the ad or form must
also state, "This percentage may not measure the overall cost of financing
this lease." Some states may require lease rate disclosure using the state's
definition.
Lease Term.
This is the duration of the lease. 24 and 36 month leases are the most
common but you can also lease a car for 12, 48, or even 60 months if you
choose. Remember that your monthly payment will change depending on the
length of the lease.
Lease Transfer
An Auto Lease Transfer is when
another person takes over your lease and vehicle from you and assumes the
rights and responsibilities under the current term of the auto lease
agreement
Visit LeaseTrader.com this is a good
Example of a Company that does Auto Lease Transfers.
Lemon laws
State laws that provide remedies to consumers for vehicles that repeatedly
fail to meet certain standards of quality and performance. Lemon laws vary
by state and may not cover leased vehicles.
Lessee.
The party to whom the vehicle is leased. In a consumer lease, the lessee is
you, the consumer. The lessee is required to make payments and to meet other
obligations specified in the lease agreement.
Lessor.
The individual, dealer, business, manufacturer, or financial institution
that owns the vehicle. See Assignee and Broker.
Luxury car tax
A federal excise tax assessed on vehicles with a gross vehicle weight of
less than 6,000 pounds and a value exceeding a threshold amount, which is
adjusted periodically for inflation.
Maintenance
Care for the vehicle required by the lease agreement. Maintenance may
include manufacturer-recommended servicing and any repairs needed to keep
the vehicle in good operating condition.
Maintenance contract
A contract that you may purchase to cover some or all of the vehicle
maintenance and servicing. Distinguish from
Service contract.
Maintenance lease
A lease agreement in which some or all of the vehicle maintenance and
servicing is the responsibility of the lessor or assignee.
Manufacturer
Discounts.
In some leases, particularly subvented leases, the manufacturer reduces the
MSRP which lowers the purchase price of the vehicle, which the lease is
based on. This is a form of capitalized cost reduction.
Mechanical
breakdown coverage
See Service contract.
Mileage Allowance or
mileage limitation
Lease agreements usually set the average miles per year that the car may
be driven during the lease. This is often between 12,000 and 15,000 miles.
The lease contract also establishes the amount you'll have to pay for every
mile driven over the allowance. This mileage fee is usually 15 cents per
mile.
Miscellaneous Fees.
There are usually an number of assorted fees associated with a lease.
These fees may include an acquisition fee-a sort of processing fee and/or a
disposition fee for getting the car ready for sale at the end of the lease.
Money Factor.
The most common way to express the base interest rate of a lease is as a
money factor. If you multiply a money factor by 24 (or 2400, depending on
how the money factor is expressed), the result will be equivalent to the
base interest rate. The money factor of most leases is known by a dealer's
sales staff.
The money factor is the cost of money, just as the interest rate. However,
money factors are used almost exclusively in leases, whereas interest rates
are used everywhere else.
Monthly
Payment.
The amount that must be paid each month to satisfy the lease contract. It
is common for the monthly payment shown in lease advertisements to exclude
any applicable taxes which will add to the amount paid each month.
Monthly sales/use tax
The state and local taxes that you must pay monthly when you lease a
vehicle. These payments, if any, are added to your base monthly payment and
paid as part of your total monthly payment.
MSRP.
Manufacturer suggested retail price.
Net Capitalized
Cost.
This is the price of the vehicle after deducting any dealer participation,
manufacturer discounts, and cap cost reduction ('down' payment) from MSRP.
Net
Interest Rate.
This is the total interest rate for the lease. It represents the true
cost of the lease offer. Because it considers all factors that influence the
cost of the lease, it is directly comparable to bank and credit union loan
rates. The lower the net interest rate, the lower the cost of the lease.
Non-segregated
disclosures
Disclosures required by the Federal Reserve Board's Regulation M that
may be presented in any order and may appear anywhere in the lease documents
except with the segregated disclosures. Page 2 of the sample lease form
shows these disclosures. See also Segregated
disclosures.
Opportunity Cost.
The cost of what you didn't do. For instance, if you have the cash to buy a
car, the opportunity cost of the purchase is the interest lost on the cash
you used for the car. One of the often-cited advantages of leasing is that
it frees up your money to invest elsewhere.
Open-end lease
A lease agreement in which the amount you owe at the end of the lease
term is based on the difference between the residual value of the leased
property and its realized value. Your lease agreement may provide for a
refund of any excess if the realized value is greater than the residual
value. In an open-end consumer lease, assuming you have met the mileage and
wear standards, the residual value is considered unreasonable if it exceeds
the realized value by more than 3 times the base monthly payment (sometimes
called the "three-payment rule"). If you believe the amount owed at the end
of the lease term is unreasonable and refuse to pay, the lessor or assignee
may attempt to prove that the residual value was reasonable when it was set
at the beginning of the lease. However, if you cannot reach a settlement
with the lessor or assignee, you cannot be forced to pay the excess amount
unless the lessor or assignee brings a successful court action and pays your
reasonable attorney's fees. Distinguish from
Closed-end lease.
Option to purchase
See Purchase option.
Payoff
See
Early termination payoff.
Personal property tax (or Ad valorem tax)
A tax on personal property. State laws govern whether personal
property taxes apply to a leased vehicle; your lease agreement governs
whether you or the lessor or assignee will pay these taxes.
Prior credit
balance (negative equity or negative trade-in balance)
The portion of the gross capitalized cost representing the amount due
under a previous credit contract after crediting the value of the vehicle
traded-in on the lease.
Prior lease balance
The portion of the gross capitalized cost representing the balance
due under a previous lease agreement after crediting the value of the
previously leased vehicle.
Purchase
Option.
Most closed-end leases grant the lessee an option to purchase the vehicle at
the end of the lease. The end-of-lease purchase price is often referred to
as the residual value. Check the lease contract before signing to ensure
that there is a purchase option. The lessor must disclose the purchase
option price prior to your signing the lease contract.
Purchase-option fee
An amount, in addition to the purchase price, you may have to pay to
exercise any purchase option in your lease agreement.
Purchase
Price.
This is the price you would expect to pay for the vehicle if you were
financing or buying the vehicle. To determine the purchase price, start with
MSRP and subtract any manufacturer discount, and dealer discount that you
negotiate. Purchase price is a key determinant of the true cost of a lease.
Purchase price less your down payment is the net capitalized cost.
Purchase Price Discount.
If the final purchase price of the vehicle is less than the target purchase
price, then there is a benefit to you as the lessee because you will have to
pay for less of the vehicle's value over the lease term resulting in a
reduction of the net interest rate.
Purchase Price Penalty.
If the final purchase price of the vehicle is more than the target
purchase price, then the amount of the car you'll be paying for is increased
which results in an increase to the net interest rate.
Realized value
(1) The price received by the lessor or assignee for the leased
vehicle at disposition, (2) the highest offer for the leased vehicle at
disposition, or (3) the fair market value of the leased vehicle at
termination. The realized value may be either the wholesale or the retail
value specified in the lease agreement.
Reasonableness
standard
The requirement of the Consumer Leasing Act that charges for
delinquency, default, or early termination be reasonable in light of the
lessor's or assignee's (1) anticipated or actual harm caused by such
delinquency, default, or early termination; (2) difficulties in proving
loss; and (3) inconvenience in obtaining a remedy.
Rebate
An amount that may be offered by a manufacturer, dealer, lessor, or
assignee that may be paid to you separately or credited to your lease
agreement.
Reconditioning
The process of preparing a vehicle for resale or re-lease if you
return it.
Reconditioning
reserve
An amount that you may pay at the beginning of the lease that may be
used by the lessor or assignee to offset any amounts you may owe at the end
of the lease term for excessive wear and use and excess mileage. Any
remaining amount may be refunded to you.
Registration fee
A fee charged by a state motor vehicle department to register a
vehicle and authorize its use on the public roadways.
Regulation M
The regulation issued by the Federal Reserve Board that implements
the Consumer Leasing Act.
Refundable deposit.
This is a refundable deposit required at lease inception. In some cases
it may be used to satisfy the final monthly payment. It is sometimes called
a security deposit.
Rent
or rent charge
The portion of your base monthly payment that is not depreciation or
any amortized amounts. This charge is similar to interest on a loan.
Residual
Discount.
If the end-of-lease purchase price is greater than the expected
end-of-lease value (expected residual value) then the dollar difference
represents the value of the vehicle that you will not pay for during the
lease.
Residual
Penalty.
If the end-of-lease purchase price is less than the expected end-of-lease
value (expected residual value) then the dollar difference represents the
additional value of the vehicle you'll pay for during the lease.
Residual Rate Discount.
This measures the positive impact on the net interest rate of a residual
value that is set too high. It is shown as a negative number to reflect the
decrease in the net interest rate that results.
Residual Rate Penalty.
This measures the negative impact on the net interest rate of a residual
value that is set too low. It is shown as a positive number to reflect the
increase in the net interest rate that results.
Residual value
The end-of-term value of the vehicle established at the beginning of
the lease and used in calculating your base monthly payment. The residual
value is deducted from the adjusted capitalized cost to determine the
depreciation and any amortized amounts. It is an estimate that may be
determined, in part, by using residual value guidebooks. The residual value
may be higher or lower than the realized value at the scheduled end of the
lease.
Residual Value, Expected.
This is the projected expected value of the vehicle at the end of the
lease. Residual value is a measure of the vehicle's expected depreciation.
Residual value
guidebooks
Publications used, in part, by some lessors and assignees to establish
vehicle residual values. Different guidebooks are more popular in different
regions of the United States and with different lessors and assignees.
Residual Value Stated.
The stated residual value is the same as the end-of-lease purchase price.
The higher the stated residual value of the car, the lower your monthly
payments. Stated residual value may be higher or lower than the expected
residual value.
Stated residual value also determines whether you should buy the vehicle at
the end of the lease. If at the end of a lease, the vehicle's market value
is less than the stated residual value, the lessee would be prudent not to
purchase the car. On the other hand, if the actual market value were greater
than the predetermined residual, then the lessee should buy the car, sell
it, and pocket the difference.
Sales/use taxes
Sales/use taxes, which vary from state to state, are assessed on both leased
and purchased vehicles. There are often differences in what amounts are
taxed and when the taxes are assessed. In a lease, sales/use taxes may be
assessed on (1) the base monthly payment; (2) any capitalized cost
reduction; and (3) in a few states, the adjusted capitalized cost. In most
states, the sales/use tax on the base monthly payment is paid monthly; in
some states, however, the tax is due at lease inception. Sales/use taxes on
the capitalized cost reduction and the adjusted capitalized cost are usually
due at lease inception. If you exercise any purchase option, separate taxes
may apply.
Security deposit
An amount you may be required to pay, usually at the beginning of the lease,
that may be used by the lessor or assignee in the event of default or at the
end of the lease to offset any amounts you owe under the lease agreement.
Any remaining amount may be refunded to you.
Security interest
If stated in your lease agreement, a lessor's or assignee's legal right to
your property (such as stocks or bonds) that secures payment of your
obligation under the lease agreement.
Segregated disclosures
Disclosures required by Federal Reserve Board's Regulation M that must be
grouped together and separated from other information in the lease
documents. The first page of the sample lease form shows the disclosures
that must be segregated. See also
Nonsegregated disclosures.
Service contract (mechanical breakdown protection or extended warranty)
A contract that you may purchase to cover expenses such as the repair or
replacement of vehicle components and that may pay for related services such
as towing or replacement rental cars. In most cases, service contracts do
not cover routine maintenance. Distinguish from
Maintenance contract.
Single-payment
lease
A lease that requires a single payment made in advance rather than periodic
payments made over the term of the lease. This lump-sum payment should be
less than the total amount you would pay were you to make periodic payments
over the term of the lease.
Standards for wear
and use
Statements in the lease agreement defining what the lessor or assignee means
by normal wear and use and setting the requirements for the vehicle's
condition at the end of the lease. Standards may address such items as the
minimum amount of tread on the tires at the end of the lease or the type of
dents or scratches that are acceptable. These standards must be reasonable.
Sublease
Oral or written contractual transfer of your right to use the leased vehicle
to another person. Such a transfer is usually prohibited without the
lessor's or assignee's approval.
Subvented
Lease.
A subvented lease is a special lease offered by manufacturers with special
incentives to make it more attractive. These special incentives often take
the form of a lower base interest rate, higher residual values, and
manufacturer discounts. In many cases, a subvented lease will have a lower
net interest rate than other leases. Subvented leases are usually available
for a limited time and the terms are not negotiable. Any negotiated change
in the terms will result in a different net interest rate.
Subvention
A program or plan in which certain items are subsidized by the
manufacturer, the finance company, the lessor, or the assignee.
Target Purchase Price.
This is the price that you can reasonably expect to negotiate for the
vehicle as configured; however, it is not necessarily the lowest price. It
includes an average acceptable markup for the dealer and reflects recent
market conditions.
Termination fee
See Disposition fee or disposal fee.
Three-payment rule
See Open-end lease.
Time value of money
The value derived from the use of money over time as a result of
investment and reinvestment. This term may refer to either present value or
future value calculations. The present value is the value today of an amount
that would exist in the future with a stated investment rate called the
discount rate. For example, with a 10% annual discount rate, the present
value today of $110 one year from now is $100. Future value is the value in
the future of a known amount today with a stated investment rate. For
example, with a 10% annual investment rate, the future value in one year of
$100 today is $110. In either case, the interest rate used reflects the lost
opportunities for return from alternative investments.
Title
Legal document that identifies the owner of the vehicle. The lessor
or assignee, not you, holds title to the leased vehicle.
Total contractual obligation
The sum of the capitalized cost reduction, the total of base monthly
payments, and other charges due under the lease agreement. The total
contractual obligation excludes any security deposit as well as sales taxes
and any other fees and taxes paid to a third party. If the total contractual
obligation exceeds $25,000, the Consumer Leasing Act does not apply.
Total monthly payment
The base monthly payment plus monthly sales or use taxes and any other
monthly charges.
Total Out of Pocket Cost.
This is the total of all monthly payments, any lease fees and deposits,
and any capital cost reduction (except tax, license, and registration) from
lease inception to closure.
Total of payments
The sum of the periodic payments, the end-of-term disposition fee,
any other charges, and all amounts due at lease signing or delivery, minus
refundable amounts such as a security deposit, and any monthly payments
included in the amount due at lease signing or delivery.
Trade-in
The net value of your vehicle credited toward the purchase or lease
of another vehicle. If you own the vehicle being traded-in, you sell it to
the dealer or lessor. If you are leasing the vehicle being traded-in, you
are turning in the vehicle (either at the scheduled end of the lease or upon
early termination) to the dealer or lessor who has agreed to pay any
remaining balance on your agreement. The amount credited may be positive or
negative, depending on the agreed-upon value of the trade-in vehicle and any
remaining balance on your agreement.
Use tax
See Monthly sales/use tax.
Used car guidebooks
Publications that report current wholesale and/or retail prices of
vehicles. Wholesale values generally are determined from factors including
auto auction prices, other wholesale transactions, and regional demand.
Prices are listed according to year, make, model, options, mileage, and
condition of the vehicle. Retail prices are generally determined by factors
including dealership retail sales prices, other retail transactions, and
regional demand.
Used-vehicle
leasing
Leasing of previously owned or driven vehicles.
Walk-away lease
See Closed-end lease.
Warranty
A guarantee that the vehicle will function and perform as specified.
A warranty usually covers specified mechanical problems during a specified
period of time or number of miles.
Wear and
Tear.
It's your responsibility to keep the car in good condition. Return the
car with a dented fender, bald tires, or a ruined engine because of lack of
routine maintenance and you'll be charged for the repairs. Some wear and
tear is allowed, of course. But if you aren't inclined to take reasonable
car of your car, than a leased car may not be for you.
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