Glossary

The term, 1 pay lease or one pay lease, in car leasing, refers to the practice of making a single large payment at the beginning of a lease to avoid having to make individual monthly payments. The one payment can be made in cash or with credit from a trade vehicle, or a combination of both. Essentially, a one pay lease simply combines all the monthly payments into a single payment up front although it’s … Read More

12 month car leases are rare. Car manufacturers have occasionally tried 12-month and 18-month leases, but usually discontinue them when they find that there’s little interest. Some lease finance companies will entertain such short leases if requested by customers. However, most are not interested in the relatively low investment returns of a short lease, or the relatively high administrative costs — when compared to longer leases. Because there are no industry-wide residual value guides for … Read More

The term, 1 year lease, one-year lease or 12 month lease, as it relates to car leasing, refers to the length of the lease contract. Most people searching on this term are interested in a shorter-than-normal new-car lease. Normal car leases begin at 2 years (24 months). A typical lease is 36 or 39 months. Although a 1-year or 12 month lease is not normal, some dealers, through their lease finance company (e.g. Ford Credit, Honda … Read More

The term, acquisition fee, as it relates to car leasing, refers to an administrative fee that is included in all leases. It is sometimes called a “bank fee” or “assignment fee.” The fee is sometimes not disclosed in a lease contract. An acquisition fee is charged by lease companies, not dealers. Dealers typically do not make a profit on this fee, although some lease companies may “kick back” part of the fee to dealers as … Read More

The term, break a lease, generally refers to the concept of ending a car lease before its normal contract end date. Since most leases are designed to be completed according to the schedule specified in the lease agreement, early termination can often be expensive. Many leasing consumers don’t understand that leasing is not renting and can’t be ended at any time simply by returning the vehicle. To break a car lease means breaking a legal … Read More

The term, cap cost reduction, in car leasing refers to money paid in cash at the beginning of a lease that reduces the amount financed in the lease, which reduces monthly payment amount.  It’s short for capitalized cost reduction. Cap cost reduction is sometimes called down payment because it serves that purpose. But there are also other fees required at the beginning of a lease. See Down Payment for more details.

The term, capitalized cost, or “cap cost“, related to car leasing, refers to the amount that is being financed with a lease. The lower the capitalized cost, the lower the monthly lease payment. Price of vehicle Cap cost includes the negotiated price of the vehicle plus any add-on fees or taxes that will be financed (not paid in cash). It might also include the balance of a previous loan on a trade-in vehicle. In a … Read More

Car dealers come in two very different forms: 1) new-car dealers and 2) used car dealers. New-car dealers are franchised and authorized by the car company they represent. For example, Ford dealers are authorized by the Ford Motor Company to sell and lease Ford vehicles. They buy their vehicles from Ford and typically use Ford Motor Credit as their “captive” finance company for loans and leases. All new-car dealers are independent businesses and are not … Read More

The term, car lease buyout, refers to the process of buying a vehicle that is currently being leased, or for which a lease has just ended.  It means that the lessee (person who is leasing) decides to purchase his leased vehicle before the lease ends, or at the end of the lease. The purchase is made from the lease finance company, not the dealer from which the car was first leased. If the buyout is before the normal end … Read More

The term, car lease penalty, can have several meanings as it relates to leasing a car. It might refer to the “penalty” or “fee” for ending a lease early. Actually, there is no such fee, but rather a very precise way in which the remaining lease balance is calculated and charged to the customer who is terminating his/her lease. See Ending a Car Lease Early for more details) The term can also refer to the … Read More

Contrary to popular belief, there is no termination fee or penalty fee, as such, to end a car lease early. However, there are costs, often significant, that are related to paying off the remaining lease balance and returning the car. The way that most lease finance companies calculate an early lease termination “fee” is as follows: Sum the remaining lease payments and subtract the total unpaid finance charges (see How Lease Payments Are Calculated). Then … Read More

Although it seems like a good idea and should be simple to do, changing a car loan to a lease can’t be done. First, only brand new cars are leased. Therefore, if you’re in the middle of a car loan, your car is now a used car, and can’t be leased. Second, no auto finance company or bank would consider such an unusual transaction. There are no procedures in place to switch a loan to … Read More

A cheap car lease is generally one that has low monthly payments, but it can also mean a “subvented” lease that has lower-than-normal payments — a better deal than could be negotiated with a dealer. Cheapest monthly payments on car leases are typically in the $150-$199 range, subsidized by car companies to create good deals for a limited time. Lower payments can be achieved with larger down payments (cap cost reductions). Even subsidized luxury car … Read More

The term, clean title, as it relates to car buying, means that the title for a car (used car) has no “problems” in that it has no outstanding liens (loans) that haven’t been settled and does not have a “salvage,” “rebuilt” or similar type of designation that would indicate that the vehicle has been previously stolen, wrecked, or otherwise declared a total loss by an insurance company. If a vehicle is being sold, a clean title would … Read More

The term, clearance sale, as it applies to car sales and leases, refers to the end-of-model-year sales conducted by car dealers to help sell (or lease) remaining current-year inventory of vehicles. Dealers don’t want to be caught with too many of the old models when new models begin arriving. Car clearance sales are often held as much as three months ahead of new model arrivals. Or, if dealers still have significant old-model inventory after new models are already on his … Read More

A commercial car lease is one in which an individual or company leases a vehicle primarily for commercial or business purposes. Such leases are of the “open-end” type, not “closed-end” as are personal leases. See Types of Leases for more details. Businesses typically lease vehicles for tax and accounting benefits. Generally, all vehicle expenses, including lease costs, can be used as tax deductions, to the extent that the vehicle is used for business or commercial … Read More

The term, cooling off period, as it relates to car buying and leasing, is typically confused with the Federal Trade Commission’s 3-Day Cooling Off Rule that applies only to door-to-door sales, health club memberships, and other types of sales — but never to automobile purchases or leases, unless specifically offered by a dealer at the time of purchase or lease. In California, buyers may be offered a 2-day return policy, for which a fee is charged. … Read More

The term , depreciation, as it relates to car leasing and buying, refers to the loss — depreciation — of value as a car gets older. All vehicles suffer from loss of value from the time they are driven off the dealer’s lot. An average vehicle will lose half of its original MSRP value in 3 years. The highest depreciation is during the first couple of years, then it slows every year after. The reason that … Read More

The term, destination fee or destination charge, as it relates to new-car buying and leasing, refers to a shipping or transportation fee that is added to the MSRP (Manufacturer’s Suggested Retail Prive) or “sticker price” of all new cars. The fee is not a “fake” or dealer “add-on” fee but is charged to dealers by the factory — the car manufacturer — for transporting the car from the factory to the dealer’s store. It’s unique … Read More

The term disposition fee, in a car lease, refers to the fee that is charged at the end of the lease when the car is returned to the lease company. This fee is common and in all car leases and cannot be negotiated away. The fee is paid when the lease finance company sends a bill to the customer, possibly several weeks after the car’s return. The amount of the fee is usually $350. The … Read More

The term, down payment, in a car lease is called “capitalized cost reduction” or simply “cap cost reduction.” A down payment is often optional in car leases. It serves to reduce the amount financed with the lease and, therefore, reduces the monthly payment amount. It is not a deposit that gets returned later. Down payment is often confused with security deposit — two very different things. Down payment reduces the amount you owe on a … Read More

The term, due at signing or cash due at signing, refers to the total amount of cash that is due at the time a car lease contract is signed. The amount due at signing can include first month’s lease payment, various official tax and title fees, a down payment (cap cost reduction), sales tax on the down payment, and possibly a security deposit. A “lease acquisition” fee is also sometimes included. The acquisition fee is always … Read More

The term gap insurance or gap coverage refers to a type of insurance or waiver that applies to car loans and leases that protects consumers from financial trouble if their car is stolen or destroyed before their loan or lease is paid off. The exact meaning of “GAP” is not certain but ranges from “Guaranteed Asset Protection” to “Good Ass Protection.” In most cases, “gap protection” simply refers to the “gap” between the current market … Read More

Car leasing in Georgia has changed and is now a bit different than in most other states. Since March 1, 2013 Georgia has a new Title Ad Valorem Tax (TAVT) that applies to all new car purchases and leases — and used car purchases. The tax is paid up-front (or rolled into financing) at the rate of 7.0% of the fair market value of the vehicle, as determined by the Georgia Department of Revenue — or … Read More

The term, grace period, in car buying and leasing, often (but incorrectly) refers to a period of time in which a customer can change his/her mind and return the car for a full refund. More accurately, it should be called a “cooling off period” or “right-of-return” period. It is commonly thought that there is a 3-day rule or 72 hour law that applies. Unfortunately, there is no grace period or cooling off period for automobile purchases … Read More